Annual Report 2008
Total Deposits
Profit before Provision and Tax
million Yuan
million Yuan
360,514
400,000
Shenzhen Development Bank
201,816
200,000
Annual Report 2008
www.sdb.com.cn
232,206
5,776
6,000
166,897
4,027
4,000
100,000
2,440
2,411
2004
2005
2,000
0
2004
2006
2005
0
2008
2007
2006
2007
2008
Responsive Adaptive Total Loans
Cost Income Ratio
million Yuan
283,741
300,000
46.80
47.64
40
221,036
200,000 150,000
Percentage % 50
41.41
250,000 182,182
38.93
35.99
30
155,848 126,195
20
100,000
10
50,000 0
Shenzhen Development Bank Tower, No. 5047 Shennan Road East, Shenzhen, Guangdong Province, China Postal Code: 518001 Telephone: +86 (755) 8208 8888 Service Line: 95501
8,138
8,000
281,277
300,000
10,000
2004
2006
2005
2008
2007
Capital Adequacy Ratio and Core Capital Adequacy Ratio
0
2004
Percentage %
Percentage % 12
8 5.77 5.77
6 3.70 3.71
4
5.27
3.71 3.68
2007
2008
11.40 9.33
10
7.99
8
5.64
6 4
2.30 2.32 2
2
0
0
2004
2006
NPL Ratio
10
8.58
2005
2005
Capital Adequacy Ratio
2006
2007
2008
Core Capital Adequacy Ratio
0.68 2004
2005
2006
2007
2008
Working Together A strong team culture and spirit is at the heart of SDB’s success. This is a journey in which SDB is committed to overcoming any challenge and achieving even higher rewards. As one team SDB is forging ahead with one unifying service standard, strategy and objective. Our approach to human resources is based on best Chinese and international practices. Staff training, retention and advancement are all important to our business success. SDB endeavours to provide the best working environment for our staff and to foster their personal development so that they are capable of meeting challenges in our constantly-changing world.
SDB took part in the event “Sailing farther, growing together – Voyage along the Coast on the 30th anniversary of the Reform” The sailboat “SDB” sailed along the wind to the China sea frontiers for four months.
Annual Report 2008
Total Deposits
Profit before Provision and Tax
million Yuan
million Yuan
360,514
400,000
Shenzhen Development Bank
201,816
200,000
Annual Report 2008
www.sdb.com.cn
232,206
5,776
6,000
166,897
4,027
4,000
100,000
2,440
2,411
2004
2005
2,000
0
2004
2006
2005
0
2008
2007
2006
2007
2008
Responsive Adaptive Total Loans
Cost Income Ratio
million Yuan
283,741
300,000
46.80
47.64
40
221,036
200,000 150,000
Percentage % 50
41.41
250,000 182,182
38.93
35.99
30
155,848 126,195
20
100,000
10
50,000 0
Shenzhen Development Bank Tower, No. 5047 Shennan Road East, Shenzhen, Guangdong Province, China Postal Code: 518001 Telephone: +86 (755) 8208 8888 Service Line: 95501
8,138
8,000
281,277
300,000
10,000
2004
2006
2005
2008
2007
Capital Adequacy Ratio and Core Capital Adequacy Ratio
0
2004
Percentage %
Percentage % 12
8 5.77 5.77
6 3.70 3.71
4
5.27
3.71 3.68
2007
2008
11.40 9.33
10
7.99
8
5.64
6 4
2.30 2.32 2
2
0
0
2004
2006
NPL Ratio
10
8.58
2005
2005
Capital Adequacy Ratio
2006
2007
2008
Core Capital Adequacy Ratio
0.68 2004
2005
2006
2007
2008
Annual report 2008 Shenzhen Development Bank
Financial highlights
2008
2007
Change in %
12,598
9,606
31%
Net fee & commission income
851
521
63%
Profit before provision and tax
8,138
5,776
41%
Assets impairment provision
7,334
2,054
257%
Net profit
614
2,650
-77%
Earnings per share (Yuan)
0.20
0.97
-79%
For the year ended 31 December RMB million
Net interest income
Note: In line with regulatory requirements for small and medium sized banks in the fourth quarter to deal with current domestic and overseas financial and economic situations, the Bank made a special provision of 5.6 billion Yuan and write-offs of 9.4 billion Yuan at the end of 2008. The total assets impairment provision for 2008 amounts to 7.3 billion Yuan.
At the year end RMB million
16,401
13,006
26%
Total assets
474,440
352,539
35%
Total deposits
360,514
281,277
28%
Total loans
283,741
221,036
28%
5.28
5.67
-7%
Total shareholder equity
Net assets per share (Yuan)
Key ratios Non-performing loan ratio
0.68%
5.64%
-496bps
Core capital adequacy ratio
5.27%
5.77%
-50bps
Capital adequacy ratio
8.58%
5.77%
+281bps
Provision adequacy ratio
364.65%
127.20%
+23,745bps
Provision coverage ratio
105.14%
48.28%
+5,686bps
1
2
Contents
1
Financial Highlights
48
Corporate Governance
4
Message from the Chairman (CEO) and the President
50
Shareholders’ Meetings
51
Report of the Board of Directors
6
Milestones in 2008
70
Report of the Board of Supervisors
8
Review of SDB Business
72
Important Events
77
Financial Results
20
SDB Officers
22
Social Responsibility
23
Basic Facts of the Company
23
Important Notes
24
Key Financial Data Highlights
28
Key Business Data Highlights
37
Changes in Share Capital and Shareholders
42
Information on Directors, Supervisors, Senior Management and Staff
191
Internal Control Self-Appraisal Report
194
Assessment Report on Internal Control
196
Written Confirmation of Directors and Senior Management on Annual Report 2008
196
Reference Documents
Annual report 2008 Shenzhen Development Bank
SDB: National Coverage SDB have branches in 19 cities throughout the country, and in 2008 set up 29 new sub-branches, adding up to 282 outlets.
Beijing Dalian
Tianjin
Qingdao
Jinan Nanjing Chengdu
Shanghai
Hangzhou Yiwu
Chongqing Kunming
Ningbo Wenzhou
Guangzhou Foshan Zhuhai
Shenzhen
Haikou
3
4
Message from the Chairman (CEO) and the President
ways. Operating Profit before Provision and tax rose 41% YOY to 8,138 million Yuan, a result of solid growth in deposits, loans, and fees, balance sheet management, active and profitable inter-bank investment, and conscious management of expenses. Another key event of the year was the relief of large amount of legacy NPLs through the special program of large provision and write-off in the fourth quarter of 2008, under the guidance of the regulatory authorities, in light of global economic conditions. With only 1.9 billion Yuan Non Performing Loan (‘NPL’) amount and NPL ratio at 0.68% at the end of 2008, the Bank attained a very strong starting position for 2009. For years, the Bank has endeavored to resolve its heavy historical NPL portfolio from loans made before 2005. The good collection, strong credit control of new loans, together with this special move at end of 2008, allowed the Bank to finally clear up the old problem loans entirely on its own. The Capital position of the Bank was also fundamentally improved in 2008. The Capital Adequacy Ratio reached the regulatory level, for the first time in many years, enabling the Bank to move ahead in a better position to embrace business opportunities. Commercial, retail, and inter-bank businesses all performed well during 2008. The Bank did not hold any investment in sub prime assets or assets issued by foreign financial institutions that went into problems, thus suffered no direct loss from the global financial crisis.
On behalf of the Board of Directors and the management team, we are delighted to share with you significant achievements Shenzhen Development Bank made in 2008. While financial institutions in the rest of the world have been struggling with financial and economic challenges, we are pleased to announce that the Bank not only continued its success in many ways but also importantly cleared up most of the legacy problem loans, starting the year of 2009 with an extremely clean balance sheet.
Key to overcoming all challenges and achieving progress is effective team work with clear vision. Since 2005, starting from a very low capital and very high NPL, the Bank has been pulling through a series of transformation steps, including cleaning up non performing loans, raising capital, overhauling its IT systems, making investment in selected business areas and people, as well as streamlining key processes. While the Bank has maintained a more solid fundamental and earning capability, in 2008, emphasis was given to further clarifying business objectives, building differentiated strength in key areas of focus, enhancing process efficiency, and speeding up outlet development.
2008 was a very successful and unusual year for the Bank. During the economic uncertainties and rapid policy changes, the whole team of the Bank demonstrated strong adaptability and further promoted the Bank’s growth and strength in many
In the meantime, the Bank maintained key principles of integrity, professionalism, customer service and efficiency, orienting all staff to building a competitive bank that customers can have great faith in.
Frank N. Newman
Annual report 2008 Shenzhen Development Bank
2008 was the first year that the new session of the Board of Directors was in place for the full year, and the Bank benefited a great deal from directors’ very productive and professional guidance. The Board of Supervisors also performed diligent contributions. We believe the high standards set by the Board for the Bank have prompted us all to achieve more. The guidance from regulatory authorities was also essential for the Bank to achieve what it has in 2008, from capital raising, adaptation to economic conditions, to conquering of historical NPLs. As we look ahead in 2009, we are fully aware of new challenges. But starting with the momentum which brought the Bank out of the most challenging periods, we are confident that we can overcome obstacles and usher in an even brighter future. The Bank is addressing the economic uncertainties, the challenges faced by businesses and individuals, and the implications of policy changes as in 2009. The objective is to maintain the Bank in the right position to achieve healthy growth in light of the economic environment. While playing its role to support the economy, the Bank will continue high attention to its credit soundness as it works on building strength in key strategic areas, including developing and remodeling its outlet network, effective investment in IT infrastructure, training, and further streamlining processes in both operations and management. On this occasion of sharing reports of progress, we also extend our sincere thanks to shareholders for your trust and support. We are happy about progress the Bank has made in the past and we will continue strong efforts towards further success.
Frank N. Newman Chairman (CEO)
Xiao Suining Director and President
Xiao Suining
5
6
Milestones in 2008
21 March SDB issued RMB6.5 billion in subordinated debt on the National Interbank Bond Market. As at 31 March 2008, the Bank’s capital adequacy ratio was 8.41%, meeting the 8% minimum regulatory requirement for the first time during the past 5 years, and the core capital adequacy ratio was 5.71%.
March
12 May After the disaster of Sichuan earthquakes in Wenchuan , the Bank provided great supports on rescue and revitalization. The Bank, the employees, the Boards of directors and supervisors and the major shareholder donated in total more than RMB 15 million and sponsored the construction project of Yutang Primary School at Dujiangyan.
July Project Excellence, part of an internal restructuring exercise, commenced. This project was jointly conducted by the management consulting firm McKinsey & Company and the SDB project team. As at the end of November, the framework of each item in the project has been completed. The management office for Project Excellence” was opened in early December.
May
July
April
June
April SDB launched The Provision of Civilised and Standardised Services to Welcome the Beijing Olympic Games campaign. The campaign promoted quality financial services for the Games and tested the Bank’s customer service capabilities, which led to an improvement in the service provided to customers.
June SDB started the restructuring of its business flow at the branch level. This programme was conducted in cooperation with the consulting firm Bain & Company and the Bank’s project team. Eleven businesses, including discounted bills, completed the restructuring process during the year. In August, the organisation adopted a vertical structure that helps the Bank support its across-the-board business continuity and development.
April The Woodpecker Risk Control Suggestion and Reward Fund was launched, encouraging all employees to develop ideas to guard against risk.
27 June The Bank’s SFC2 warrants expired with an exercising ratio of 91.42% for a total of approximately RMB1.8 billion. All proceeds after relevant charges were credited to the core capital.
Annual report 2008 Shenzhen Development Bank
24 October The bank issued 1.5 billion of subordinated debt in the national interbank bond market. August SDB was granted licenses to run a securities investment fund custody business by the China Securities Regulatory Commission and China Banking Regulatory Commission.
October The Bank implemented its 2008 interim dividend plan by issuing 3 bonus shares for every 10 shares held and a cash dividend of RMB0.335 (with tax). As a result, the aggregate issued share capital was 3,105,433,762 shares.
19 November SDB’s Peking University Scholarship and 2009 Campus Recruitment Kickoff Ceremony was held at Peking University. 21-22 November The 7th SDB Technical Skill Competition was held in Shenzhen, with nearly 300 employees from 19 branches participating in 7 competitive events.
August October November September
December
19 September The Board of Directors announced that SDB did not have any investment in subprime debts in the United States nor did it have any investment in any bonds issued by Lehman Brothers or any other American financial institution. The subprime crisis and the recent problems of the financial institutions in the US did not have any direct impact on the operations of SDB.
28 December SDB celebrated its 21st anniversary with the Tian Ji Wealth Management New Year Concert. The Bank also organised a walkathon in celebration of the 30th anniversary of China’s reform and opening-up, which was held in cooperation with Shenzhen Satellite TV Station. December During the fourth quarter of 2008, following the macro-economic measures to protect the economy, stimulate the growth and expand the expenditure, the Bank realigned the credit policy to lend out quality loans and ensure the business grow steadily. December SDB had made special large provisions and write-off in response to the request by China’s regulatory authority in the fourth quarter of 2008 on dealing with the economic and financial situation in China and overseas. This enabled the Bank to resolve large amounts of legacy non-performing loans created before 2005.
7
8
Review of SDB Business
Responsive Financial and economic turmoil across world markets made 2008 a challenging year for all banks. Yet, despite the current environment, we at SDB were able to respond quickly and actively. The Bank’s solution to the challenges we faced was to solidify our market positions, seize market opportunities, and execute innovative business strategies in a prompt and decisive manner. This approach made it possible for SDB to provide the right kind of financial support for our customers yet maintain quality loans. With a clear vision and a firm foundation, the Bank proceeded step-bystep to strengthen our industry position and capture market share.
Annual report 2008 Shenzhen Development Bank
Rhythm to Change, System to Echo
9
10
Review of SDB Business
Creative In 2008 our passion for innovation led SDB to winning the “Most Innovative China Brand Award of the Last 30 Years”. Although we at SDB have established a strong reputation for creativity, SDB also recognize the need to continuously learn from our experience, observe the successes of others and put the knowledge SDB have gained into action. Building up the information technologies provides a new innovative platform for further development of our business. The SDB website won the awards of the “China Excellent Financial, Economic and Securities Website” and the “Most Innovative Bank Website”. Having good ideas is not enough to achieve our business goals. Understanding our clients, the markets and the financial figures are also essential, together with the drive for profitability. Emphasis is also placed on efficient marketing channels, effective risk management, adequate execution by trained professionals, with timely monitoring during the process.
Annual report 2008 Shenzhen Development Bank
Master Skills, Crafted Products
11
12
Review of SDB Business
Service SDB is focused on meeting the needs of customers by constantly improving its range of products and services, thereby creating a competitive edge for the Bank. SDB is proud of the comfortable banking environments and services SDB offer to provide a better customer experience. During the year, 12 of SDB outlets won the “2008 Model Bank for best services” award in China. Through the implementation of “Project Excellence”, SDB have dramatically improved the internal structure and management processes. We upgraded and unified our business operations, from the headquarters to the branch level, in an effort to strengthen customer service and internal control. Over the years, SDB has responded well to changing market conditions by introducing innovative products and services. SDB today is a respected and trusted brand in China. SDB have also established a high standard of risk management and through best market practices SDB have come far towards realizing our goal of becoming a financial industry leader.
Annual report 2008 Shenzhen Development Bank
Excellence through Teamwork
13
14
Review of SDB Business
Stable The Bank’s Capital Adequacy Ratio ("CAR") and Core CAR reached 8.58% and 5.27% respectively at the end of 2008, meeting the regulatory requirement. Through the Bank’s own earning capability, our net profits contributed RMB0.614 billion to the Bank’s core capital. After the exercising of SFC2 warrants, the core capital increased by RMB1.8 billion. SDB successfully issued two tranches of subordinated debt totalling RMB8 billion in the interbank bond market, and our supplementary capital increased by RMB7.35 billion. A resolution was approved at the first EGM in 2008, stating that in the next three years the Bank plans to issue up to RMB10 billion in subordinated debt and RMB8 billion in hybrid debt instruments. As a result of the capital plan, the Bank's capital has been improving to support our business development, and the Bank is now better positioned to capture future growth opportunities.
Annual report 2008 Shenzhen Development Bank
On Target, On Track
15
16
Corporate Banking
Supply Chain Finance business continued to extend greater influence in the market Corporate deposit balances rose by 26% and general loan balances 20%, making SDB one of China’s top commercial banks in terms of growth. Net income from the intermediary business increased 55% from last year’s figure, which improved our income mixture. The number of trade finance clients grew by 30% from the end of 2007. Credit facilities granted by local and overseas institutions increased by 10%, striking a good balance between business growth and asset quality. The success of the trade finance business was a key factor in the growth of other SDB businesses. The Bank registered significant progress in its electronic Supply Chain Finance products, the professionalization of its factoring operations, and the growth in scale and revenue of its offshore divisions.
In 2008, the trade finance business achieved greater brand recognition with the publication of Supply Chain Finance – the New Finance in the New Economy, produced in cooperation with the China Europe International Business School. This book is a systematic compilation of both practical experiences in the profession and theory. The year was also highlighted by a number of awards. For example, the Bank’s Supply Chain Finance product won the Gold Award and the Best Supply Chain Finance Service Provider award at the 2nd Annual Conference on Management Action, organised by the Harvard Business Review, and the Best Technical Innovation Award at the Annual Conference on China’s Corporate Competitiveness. The Account Receivables Pool financing solutions of SDB’s Supply Chain Finance business received the Shenzhen Excellent Innovation Award (Grade 2). Finally, SDB was selected for another year on the 10 Best Country-wide SME Supporting Commercial Bank list.
Annual report 2008 Shenzhen Development Bank
Retail Banking
Retail Banking experienced another year of fast growth, with savings deposit balances reaching a historic high as one of many bright spots SDB’s retail banking arm is renowned for its continuously dynamic performance and expansion in the following areas: growth in the loan business; research and development of innovative products; emphasis on customer service; the strengthening of its internal corporate structure; and successful brand management. Retail deposit balances reached a historic high with an increase of 42% from last year. Net fee income jumped 35%. Retail loan balances grew by 16% as a result of market-oriented credit policies adopted for different real estate that contributed to asset quality.
SDB’s credit card business underwent rapid expansion. The Bank now has over three million credit cards in force, an increase of 60%. Credit card loan instalments were up by 85%. The retail customer relationships (RCM) system was strengthened during the year, new licenses for the asset custody business granted, and the sales force improved. The number of VIP customers grew by 56%. Brand management strategies in 2008 proved successful for SDB’s retail business. The retail loan, wealth management, sales and customer services divisions won nearly 20 awards, including China’s Best Bank in Retail Loans and Best Bank in Retail Business (Wealth Management) awards, as well as many other prizes for individual wealth management products. Two of particular note were the Tian Ji Wealth Management winning the Best Wealth Management Centre award and the mortgage credit card winning the Most Innovative Functional Credit Card award.
17
18
Treasury and Inter-Bank
A careful balance between business scale expansion and quality management was achieved during the year, underpinned by product creativity and innovative new management practices The Treasury and Inter-Bank business went through extensive expansion and reached record highs in terms of scale and revenue during the year. This was achieved by taking advantage of profitable opportunities in the domestic market, exercising tighter internal controls, and carefully developing new products. The Bank also maintained a reasonable level of liquidity, high management efficiency and good sales performance.
SDB saw a significant growth in its asset and liabilities balances, inter-bank transaction income, bond trading volumes and revenue RMB exchange and foreign exchange transaction and gold business volumes. Investments in bonds denominated in foreign currency were reduced. The Bank focused on the domestic RMB bond market, and increased overall bond yields and trading revenue by seeking the bond market’s volatility. The Bank continuously launched new wealth management products, and at the same time obtained a number of new business qualifications. The Bank actively developed the business co-operations with domestic financial institutions, and deepened the relationships with non-bank financial institutions, including securities firms, investment funds, trust companies and other finance companies.
Annual report 2008 Shenzhen Development Bank
Risk Management
Effective risk management measures increased the Bank’s valuation Despite the uncertainties of the current economic environment, SDB achieved excellent results through the implementation of a wide range of measures for managing asset quality. These measures were successful at keeping credit, market, interest rate, operational and liquidity risk well under control. Significant improvements were also made in the identification and management of risk, as well as the reversal of non-performing assets. The Bank had no investments related to subprime mortgages or similar assets in overseas financial institutions. This ensured that SDB was not directly affected by the global crisis in subprime mortgages or the under-performance of institutions carrying them. SDB responded rapidly to China’s regulatory authority, which requested that the country’s banking sector meet local and international financial challenges. In the fourth quarter of 2008, SDB set aside large loan loss provisions and made large write-offs. The results were encouraging, and the Bank was relieved from legacy non-performing assets created before 2005. The NPL and the NPL ratio have dropped to RMB 1.9 billion and 0.68% respectively. As at the date of this report, the Bank’s provision coverage ratio and provision adequacy ratio reached 105% and 365% respectively.
SDB’s various measures went well beyond the basic regulatory requirements and increased the Bank’s core capital. They also led to the Bank winning the Best Bank in Risk Management award at the 2nd Annual Conference for Institutional Investors and China Times Selection Awards.
19
20
SDB officers
Frank N. Newman Chairman (CEO)
Xiao Suining
Director and President
Wang Ji
Liu Baorui
Director and Vice President, Head of Retail Banking
Wang Bomin
Chief Financial Officer
Party Secretary, Special Advisor
Simon Lee
Hu Yuefei
Zhao Na
Director and Vice President, Head of Corporate Banking
Chief Credit Officer
Chief Human Resources Officer
He Zhijiang
Chief Treasury Officer
Chen Rong
Chief Operation Officer
Zhang Yuanliang
Chief Information Officer
Xu Jin
Board secretary, GM of Legal Affairs Department
Annual report 2008 Shenzhen Development Bank
Assistant President, Shenzhen Branch Manager
Huang Shouyan Assistant President
Zhao Wenjie
Chief Internal Control Officer
Qiu Weiping
Assistant President, Shanghai Branch Manager
QW
SL
CR
ZW
WB
Zhou Li
HS
ZY HY
WJ XJ
LB
FNN
HZ ZN
XS
ZL
21
22
Social Responsibility
Joint Development, Shared Future SDB is a strong advocate of the Joint Development, Shared Future concept. We consider it the Bank’s responsibility to contribute to the full development of the country and society and to take care of China’s natural environment and resources as well as the interests of all related parties. The Bank also protects the interests of all stakeholders, including shareholders, customers and employees. The Bank’s duties extend to providing financial support of China’s economic development and civil improvement. In doing so, SDB closely follows the pace of the nation’s economic development. In addition to conducting risk control, the Bank supports the development of the economy and the real estate market through community construction projects. A priority of the Bank is to support civil projects, creative enterprises and SMEs, the agricultural industry and the rural areas (the “Three Rural Issues”) and underdeveloped communities. SDB has built a “risk-based” framework for the Bank’s anti-moneylaundering system and fulfils its obligations in this area. SDB contributes to a green environment at all levels of the Bank’s operations for the benefit of the economy and society.
SDB gives back to those who have helped make the Bank successful. Its contributions include ongoing support for the less privileged, for education, and other charitable causes. The Bank made a donation of over RMB15 million to the earthquake-stricken areas of Sichuan and helped rebuild Yutang Primary School in Dujiangyan City. The Bank received China’s Corporate Social Responsibility Outstanding Contributing Firm award for two consecutive years, in 2007 and 2008. The Bank also won the first Shenzhen Charity Award – The Philanthropic Corporate award in 2008.
Annual report 2008 Shenzhen Development Bank
Basic Facts of the Company Legal Name 深圳发展银行股份有限公司 (SDB or the Bank) Shenzhen Development Bank Co., Ltd.
Legal Representative Mr Frank N. Newman
Secretary of the Board of Directors Mr Xu Jin
Representative of Securities Affairs Mr Lv Xuguang Address: SDB Tower, 5047 Shennan Road East, Shenzhen City, Guangdong Province, China Board Office, Shenzhen Development Bank Tel.: +86 (755) 8208 0387 Fax: +86 (755) 8208 0386 Email address:
[email protected]
Registered Address
Stock Exchange with which the Shares of the Bank are Listed Shenzhen Stock Exchange Abbreviated name of share: SDB A Stock code: 000001
Additional Related Information of the Bank Date of initial registration: 22 December 1987 The latest date of change of registration: 29 December 2007 Registered address: 5047 Shennan Road East, Luohu District, Shenzhen City Business Registration No: 440301103098545 Tax registration Numbers: National tax: 440300192185379; local tax: 440300192185379 Domestic accounting firm appointed by the Bank: Ernst & Young Hua Ming Accounting Firm 16/F, E&Y Tower, 1 Chang’an Street, Dongcheng District, Beijing Overseas accounting firm appointed by the Bank: Ernst & Young Accounting Firm 18/F, Two IFC, 8 Finance St., Central, Hong Kong
Shenzhen Development Bank Tower, No. 5047 Shennan Road East, Shenzhen, Guangdong Province, China Post code: 518001 Website: www.sdb.com.cn Email address:
[email protected]
Periodicals Selected by the Bank for Information Disclosure China Securities Journal, Securities Times and Shanghai Securities Annual Report Posting Website designated by China Securities Regulatory Commission: www.cninfo.com.cn Place for keeping annual reports of the Bank: Secretariat of the Board of Directors of the Bank
This Report is prepared both in Chinese and English. In the event of any dispute over the two versions, the Chinese version shall prevail.
Important Notes The Bank’s board of directors along with its directors, the board of supervisors along with its supervisors, and senior management team guarantee that this Report does not have any false documentation, misleading statements or material omission. They are fully responsible for the authenticity, accuracy and completeness of the Report both on a collective and individual basis. The 13th meeting of the seventh board of directors of the Bank discussed the full text and abstract of the 2008 Annual Report. There were 14 directors present at the meeting. The board of the Bank approved the Report unanimously at the meeting. The Ernst & Young Hua Ming Accounting Firm has audited the 2008 annual financial statements of the Bank, and has produced standard unqualified auditing report. Mr Frank N. Newman, the Bank’s Chairman of Directors, Mr Xiao Suining, President, Mr Wang Bomin, Chief Financial Officer, and Mr Li Weiquan, head of the Accounting Department, guarantee the authenticity and completeness of the financial report in the 2008 Annual Report.
23
24
Key Financial Data Highlights A Key Financial Statistics 1 Operating performance In RMB’000 Jan–Dec 2008 Jan–Dec 2007 Jan–Dec 2006 Operating income Pre-provision operating profit Assets impairment provision Operating profit Total profit Net profit attributed to shareholders of listed company Net profit less non-recurring gains/losses attributed to shareholders of listed company Per share: Basic EPS (Yuan) Diluted EPS (Yuan) Basic EPS less non-recurring gains/losses (Yuan) Cash flow Net cash flows from operating activities Net cash flows from operating activities per share (Yuan)
Changes of the reported year compared with last year (%)
14,513,119 8,137,588 7,334,162 803,426 792,609
10,807,502 5,775,701 2,053,759 3,721,942 3,771,775
7,817,873 4,027,256 1,986,217 2,041,039 2,121,884
34.29 40.89 257.11 -78.41 -78.99
614,035
2,649,903
1,411,947
-76.83
623,941
2,576,586
1,192,743
-75.78
0.20 0.20
0.97 0.95
0.56 0.56
-79.38 -78.95
0.20
0.95
0.47
-78.95
24,342,611
17,051,576
11,505,541
42.76
7.84
7.44
5.91
5.38
Note: As of 31 December 2008, the total shares of the Bank were 3,105.43 million shares; As of 31 December 2007, the total shares were 2,293.41 million shares. According to the requirements of 2006 Corporate Accounting Standard, for shares increased from stock dividend, EPS during the reported period shall be calculated based on shares number after adjustment. The above basic EPS and diluted EPS of 2007 are numbers after adjustment, and the basic EPS and diluted EPS during the reported period before adjustment are 1.27 Yuan and 1.22 Yuan respectively.
Non-recurring gains/losses of the Bank in 2008 are calculated based on the definition of CSRC Announcement 2008 No. 43 – Explanatory Announcement of Information Disclosure by Companies Publicly Offering Securities No. 1 – Non-recurring Gains/Losses, and statistics of 2007 and 2006 are adjusted correspondingly. All related items in this report are adjusted.
Items and amount of non-recurring gains/losses In RMB’000
Gains/Losses on disposal of non-liquidity assets Gains/Losses from contingency Transfer of receivables impairment provision for independent impairment test Changes on fair value of investment properties Other non-operating income and expenses except the above items Impact of income tax Total
Amount 24,551 (29,712 ) 1,800 (15,087 ) 6,368 2,174 (9,906 )
Annual report 2008 Shenzhen Development Bank
2 Profitability items in % Jan–Dec 2008 Jan–Dec 2007 Jan–Dec 2006 Return on total assets Return on equity (fully diluted) Return on equity (fully diluted, less non-recurring gains/losses) Weighted return on average equity Weighted return on average equity (less non-recurring gains/losses) Cost to income ratio Credit cost Net interest spread Net interest margin Weighted return of pre-provision operating profit on average equity
Changes of the reported year compared with last year (Percentage point)
0.13 3.74
0.75 20.37
0.54 21.40
-0.62 -16.63
3.80 4.32
19.81 33.41
18.08 24.45
-16.01 -29.09
4.39 35.99 2.84 2.86 3.02
32.49 38.93 0.95 2.99 3.10
20.66 41.41 1.16 2.85 2.94
-28.10 -2.94 +1.89 -0.13 -0.08
57.29
72.83
69.75
-15.54
Notes: Credit cost = credit provision / average loan balance (including discount) of the period
Net interest spread = interest-earning asset yield – interest-bearing liability cost
Net interest margin = net interest income / average interest-earning asset balance
Weighted return of pre-provision operating profit on average equity = pre-provision operating profit / weighted average equity of the period
3 Scale items Changes of the end of the reported 31 December 31 December 31 December year compared In RMB’000 2008 2007 2006 with last year (%) Total assets Including: financial assets designated at fair value and changes of which are booked as gains/losses in the period Held-to-Maturity investment Loans and receivables Available-for-sale financial assets investments Others Total liabilities Including: financial liabilities designated at fair value and changes of which are booked as gains/losses in the period Inter-bank lending Deposits Others Shareholders’ total equity Net equity per share attributed to shareholders of listed company (Yuan) Total deposits Including: Corporate deposits Retail deposits Total loans Including: Corporate loans General loans Discount Retail loans Loan impairment provision Net loans and advances
474,440,173
352,539,361
260,760,692
34.58
332,192 15,584,755 363,900,753 48,799,716 45,822,757 458,039,383
1,769,441 15,911,486 270,791,277 17,850,892 46,216,265 339,533,298
450,121 17,548,193 193,642,453 18,052,342 31,067,583 254,163,652
-81.23 -2.05 34.38 173.37 -0.85 34.90
98,018 7,380,000 360,514,036 90,047,329 16,400,790
1,501,830 2,300,000 281,276,981 54,454,487 13,006,063
511,866 – 232,206,328 21,445,458 6,597,040
-93.47 220.87 28.17 65.36 26.10
5.28 360,514,036 302,309,165 58,204,871 283,741,366 209,835,181 167,617,360 42,217,821 73,906,185 (2,026,679 ) 281,714,687
5.67 281,276,981 240,370,951 40,906,030 221,035,529 157,492,816 149,712,815 7,780,001 63,542,713 (6,023,964 ) 215,011,565
3.39 232,206,328 197,387,598 34,818,730 182,181,947 143,271,049 126,797,390 16,473,659 38,910,898 (6,937,141 ) 175,244,806
-6.88 28.17 25.77 42.29 28.37 33.23 11.96 442.65 16.31 -66.36 31.02
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Key Business Data Highlights
4 Assets quality items 31 December 31 December 31 December In RMB’000 2008 2007 2006 Normal Special Mention NPL Including: Substandard Doubtful Loss Loans loss provision NPL ratio Provision coverage ratio Provision adequacy ratio
278,119,642 3,694,118 1,927,606 1,927,606 – – 2,026,679 0.68% 105.14% 364.65%
206,550,728 2,009,464 12,475,337 7,369,919 4,505,610 599,808 6,023,964 5.64% 48.28% 127.20%
Changes of the end of the reported year compared with the
end of last year (%)
161,850,678 34.65 5,766,296 83.84 14,564,973 -84.55 6,896,367 -73.84 6,037,257 -100.00 1,631,349 -100.00 6,937,141 -66.36 7.99% -4.96 percentage point 47.63% +56.86 percentage point 106.90% +237.45 percentage point
Note: Provision adequacy ratio = actual provision / accruing provision Including: accruing provision = Special mention*2%+substandard*25%+doubtful*50%+loss*100% (in line with Banking Loan Loss Provisioning Guidelines)
5 Capital adequacy items 31 December 31 December 31 December In RMB’000 2008 2007 2006 Net capital Including: net core capital supplementary capital Net risk-weighted assets Capital adequacy ratio Core capital adequacy ratio
23,959,430 14,710,153 9,577,523 279,112,744 8.58% 5.27%
12,691,876 12,692,620 112,317 220,056,277 5.77% 5.77%
6,419,812 6,379,384 45,169 173,222,058 3.71% 3.68%
Changes of the end of the reported year compared with the
end of last year (%)
88.78 15.90 8,427.22 26.84 +2.81 percentage point -0.50 percentage point
According to CBRC’s CAR computation formula, computable value of long-term sub debts is limited within 50% of net core capital. Up to 31 December 2008, the Bank’s net core capital was 14.7 billion Yuan, and issuance amount of long-term sub debts was 8 billion Yuan, thus 0.65 billion Yuan sub debts were not counted into supplementary capital, which can work as supplementary capital after net core capital is further improved.
Annual report 2008 Shenzhen Development Bank
6 Items designated at fair value Gains/losses on fair value variation during the period
Fair value changes counted as equity
Impairment provision during the period
Ending balance
19,620,333
-75
1,276,798
-38,210
49,131,908
1,769,441 291,816 17,850,892 1,501,830
-75 -6,045 – 209,771
– – 1,276,798 –
– – -38,210 –
332,192 290,751 48,799,716 98,018
1,501,830 255,173 441,098 21,563,261
209,771 207,031 -15,087 194,609
– – 3,816 1,280,614
– – – -38,210
98,018 58,598 411,690 49,641,616
Opening balance
Increase
Decrease
Ending balance
2,293,407 5,213,654 719,481 2,715,704 2,063,817 – 13,006,063
812,027 2,765,328 61,404 867,592 614,035 – 5,120,386
– – – – 1,725,659 – 1,725,659
3,105,434 7,978,982 780,885 3,583,296 952,193 – 16,400,790
Opening In RMB’000 balance Financial assets Financial assets designated at fair value and changes of which are booked as gains/losses in the period Including: derivative financial assets Available-for-sale financial assets Financial liabilities Financial liabilities designated at fair value and changes of which are booked as gains/losses in the period Including: derivative financial liabilities Investment properties Total
7 Changes in shareholders’ equity in the reported period In RMB’000
Share capital Capital reserve Surplus reserve General provision Undistributed profits Including: dividend recommended for distribution Total shareholders’ equity
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Key Business Data Highlights A Added Financial Indices for Three Years up to the End of Reported Period INDEX TYPE
Statistics of the bank 31 December 2007
31 December 2008
Index standard
Year-end
Liquidity ratio RMB ≥25 Foreign Currency ≥25 Loan to deposit ratio (including discount) RMB Loan to deposit ratio (excluding discount) RMB NPL ratio ≤8 Ratio of loans to top 1 single client ≤10 Ratio of loans to top 10 clients Accumulated foreign exchange risk position ratio ≤20 Migration ratio of normal loans Migration ratio of special mention loans Migration ratio of substandard loans Migration ratio of doubtful loans Inter-bank borrowing to deposit ratio Inter-bank lending to deposit ratio Cost to income ratio (excluding business tax) N/A
41.50
41.90
39.33
41.85
45.99
34.18
49.68
60.75
42.21
57.24
305.70
139.03
78.85
67.01 0.68 4.22 26.90
70.20 3.70 3.49 26.58
0.45 2.78 1.90 – – 2.13 1.13 35.99
1.16 1.30
in %
Monthly average Year-end
31 December 2006
Monthly average Year-end
78.60
78.68
75.78 5.64 5.41 42.74
73.26 6.68 7.84 63.35
71.36 7.98 9.17 71.38
1.67 1.46 62.22 13.28 10.59 0.85 0.50 0.33 0.69 38.93
0.77 3.15 29.29 17.50 9.36 – 0.34 41.41
Monthly average
67.78 8.63 11.48 –
– 1.07
Annual report 2008 Shenzhen Development Bank
B Branches of the Bank Information about the branches of the Bank (excluding the head office) was as follows at the end of reported period: NAME OF BRANCH
Address
Outlets number
Asset size (RMB million)
Staff number
1 87 20 5 7 10 27 17 7 5 23 9 10 12 12 7 7 8 7
10,731 60,922 48,819 7,198 4,855 11,215 70,170 32,190 15,604 10,469 59,544 10,026 6,652 24,997 16,581 14,875 13,362 10,183 5,739
116 1,882 800 197 188 386 981 611 392 269 792 303 285 456 399 251 274 281 173
1 282
3,541 437,673
60 9,096
Head office branch 1/F, SDB Tower, 5047 Shennan Road E., Luohu District, Shenzhen Shenzhen Branch No. 7008, Shennan Road, Futian District, Shenzhen Guangzhou Branch 66 Huacheng Avenue, New Pearl River City, Tianhe District, Guangzhou Haikou Branch 22 Jinlong Road, Haikou Zhuhai Branch 8 Yinhua Road, Xiangzhou District, Zhuhai Foshan Branch 148 Lianhua Road, Chancheng District, Foshan Shanghai Branch 1351 Pudong Road S., Pudong, Shanghai Hangzhou Branch 36 Qingchun Road, Hangzhou Ningbo Branch 138 Jiangdong Road N., Ningbo Wenzhou Branch Guoxin Building, Renmin Road E., Wenzhou Beijing Branch 158 Fuxingmen Nei Dajie, Beijing Dalian Branch 130 Youhao Road, Zhongshan District, Dalian Chongqing Branch 1 Xuetianwan Main Street, Yuzhong District, Chongqing Nanjing Branch 28 Zhongshan Road N., Nanjing Tianjin Branch 10 Youyi Road, Hexi District, Tianjin Jinan Branch 138 Lishan Road, Jinan Qingdao Branch 6 Hong Kong Road C., Qingdao Chengdu Branch 206 Shuncheng Street, Chengdu Kunming Branch 450 Qingnian Road, Kunming City Special Assets Management Center No. 1054, BaoAn South Road Total
C Loan Quality during the Reported Period 1 5-tier loan classification at the end of reported period 5-TIER GRADING In RMB’000
Normal Special mention Substandard Doubtful Loss Total
31 December 2008
31 December 2007
Loan balance
%
Loan balance
%
±%
278,119,642 3,694,118 1,927,606 – – 283,741,366
98.02 1.30 0.68 – – 100.00
206,550,728 2,009,464 7,369,919 4,505,610 599,808 221,035,529
93.45 0.91 3.33 2.04 0.27 100.00
34.65 83.84 -73.84 -100.00 -100.00 28.37
As of 31 December 2008, NPL balance of the Bank was 1.9 billion Yuan, a decline of 10.5 billion Yuan or 85% compared with the beginning of the year. NPL ratio, dropped by 4.96 percentage points from the beginning of the year to 0.68%. 87% of the NPLs were initially made before 2005. NPLs initially issued after (including) 1 January 2005 were 0.25 billion Yuan, as 13 % of the total NPLs. In 2008, the bank recovered 1.66 billion Yuan non-performing assets in total, including 71% collected in cash, 27% from repossessed assets, and 2% from restructured loans. In line with regulatory requirements for small and medium sized banks in the 4th quarter to deal with current domestic and overseas financial and economic situations, the Bank made a special massive provision and write-offs at the end of 2008, and wrote off 9.4 billion Yuan NPLs, including all loss and doubtful NPLs up to 31 December 2008 and big portion of subordinated loans. Most of the written-off loans were historic legacy NPLs made before 2005.
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Key Business Data Highlights
2 Restructured and overdue loans in the reported period In RMB’000
Opening balance
Ending balance
Ending percentage (%)
2,944,229 277,081 12,033,454
1,805,816 789,145 1,873,462
0.64 0.28 0.66
Restructured loans Overdue loans Non-accruing loans
Note: Overdue loans refer to uncollected loans with principal overdue no more than 90 days; Non-accruing loans refer to uncollected loans with principal or interest overdue more than 90 days.
As of the end of the reported period, restructured loan balance was 1.8 billion Yuan, decreased by 39%, or 1.1 billion Yuan compared with the beginning of the year. Main reasons are: a) in line with regulatory requirements for small and medium sized banks in the 4th quarter to deal with current domestic and overseas financial and economic situations, the Bank made a special massive provision and write-offs at the end of the reported period, and wrote off some of the NPL restructured loans; b) the Bank reinforced management of restructured loans and strengthened collection and disposal of NPL restructured loans. As of the end of the reported period, over due loan balance increased by 500 million Yuan from the beginning of the year to 790 million Yuan. It is primarily caused by the impact of domestic and overseas economic situations and business difficulties of some private SMEs. As of the end of the reported period, non-accruing loan balance was 1,870 million Yuan, decreased by 10,200 million Yuan from the beginning of the year. The primary reasons are: a) the Bank made a special massive provision and write-offs at the end of the reported period; b) the Bank strengthened management of lending term, tracked repayment of matured loans and monitored assets quality, and took measures to urge clients and guarantee timely repayments.
3 Loan impairment charges and write-offs in the reported period On the basis of a number of factors including borrower’s capacity, principal and interest repayment status, values of collaterals and pledges, guarantor’s capacity, and loan management status, the Bank makes appropriate loan impairment provision from the income statement individually or collectively according to the risk level and recoverability and the estimated present value of future cash flow. In RMB’000
Amount
Opening balance Add: Reserves in the current year Less: Reduced interest from impaired loan Net provisions in the current year Add: Recoveries in the current year Add: Exchange difference Less: Write-off in the current year Ending balance
6,023,964 6,972,839 (384,238 ) 6,588,601 29,944 (9,118 ) (10,606,712 ) 2,026,679
The Bank report the fully provisioned NPLs satisfying write-off conditions to board of directors for approval and then write off the NPLs from account. The write-off loans are off balance sheet, which are left for the Assets Collection Department for follow-up collection and disposal. For collected write-off loans, principal is subtracted prior to unpaid interests and expenses. The collected principal part will increase the loans impairment charges of the Bank, and the recovered interest and expenses will add interest income and offset expenses of the period.
D Composition of and Changes in Operating Income in the Reported Period In RMB’000
Net interest income Including: Net interest income on credit business Net interest income on amounts due from banks and placements Net interest income on bond business Net income on service fee and commission Net other operating income Total operating income
2008
2007
Amount
%
Amount
%
±%
12,597,888
86.80
9,605,849
88.88
31.15
10,842,175
74.71
9,174,519
84.89
18.18
-307,001 2,062,714 851,388 1,063,843 14,513,119
-2.12 14.21 5.87 7.33 100.00
-869,775 1,301,105 520,713 680,940 10,807,502
-8.05 12.04 4.82 6.30 100.00
64.70 58.54 63.50 56.23 34.29
Note: The net income on amounts due from banks and placements includes the interest paid for inter-bank discount, which is counted as cost on basic bank but not inter bank business, in spite of the fact it is interest paid for inter-bank market. Income on amounts due from banks and placements after deducting the cost on inter-bank discount was 1,681 million Yuan in 2008, a positive increase of 80.44% compared with the 932 million Yuan in 2007.
Annual report 2008 Shenzhen Development Bank
Total operating income in 2008 increased by 34% compared with last year, among which net interest income increased by 31%, attributable to volume growth and interest spread management. Net fee income continued to maintain high growth rate of 64%, proportion of net fee income to operating income also increased by 1.05 percentage point over 2007, which is the result of customer base expansion and fee business exploration. Net other operating income grew by 56% over last year, on the back of substantial increase of bond investment income and foreign exchange gain compared with last year.
E Top 10 Industrial and Geographical Segments of Lendings 1 By industry INDUSTRY In RMB’000
Agriculture and fish culture Excavation (Heavy industry) Manufacturing (Light industry) Energy Transportation, storage and communication Commerce Real estate Social service, technology, culture and sanitation Construction Others (mainly personal loans) Total loans and advances
31 December 2008 Balance
31 December 2007
% NPL Ratio (%)
Balance
% NPL Ratio (%)
598,700 2,990,127 69,633,354 12,437,428
0.21 1.05 24.54 4.38
– – 1.10 –
506,927 2,812,800 55,249,167 7,832,400
0.23 1.27 25.00 3.54
8.90 1.05 5.56 0.50
13,138,335 44,889,464 15,882,930
4.63 15.82 5.60
0.47 0.29 5.41
12,497,393 26,281,499 14,411,307
5.65 11.89 6.52
7.81 13.45 12.23
38,325,644 10,770,355 75,075,029 283,741,366
13.51 3.80 26.46 100.00
0.07 – 0.11 0.68
29,969,369 7,340,077 64,134,590 221,035,529
13.56 3.32 29.02 100.00
7.61 1.04 1.04 5.64
In light of loans quality by industry, as of 31 December 2008, NPLs of the bank were mainly concentrated on real estate and manufacturing industries, and NPL ratios of other industries were lower than 1%. Real estate loans were mainly concentrated on Southern and Northern regions. NPLs were mainly concentrated on Southern region, real estate NPLs of this region were primarily legacy development NPLs made before 2005.
2 By geographical region In RMB’000
Southern China Eastern China Northern China Southwest Total
Balance
%
87,983,053 100,457,432 75,600,230 19,700,651 283,741,366
31.01 35.40 26.65 6.94 100.00
Balance
%
47,041,232 59,769,814 111,667,469 23,045,030 42,217,821 283,741,366
16.58 21.06 39.36 8.12 14.88 100.00
3 By guarantee type In RMB’000
Unsecured loans Guaranteed loans Collateralized loans Pledged loans Discount Total
4 Loan balance and percentage in total loans of top 10 loan borrowers As of the end of the reported period, the balance of the Bank’s top 10 loans was 6.45 billion Yuan, accounting for 2.3% of the year-end loan balance. The main borrowers are as follows: China Guangdong Nuclear Power Group, China Metallurgical Group Corp., Shenzhen Fuhongjin Precision Industry Co., Ltd, Shenzhen CITIC Plaza Investment Co., Ltd, Nanjing Subway Co., Ltd, Sinohydro Corporation, Jiangsu Expressway Operation & Management Center, CITIC Guoan Group, Chongqing City Construction Investment Corporation, Beijing State-owned Assets Management Co., Ltd.
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Key Business Data Highlights
F Repossessed Assets at the End of the Reported Period In RMB’000
Balance
Land, premises and real estate Others Subtotal Balance of repossessed assets impairment provisions Net value of repossessed assets
915,282 22,021 937,303 319,480 617,823
G Average Annual Loan Balance and Interest Rates Classified on a Monthly Basis In RMB’000
Average balance
Average interest rate (%)
129,344,503 87,625,752 216,970,255
7.20 6.97 7.10
Short-term loans (home & foreign currencies) Medium and long-term loans (home & foreign currencies) Total
Note: The above short-term loans and medium and long-term loans exclude the trust receipt loans, discount, overdue loans and non-accruing loans.
H Information on Holdings of Financial Bonds at the End of Reported Period At the end of the reported period, the face values of holdings of treasury bills and financial bonds (including PBOC bills, policy bank debts, various ordinary financial debts, and financial subordinated debts) of the Bank were 78.2 billion Yuan. The bonds of substantial amount are stated as below: In RMB’000
01 Book-entry treasury bond 06 Book-entry treasury bond 08 Book-entry treasury bond 02 Policy-based financial bond 05 Policy-based financial bond 06 Policy-based financial bond 07 Policy-based financial bond 08 Policy-based financial bond PBOC bills
I
Face value
Nominal annual interest rate (%)
Maturity date
Provision
1,068,210 5,767,000 4,190,000 3,206,000 1,520,000 1,125,000 5,375,500 10,715,720 34,515,000
4.66 – 6.80 2.12 – 2.80 0.00 – 4.94 2.60 – 4.88 2.66 – 4.86 2.60 – 4.85 2.31 – 5.14 0.00 – 5.01 0.00 – 4.56
2011/03 – 2011/08 2009/04 – 2016/03 2009/01 – 2038/05 2009/07 – 2022/05 2010/04 – 2020/06 2009/04 – 2016/02 2009/03 – 2017/10 2009/04 – 2018/12 2009/01 – 2011/06
– – – – – – – – –
Information on Holdings of Financial Derivative Instruments at the End of the Reported Period
In RMB’000
Foreign exchange derivative instruments Interest rate derivative instruments Equity derivative instruments Other derivative instruments
Agreement/Nominal amount
Fair value
Asset
Liability
18,974,579 1,270,000 2,067,156 426,279
182,345 86,632 21,312 462
27,016 6,733 24,387 462
J Changes of Interests Receivable and Bad Debt Reserves in the Reported Period 1 Changes of interests receivable INTERESTS RECEIVABLE In RMB’000
Opening balance Increased amount of the reporting period Collected amount of the reporting period Ending balance
Amount 1,126,372 19,187,716 18,708,452 1,605,636
Annual report 2008 Shenzhen Development Bank
2 Provisions for interests receivable of bad debts In RMB’000
Interests receivable
Amount
Provision
1,605,636
–
3 Analysis of changes for interests receivable and bad debts At the end of the reported period, interest receivable rose by 43%, or 480 million Yuan compared with the end of last year, following interestearning assets growth. Interest receivable arising from interest-earning assets such as loans would offset interest income of the period and be put off balance sheet while interest overdue for 90 days, with no provision set against it.
K Average Annual Balances and Interest Rates of Principal Types of Deposits in the Reported Period In RMB’000
Corporate savings deposits (home & foreign currencies) Corporate fixed deposits (home & foreign currencies) Household savings deposits (home & foreign currencies) Household fixed deposits (home & foreign currencies) Guarantee deposits (home & foreign currencies) Total
Average annual balance
Average annual deposit interest rate (%)
90,864,547 92,775,101 17,278,407 28,486,218 100,902,361 330,306,634
0.90 3.89 0.63 3.43 2.99 2.59
L Year-end Balance for Off-balance Sheet Business that may have Significant Impact on the Bank’s Financial Status and Operating Results In RMB’000
Banker’s acceptance bills Issuance of L/C Issuance of letters of guarantee Unused credit line Leasehold promise Loans guarantee contract Capital expenditure commitment
Amount 164,888,094 1,826,290 1,884,883 15,343,716 1,935,956 177,698 144,000
M The Implementation and Gains/Loss of Entrusted Wealth Management, Assets Securitization, and Various Brokerage and, Custody Business in the Reported Period 1 Development of wealth management business In 2008, the Bank seized market trend and developed a series of wealth management products such as “Golden Bills”, “VIP Series”, “Excellence Plan”, and “IPO Subscription” to meet market requirements. Overall sales volume of retail RMB structural and trust products reached 13,300 million Yuan, and that of commercial RMB products 2,000 million Yuan, foreign currency products 1 million euros, and inter-bank RMB products 300 million Yuan.
2 Development of brokerage business Sales volume of insurance reached 160 million Yuan, an increase of 121% on a year-on-year basis. Sales of open-ended fund amounted to 3,200 million Yuan and realized fee income of 14 million Yuan.
3 Development of custody business CBRC – Shenzhen granted qualification for trust & custody business to the Bank on 4 January 2008. Approved by CSRC and CBRC, the Bank got qualified for custody of securities investment fund on 6 August 2008. During the year the Bank entered into cooperation agreements with several fund houses for securities investment fund custody. The Bank established a custody service brand of “Private Placement Housekeeper” in 2008, which explicitly set out the value-added service standard of custodian for the first time. There were 35 custody fund plans implemented this year, with accumulative custody amount of 4,527.58 million Yuan and custody revenue of 2.32 million Yuan. In 2009, the Bank will actively explore fund houses, securities companies and trust clients, aiming at the custody service market of “private placement fund” and researching for feasibility of pension custody business. The Bank will improve service and efficiency through system optimization and process management, expand business capacity, and fully engage in custody market development.
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Key Business Data Highlights
N Various Risks Facing Commercial Banks and Risk Management Status 1 Credit risk Credit risk of the Bank mainly arises from loans and off-balance sheet credit business. The Bank established Credit Portfolio Management Committee to review and determine the strategies for credit risk management, preference of credit risk and all sorts of credit risk management policies and standards. In 2008, pursuant to changes of external conditions, the bank strengthened study of economic tendencies and state macro policies, formulated and adjusted the guidelines of credit policy for corporate and retail business and for specific industries, emphasized development of SMEs, trade finance and retail credit, and strictly executed the state policy against “high energy consuming, high pollution” industries. Through establishment of strategic client classification and management system and the client entering and withdrawing system, the Bank realized continuous development of credit business. The bank established an independent vertical system for credit risk management by implementing credit officer system, and appointed Chief Credit Officer in the head office. Credit officers are assigned to each line and branch, and directly report to Chief Credit Risk Officer. The Chief Credit Officer is in charge of the performance evaluation of each credit officer, and implementing standard credit authorization, credit approval, and procedure and standards for post-lending management. In 2008, the bank carried out the “Excellence Project”, optimized head office organization and improved efficiency of credit management and service of head office. The Bank established a set of standard procedures for credit approval and management including credit survey, credit investigation/approval, credit lending, post-lending monitoring and management of collection; conducted deep and all-sided credit survey during the operating process strictly in accordance with “KYC” (Know Your Customer) principle, enhanced strict investigation on rationality of loans usage and authenticity of trade background, emphasized on analysis of the first repayment source of credit applicants, so as to strictly controlled credit risk. In 2008, the Bank increased daily monitoring work on credit business, carried out special investigations on key areas and weak segments, and discovered and disposed early warnings for credit risk in a timely manner; formulated special implementation measures for risk monitoring and early-warning on warehouse pledge business and reinforced the monitoring and early-warning work; built emergency treatments to credit business and reporting mechanism, and communicated and researched effective counter-measures timely; intervened in advance to mitigate risk in case a major early-warning signal appearing towards a customer. In 2008, the Bank’s new credit risk management system was extended to operate across the bank. This system covers the overall credit procedure including the steps of investigation, approval, lending and post-loan management. Based on the CBRC 5-tier classifications, the Bank categorize credit assets risk into ten tiers, including tier-1 normal, tier-2 normal, tier-3 normal, tier-4 normal, tier-5 normal, tier-1 special mention, tier-2 special mention, subordinated, doubtful, and loss, and beside that a “writeoff” tier is set aside. The Bank takes applies different management policies to different loan classifications, meanwhile strictly abides by the regulator’s provision on proportion of lending to a single group client and a single legal person client, and effectively controls concentration risk by strengthening capital ability and participating in consortium loan. In 2008, while strengthening credit risk management, the Bank also enhanced disposal of NPLs and dealt with NPLs through various channels. NPLs kept stable decline and credit assets quality was improved remarkably. In 2008 4Q, the bank made a special massive provision and writeoffs in accordance with regulatory requirements, effectively disposed legacy NPLs initially issued before 2005.
2 Market risk The principal market risk facing the Bank comes from position of interest rate and exchange rate products. Either trading business or nontrading business of the Bank could incur market risk. The target of market risk management is to avoid excessive loss of revenue or equity caused by it, meanwhile to offset the impact of volatility risk of financial instruments on the Bank. The Bank set up the Asset/Liability Committee to formulate policies of market risk management and to determine the targets of both market risk management and position limit on market risk. The committee is also responsible for dynamically controlling business volume and structure, interest rate and liquidity. The specialized department under the Asset/Liability Management Committee undertakes regular responsibility of market risk monitoring, including determining a reasonable level of market risk exposure, monitoring daily operation of treasury business, giving advice to adjust maturity structure and interest rate structure of assets and liabilities. Interest rate risk of the bank comes from the mismatch of maturity date or contract re-pricing date between interest-earning assets and interest-bearing liabilities. Interest-earning assets and interest-bearing liabilities of the Bank are primarily priced by RMB. PBOC has provisions on the lower rate limit for basic RMB loans and upper rate limit for basic RMB deposits. The bank manages interest rate risk primarily by adjusting assets/liability structure, regularly monitoring sensitive gaps of interest rate, and adopting risk exposure analysis to statically measure characteristics of assets/liability re-pricing. The Bank regularly convenes Assets/Liability Management Committee to predict future interest rate tendency, adjust assets/liability structure and manage interest rate risk exposure. Exchange rate risk of the Bank mainly includes risk of loss due to negative exchange rate changes from foreign exchange exposure caused by currency structure imbalance between foreign currency assets and liabilities as well as foreign exchange exposure caused by foreign exchange derivatives trading. Exchange rate risk facing the Bank primarily derives from loans, advances, investment and deposits held by the Bank which are not priced by RMB. The Bank set limits for each currency position, daily monitor scale of currency position and controls the position within a settled limit by hedging strategy.
Annual report 2008 Shenzhen Development Bank
3 Liquidity risk Liquidity risk refers to the shortage of capital for repayment while liabilities maturing. Mismatched amount or maturity of assets and liabilities could incur the risk. In order to monitor the risk effectively, the bank emphasized on diversifying the capital sources, improving proportion of core deposits and monitoring capital sources, use of capital, as well as loan and deposit scale on a daily basis. The Bank maintained a scale of bonds with high liquidity, which can be converted into cash in time if needed. Besides, the Bank held a large quantity of high-quality HTM bonds available for Repo, which could be used as additional financing channel. Also, the bank has additional cash placed with other banks. The Bank regularly monitors and manages its cash position, made regular stress test on liquidity, and provided corresponding solutions to test results under different scenarios.
4 Operational risk Operational risk is the risk resulting from defective internal procedure, operator error or fraud, and external events. In 2008, the Bank kept the concept of controlling operational risk from six dimensions of "people, regulation procedure, system, inspection and supervision, report and database" to build the risk management system for accounting and settlement operations across the Bank; fulfilled the requirement of properly managing operational risk with regulatory authorities in a systematic manner; strengthened management and training for operational risk prevention and control staff; improved operations system; streamlined and reconstructed business procedures; optimized system functions; adopted new methods monitoring operational risk; reevaluated operational risk; analyzed and monitored indices changes of key operational risks on a daily basis; timely published risk reminders; carried out investigation on operational risk; enhanced supervision; combined risk monitoring, investigation and supervision in an effective way; improved comprehensive skill for preventing operational risk. On the other hand, incorporated suggestions of external consulting company on operational risk control of business procedures and the risk prevention and control suggestions from the “woodpecker” campaign, the Bank earnestly assessed and analyzed loopholes in operational risk prevention and control, formulated specified action plan and actively make rectification, so as to improve prevention and control ability of operational risk .
5 Other risks Other risks facing the Bank include compliance risk and legal risk. The Bank set up complete compliance management system at the Head Office and branches, responsible for such responsibilities as recognition, monitoring, and report of compliance risk, as well as compliance consultancy and education. The department regularly report to the Audit and Related Party Transaction Control Committee under the board, and receive guidance from the committee. In 2008, the Bank made a lot of work in improvement of compliance management structure, promotion of independence and leadership of compliance offices at branches, explanation and advocacy of policies and regulations, compliance risk recognition and control for new product and business, system streamlining, management of related party transaction, antimoney laundering, and cultivation of compliance culture, and as a result effectively managed the compliance risk. In respect of legal risk control, the bank focused on the step of legal approval in business procedures, standardized contract samples and articles, fully involved in the decision-making processes such as system formulation and development of new products. Meanwhile, the Bank engaged a well-known legal firm in China as the external legal consultant, in order to provide professional opinion about major legal affairs. Thus the legal risks of various businesses were effectively controlled.
O Integrity, Rationality and Effectiveness of Internal Control System 1 Self-appraisal on internal control by BOD In 2008, the management team of the Bank effectively operated under the guidance of board with its special committees, further improved internal control, and paid constant attention to internal control system building while developing business. The internal control system covers each business procedure and operational step, and control and management of current managing departments as well as branches and sub-branches. Although there are some areas needed to be further improved, the management team is highly aware of these issues and has scheduled improvement measures. On balance, internal control mechanism of the Bank is sufficient, solid and effective, internal control system is complete, and there subsists no material internal control deficiencies. (Please refer to the Internal Control Self-Appraisal Report of Shenzhen Development Bank disclosed on the same day for specifics.)
2 BOS’s comments on self-appraisal of internal control During the report period, the Bank adhered to the basic principles of internal control in accordance with relevant provisions of CSRC and SSE, set up complete and rational internal control system based on the Bank’s actual status, and carried out good execution in business activities, which was generally consistent with relevant requirements of CSRC and SSE. The 2008 self-appraisal of internal control of the Bank accurately and completely reflects the current status of internal control and main aspects to be improved. The rectification plan is practical and satisfies the long-term development requirement of internal control.
3 Independent directors’ comments on self-appraisal of internal control In accordance with relevant provisions of the Commercial Banking Law of P.R.C, Guidance for Internal Control of Commercial Banks and Guidance for Internal Control of Listed Companies of Shenzhen Stock Exchange, SDB established and improved a series of systems, procedures and methods to prevent and control risks to fulfill risks prevention and cautious operation. An all-around, cautious, effective and independent internal control system established by the Bank play an effective role in maintaining sustainable business development and preventing financial risks. We do not detect any material internal control deficiencies in the Bank. The Internal Control Self-Appraisal Report of Shenzhen Development Bank is in conformity with the status quo of the Bank.
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Key Business Data Highlights
P Social Responsibility Report In pursuit of economic benefit and protection of shareholders’ interests, the Bank safeguards depositors and employees’ legitimate rights and interests, serves clients with integrity, and actively takes part in environmental protection and community development, in order to facilitate harmonious development between the Bank and the society. The Bank advocates the concept of “integrity, professionalism, service, and efficiency” and aims for higher goals of adaptability, innovation, team work and excellence. a. Improved corporate governance structure, served all shareholders in an impartial manner, and protected all legitimate rights and interests of shareholders; made innovation of financial products, strictly performed risk disclosure obligation of products, and provided professional and efficient service to customers; cared about employees, safeguarded employees’ legitimate rights and interests, and paid attention to employees’ career development. b. Took up responsibility of providing support to economic development and improvement of social welfare, supported economic and industrial development and participated in regional construction, by following China’s economic and strategic development while making sure risk control. Preferentially supported programs supporting economy and people’s livelihood, including manufacturing of advanced equipment, electricity, municipal public infrastructure, IT, and transportation, assisted growth of innovative enterprises and SMEs, backed the development of rural program and helped the development of underdeveloped areas. c. In conformity with Anti-Money Laundry Law of P.R.C and relevant rules and regulations, established “risk-based” anti-money laundry system and performed all anti-money laundry obligations, combining anti-money, anti-terrorism finance with establishment and improvement of internal control system of modern commercial banks. d. Incorporating green environmental protection concept into enterprise operation, promoted harmonious development of economy, society and environment. Introducing the concept of “equator principle” and carried out green credit, effectively allocated financial sources, reduced energy consumption and emission at the office, and set up an economical institution; supported “Exploring the South Pole” campaign, followed up on news report on 2007– 2008 China’s Action in International Polar Year, organized environmental protection activities to lead a new lifestyle by using “Recycle Tote Bag”, and released SDB Light Green Card based on the theme of environmental protection. e. The company together with its employees is always grateful, and repays the society with sincerity, through the efforts of poverty alleviation, aid in teaching, as well as charity donation. Donated over 15 million Yuan to the Sichuan Wenchuan Earthquake area and built the Dujiangyan Yutang Primary School, provided financial service for construction of the quake-stroke regions and set up financing green channel for re-construction. Supported development of education, and continuously participated in Project Hope. Signed strategic cooperation agreements with Beijing University and Nankai University, and built internship base for students with Central University of Finance & Economics and South China University of Technology, in order to help students to exert their potentials and create bigger value for the society. The Bank advocates the concept of “Develop together for the future”, and takes up responsibilities to all-around development of the country and society, natural environment, resource and other stakeholders. In 2007 and 2008, the Bank was awarded as “Enterprise of Outstanding Contribution in Social Responsibility in China” in succession, and in 2007, the Bank obtained the first “Shenzhen Charity Award – Charity Award for Enterprise”.
Annual report 2008 Shenzhen Development Bank
Changes in Share Capital and Shareholders A Changes in Share Capital 1 Table of changes in shares SHARES TYPE
Before changes Changes(+, -) Changes of shares Restricted held by shares Directors, released Supervisors, from Exercise of Rendered and Senior Unit: share Quantity % restriction warrants shares Managemen Restricted shares 536,586,596 i Held by the state ii Held by state legal person 4,626,234 iii Held by other domestic bodies 183,857,057 Including: Held by domestic non-state legal person 183,313,981 Held by domestic natural person 543,076 iv Held by foreign institutions 348,103,305 Including: Held by foreign legal person 348,103,305 Held by foreign natural person Unrestricted shares 1,756,820,549 i Ordinary shares in RMB 1,756,820,549 ii Foreign holdings of shares listed in China iii Foreign holdings of shares listed outside China iv Others Total 2,293,407,145
After changes
Subtotal
Quantity
%
23.4 -289,729,135
7,420
74,037,238
-74,088 -215,758,565
320,828,031
10.33
0.2 -4,626,234 8.02 -180,764,984
– 7,420 907,622
– -4,626,234 -74,088 -179,924,030
– 3,933,027
– 0.13
– -179,458,621
3,855,360
0.12
7.99 -180,348,320
–
889,699
0.03 -416,664 15.18 -104,337,917
7,420 –
17,923 73,129,616
-74,088 –
-465,409 -31,208,301
77,667 316,895,004
0.002 10.2
15.18 -104,337,917
–
73,129,616
–
-31,208,301
316,895,004
10.2
74,088 1,027,785,182 74,088 1,027,785,182
2,784,605,731 2,784,605,731
89.67 89.67
3,105,433,762
100
76.6 76.6
289,729,135 289,729,135
95,380,637 642,601,322 95,380,637 642,601,322
100
–
95,388,057 716,638,560
–
812,026,617
Notes: 1. The new BOD and BOS of SDB were elected in December 2007. Personnel change of directors and supervisors led to decrease of 74,088 shares held by Directors, Supervisors, and Senior Management (“held by domestic natural person”) in the reporting period and increase of 74,088 unrestricted shares accordingly.
2. In the reported period, 289,729,135 restricted shares got released and listed. As a result, restricted shares declined by 289,729,135 shares and unrestricted shares increased by 289,729,135 shares accordingly.
3. In the reported period, 95,388,057 “SDB SFC2” warrants were exercised, which resulted an increase of 95,388,057 shares.
4. In the reported period, the bank carried out 2008 Interim Profit Distribution Plan (based on the total shares of 2,388,795,202 on 30 June 2008, rendered 3 shares and RMB 0.335 Yuan in cash for every 10 shares), which resulted an increase of 716,638,560 shares.
2 Table of changes in restricted shares Shareholder Unit: share
Restricted Unrestricted shares held shares released at year start in the year
Restricted shares added in the year
Restricted shares held Restricted at year end reason
Newbridge Asia AIV III, L.P. 348,103,305 104,337,917 73,129,616 316,895,004 Share reform Shenzhen Zhongdian Investment Co., Ltd. 62,246,616 62,246,616 – – Share reform Haitong Securities Co., Ltd. 33,924,466 33,924,466 – – Share reform Shenzhen Hongye Science and Technology Industries Co., Ltd. 25,137,627 25,137,627 – – Share reform Labor Union Working Committee of Agriculture Bank of China Shenzhen Branch 15,567,288 15,567,288 – – Share reform Labor Union of Construction Bank of China Shenzhen Branch 7,120,866 7,120,866 – – Share reform Labor Union Working Committee of People’s Insurance Company of China Shenzhen Branch 6,601,486 6,601,486 – – Share reform Shenzhen Children Welfare Foundation 4,513,626 4,513,626 – – Share reform
Date of release 20 June 2009: 135,639,292 20 June 2010: 181,255,712
37
38
Changes in Share Capital and shareholders
Shareholder Unit: share
Labor Union Working Committee of Shenzhen Zhongdian Investment Co., Ltd. China Orient Asset Management Corporation Shenzhen Science & Technology Development Foundation China Huaneng Financial Liability Limited Shenzhen Wanke Financial Consultation Co., Ltd. China North Industries Company Shenzhen Kaili Group Corporation Communications Bank of China Shenzhen Branch Shenzhen Zhongguang Haiqiao Trade and Development Co., Ltd. Shenzhen Fudian District Public Health Service Center Shenzhen Green Foundation Shenzhen Xincheng Investment Co., Ltd. Financial Liability Limited of Zhenhua Group Futian Investment Development Company of Shenzhen Shenzhen Juvenile Development Foundation Shekou Neighborhood Office of Nanshan District, Shenzhen Shaoguan Jingfeng Trade Co., Ltd. Construction Bank of China Shenzhen Branch Shenzhen Shekou Dongdi Fishery Co., Ltd. Shenzhen Hongtai Dresses Co., Ltd. Returned Overseas Chinese and Their Relative Welfare Foundation of Shenzhen Hongling North Road Office, Agriculture Bank of China Shenzhen Branch Wang Lili Shenzhen Passenger Service Co., Ltd. Shenzhen Youhe Investment Development Co., Ltd. Shekou Nanshui Industries Co., Ltd. of Shenzhen Nanshui Community Resident Committee of Shekou Neighborhood, Nanshan District, Shenzhen China Merchants Bank Shenzhen Xia Mei Lin Industrial Co., Ltd. Shenzhen SAST Group Company Shenzhen Jinlong Industrial Development Co., Ltd. Shenzhen Chemical Dyeing Industries Development Co., Ltd. Xin’an Shopping Mall of Shenzhen Shenzhen Sha Jing Tou Cooperation Company Shenzhen Shangsha Industries Co., Ltd. Shenzhen Cai Pu Du Shu Industries Cooperatives Shenzhen SDG Communications Development Company Shenzhen Kaihong Industrial Co., Ltd. Shenzhen Futian Industrial Development Co., Ltd. Shenzhen Financial Lease Co., Ltd. Shenzhen Tourism Association Shenzhen Futian District Agriculture Development Service Company Yannan Agriculture Machine Trading
Restricted Unrestricted shares held shares released at year start in the year
Restricted shares added in the year
Restricted shares held Restricted at year end reason
Date of release
4,458,468 2,909,088
4,458,468 2,909,088
– –
– Share reform – Share reform
2,647,265 2,351,142 2,016,000 1,717,146 1,471,992 1,363,632
– 2,351,142 2,016,000 1,717,146 1,471,992 1,363,632
794,180 – – – – –
1,345,019
1,345,019
–
– Share reform
1,188,780 1,149,235 974,022 939,555
1,188,780 1,149,235 974,022 939,555
– – – –
– – – –
895,104 745,920
895,104 745,920
– –
– Share reform – Share reform
716,082 691,339 671,328 579,684 559,434
716,082 691,339 671,328 579,684 559,434
– – – – –
– – – – –
513,618
513,618
–
– Share reform
418,869 416,664 290,904 290,904 290,904
418,869 416,664 290,904 290,904 290,904
– – – – –
– – – – –
Share reform Share reform Share reform Share reform Share reform
290,904 269,199 223,776 203,628 145,446
290,904 269,199 223,776 – 145,446
– – – 61,088 –
– – – 264,716 –
Share reform Share reform Share reform Share reform Share reform
144,540 71,325 58,179 54,545 42,954
144,540 – 58,179 54,545 42,954
– 21,398 – – –
– 92,723 – – –
Share reform Share reform Share reform Share reform Share reform
31,464 29,088 28,638 21,276 8,487
– 29,088 28,638 21,276 –
9,439 – – – 2,546
40,903 – – – 11,033
Share reform Share reform Share reform Share reform Share reform
Note
3,492
–
1,048
4,540 Share reform
Note
3,441,445 – – – – –
Share reform Share reform Share reform Share reform Share reform Share reform
Note
Share reform Share reform Share reform Share reform
Share reform Share reform Share reform Share reform Share reform
Note
Note
Note
Annual report 2008 Shenzhen Development Bank
Shareholder Unit: share
Restricted Unrestricted shares held shares released at year start in the year
Restricted shares added in the year
Restricted shares held Restricted at year end reason
Shenzhen Duty-free Commodity Supply Company 3,492 3,492 – – Shenzhen Beitou Industrial Co., Ltd. 1,197 1,197 – – Shenzhen Nanshan Liyuan Industrial Co., Ltd. 1,176 1,176 – – Hu Yuefei 99 – 95 194 Zhou Jianguo – – 7,117 7,117 Total 536,460,283 289,729,135 74,026,527 320,757,675
Date of release
Share reform Share reform Share reform Held by Directors, Supervisors, and Senior Management Held by Directors, Supervisors, and Senior Management
Notes: 1. Restricted shares held by Shenzhen Science & Technology Development Foundation, Shenzhen SAST Group Company, Xin’an Shopping Mall of Shenzhen, Shenzhen SDG Communications Development Company, Shenzhen Tourism Association and Shenzhen Futian District Agriculture Development Service Company Yannan Agriculture Machine Trading matured on 20 June 2008, but relevant shareholders have not entrusted any company to apply to handle the procedure of releasing shares restriction.
2. The above table does not include the 70,356 unreleased restricted shares of directors, supervisors and senior executives that have left the bank.
B Securities Issue and Listing Information 1 Securities issued by the Bank in three years prior to the end of reported period In accordance with the Proposal for Warrants Issue of Shenzhen Development Bank Co., Ltd reviewed and approved by the 2007 1st Extraordinary Shareholders’ Meeting & Relevant Shareholders’ Meeting and approved by the China Securities Regulatory Commission, basing on the total share capital of 2,086,758,346 shares after the share reform, the Bank issued free Bermuda Warrants at the ratio of 10:1, i.e. 208,675,834 warrants with the duration of 6 months to all shareholders who are registered on the equity registration day for warrant issue (25 June 2007); and issued free Bermuda Warrants at the ratio of 10:0.5, i.e. 104,337,917 warrants with the duration of 12 months to all shareholders who are registered on the equity registration day for warrant issuance (25 June 2007), as a total of 313,013,751 warrants issued. Each warrant could prescribe one share newly issued by the Bank at the price of 19.00 Yuan during the duration of warrants. The warrants were listed on the Shenzhen Stock Exchange on 29 June 2007. The warrants with the duration of 6 months (29 June 2007 to 28 December 2007) are entitled as “SFC 1”; the warrants with the duration of 12 months (29 June 2007 to 27 June 2008) are entitled as “SFC 2”.
2 Changes in outstanding shares and shareholding structure of the Bank In the reported period, 95,388,057 shares of “SDB SFC2” were exercised in total, which took up 91.4% of the total issuance of warrants; 8,949,860 shares of “SDB SFC2” warrants in total were not exercised, and were written off. The shares of the company increased 95,388,057 shares in total after the exercise of “SDB SFC2” warrants. In the reported period, the bank carried out 2008 Interim Profit Distribution Plan: based on the total shares of 2,388,795,202 on 30 June 2008, render 3 shares and RMB 0.335 Yuan in cash for every 10 shares, which resulted in an increase of 716,638,560 shares. Total share amount at the end of reported period is 3,105,433,762 shares. Changes in the shareholding structure could be referred to the Table of Changes in Shares. As of the end of the reported period, owners’ equity of the Bank rose by 3,395 million Yuan to 16,401 million Yuan, an increase of 26.10% compared with the year start.
3
The Bank has no internal staff share.
39
40
Changes in Share Capital and shareholders
C Shareholder Background Information 1 Number of shareholders and the shareholding position Number of shareholders: 295,216 Top 10 shareholders Shareholder Unit: share
Newbridge Asia AIV III, L.P. PingAn Life Insurance Company of China, LTD – Tradition – Ordinary insurance products Shenzhen Zhongdian Investment Co., Ltd. China Pacific Life Insurance Co., Ltd. – Tradition – Ordinary insurance products CBC – Boshi Theme Industry Stock Securities Investment Fund SPDB – Guangfa Growth Stock Securities Investment Fund Haitong Securities Co., Ltd. ICBC – Jingshun Great Wall Bluechip Securities Investment Fund CAB – Changshengtongde Theme Growth Stock Securities Investment Fund Shenzhen Hongye Science and Technology Industries Co., Ltd.
Nature of Shareholding Restricted shareholder (%) Shares held Changes shares held
Shares collateralized or frozen
Foreign
16.76
520,414,439
137,500,804
316,895,004
–
Others Others
4.86 2.81
150,963,528 87,302,302
150,963,528 18,831,024
– –
– –
Others
2.64
82,109,947
55,558,402
–
–
Others
1.71
53,000,000
24,060,174
–
–
Others Others
1.51 1.50
47,000,000 46,499,639
16,398,478 9,182,726
– –
– –
Others
1.09
33,971,870
7,839,662
–
–
Others
0.96
29,879,960
29,879,960
–
–
Others
0.88
27,300,000
-351,390
–
–
Top 10 unrestricted shareholders ShareholdeR Unrestricted shares held
Share nature
Newbridge Asia AIV III, L.P. 203,519,435 PingAn Life Insurance Company of China, LTD – Tradition – Ordinary insurance products 150,963,528 Shenzhen Zhongdian Investment Co., Ltd. 87,302,302 China Pacific Life Insurance Co., Ltd. – Tradition – Ordinary insurance products 82,109,947 CBC – Boshi Theme Industry Stock Securities Investment Fund 53,000,000 SPDB – Guangfa Growth Stock Securities Investment Fund 47,000,000 Haitong Securities Co., Ltd. 46,499,639 ICBC – Jingshun Great Wall Bluechip Securities Investment Fund 33,971,870 CAB – Changshengtongde Theme Growth Stock Securities Investment Fund 29,879,960 Shenzhen Hongye Science and Technology Industries Co., Ltd. 27,300,000 The relationship of the shareholders above and the explanation of any concerted action
RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares RMB ordinary shares The Bank is not aware of their relationship or concerted action.
Unit: share
2 Position of the top 10 restricted shareholders with the restricted condition NO.
Restricted shareholders
Amount of restricted shares Listing date
Number of shares to be listed
1 Newbridge Asia AIV III, L.P. 316,895,004 20 June 2009 135,639,292 20 June 2010 181,255,712
Restriction condition Promises no transferring or trading the holding of non-tradable shares within 12 months since the day acquiring trading right. After the expiration of above commitment term, the previous non-tradable shares traded through the stock exchange shall not be over 5% of total shares in 12 months, not over 10% in 24 months.
Annual report 2008 Shenzhen Development Bank
3 Brief Introduction of the Bank’s largest shareholder: Newbridge Asia AIV III, L.P. Newbridge Asia AIV III, L.P. was established on 22 June 2000 in Delaware, USA with a registered capital of US$724 million. It focused on strategic investment. All the investment and operational decisions of the company are made by unlimited liabilities partners Newbridge Asia GenPar AIV III, L.P. while the investment and operational decisions of Newbridge Asia GenPar AIV III, L.P. are made by unlimited liabilities partners Tarrant Advisors, Inc. and Blum G.A., LLC (of which Blum G.A., LLC is managed by Blum Investment Partners, Inc.) Tarrant Advisors, Inc and Blum G.A., LLC are controlled by David Bonderman, James G. Coulter and Richard C. Blum (all of whom are U.S. citizens, namely, these three individuals are the eventual controlling parties of the Bank.
David Bonderman Mr David Bonderman is the partner and co-founder of Texas Pacific Group. Before the establishment of Texas Pacific Group, Mr David Bonderman served as Chief Executive in RMBG Group (Now Keystone) in Fort Worth, Texas. Before joining RMBG in 1983, Mr David Bonderman was a partner with Arnold & Porter, a law firm in Washington D.C. Mr David Bonderman has served and is serving as a director on the boards of many listed and unlisted global corporations as well as non-profit organizations.
James G. Coulter Mr James G. Coulter is the partner and co-founder of Texas Pacific Group. Before Texas Pacific Group was incorporated, Mr James G. Coulter served as vice president of Keystone from 1986 to 1992. From 1986 to 1988, Mr James G. Coulter was closely associated with SPO Partners, an investment firm specializing in stock market investment and private placement financing. Mr James G. Coulter was also the financial analyst for Lehman Brothers Kuhn Loeb. He graduated with honors from Dartmouth College and acquired MBA degree from Stanford Graduate School of Business. Mr James G. Coulter is now serving and has served as a director on the boards of many listed and unlisted global companies.
Richard C. Blum Mr Richard C. Blum is chairman of Blum Capital Partners. He founded Blum Capital Partners in 1975. Mr Richard C. Blum started his career in Sutro in 1958 and eventually became the youngest partner in the company’s 130 years history. Mr Blum left Sutro in 1975 as a director, a major shareholder and a senior management leader to found Blum Capital Partners. Mr Richard C. Blum is now serving and has served as a director on the boards of many listed and unlisted global companies. Mr Richard C. Blum has a bachelor’s degree and an MBA from University of California at Berkley. He had also studied at Vienna University. The relationship between the Bank and the ultimate controlling parties of Newbridge Asia AIV III, L.P. and are charted as follows:
David Bonderman
Richard C. Blum
James G. Coulter
50% equity
50% equity
100% equity
Blum Investment Partners, Inc.
Tarrant Capital Advisors, Inc.
In control of
Tarrant Advisors, Inc.
Blum G. A., LLC Management & control
Newbridge Asia GenPar AIV III, L.P.
Investment
Limited Partners
Management & control
Newbridge Asia AIV III, L.P. 16.76% shares
The Bank
Investment
Limited Partners
41
42
Information on Directors, Supervisors, Senior Management and Staff A Brief Introduction Name
Year Position Gender of birth Office Tenure
Shares held at year start
Shares held at year end
Changes in shares held and reason
Frank N. Newman Chairman of BOD, CEO M 1942 Director: 2007.12–Expiration – – CEO: 2005.5– Chen Wuzhao Independent director M 1970 2007.12–Expiration – – Daniel A. Carroll Director M 1960 2007.12–Expiration – – Hu Yuefei Director Vice president M 1962 Director: 2007.12–Expiration 1092 1484 Vice President: 2006.5– Li Jinghe Director M 1955 2007.12–Expiration – – Liu Baorui Director, Vice president M 1957 Director: 2007.12–Expiration Vice President: 2000.3– – – Ricky Lau (Liu Weiqi) Director M 1970 2007.12–Expiration – – Mary Ma Director F 1952 2007.12–Expiration – – Michael O’Hanlon Independent director M 1955 2007.12–Expiration – – Robert T. Barnum Independent director M 1945 2007.12–Expiration – – Shan Weijian Director M 1953 2007.12–Expiration – – Wang Kaiguo Director M 1958 2007.12–Expiration – – Xiao Suining Director, President M 1948 Director: 2007.12–Expiration President: 2007.2– – – Andy Xie (Xie Guozhong) Independent director M 1960 2007.12–Expiration – – Kang Dian Chairman of BOS M 1948 2007.12–Expiration – – (External supervisor) Guan Weili External supervisor M 1943 2007.12–Expiration – – Jiao Jisheng Employee supervisor M 1955 2007.12–Expiration – – Ma Limin Employee supervisor M 1964 2007.12–Expiration – – Xiao Geng Supervisor M 1963 2007.12–Expiration – – Ye Shuhong Employee supervisor F 1962 2007.12–Expiration – – Zhou Jianguo Supervisor M 1955 2007.12–Expiration 7300 9490 Wang Bomin Chief financial officer M 1963 2005.5– – – Xu Jin Board secretary & M 1966 2005.5– – – GM of Legal Affairs Dept.
– – – 392 shares added from warrant exercise and render of shares – – – – – – – – – – – – – – – – 2190 shares added from render of shares – –
B Positions held by Directors and Supervisors in Shareholder’s Company Name
Name of Company
Daniel A. Carroll Newbridge Asia AIV III, L.P. Li Jinghe China Electronics Shenzhen Company Ricky Lau Newbridge Asia AIV III, L.P. Mary Ma Newbridge Asia AIV III, L.P. Shan Weijian Newbridge Asia AIV III, L.P. Wang Kaiguo Haitong Securities Co., Ltd.
Position
Tenure
Managing Partner Vice Chairman General Manager Secretary of of CCP Committee Managing Director Partner Managing Partner Chairman of BOD, CPC committee secretary
2000–Now 10 January 2008–Now 2000–Now 2006–Now 2000–Now September 2007–Now 2000–Now 2001–Now
Annual report 2008 Shenzhen Development Bank
C Positions held concurrently by Directors, Supervisors and Senior Management in other Companies Name
Name of Company
Chen Wuzhao Daniel A. Carroll Li Jinghe Liu Baorui Ricky Lau Mary Ma Michael O’Hanlon Robert T. Barnum Shan Weijian Wang Kaiguo Andy Xie Kang Dian Guan Weili Xiao Geng Zhou Jianguo Xu Jin
Accounting Research Institute of Tsinghua University Associate Professor Guodu Securities Liability Limited Independent director Ieslab Electronics Co., Ltd. Independent director CITIC 21CN Company Limited Independent director TPG Capital, Limited Partner Myer Department Stores, Ltd. Director China National Electronics Import & Export Zhuhai Co., Ltd. Chairman China National Electronics Import & Export Zhuhai Technological Industry Co., Ltd. Chairman Shenzhen Jinghua Electronics Co., Ltd. Chairman Shenzhen Huaqiang Industrial Co., Ltd. Independent director China Unionpay Co., Ltd. Supervisor TPG Capital, Limited Manager director Guanghui Automobile Services Co., Ltd. Director Nissin Leasing (H.K.) Limited Director Nissin China Holdings Co., Ltd. (Cayman) Director TPG Capital, Limited Partner, Manager director Lenovo Group Co., Ltd. Non-executive vice chairman Standard Chartered Bank (HK) Ltd. Independent Non-executive Director Nissin China Holdings Co., Ltd. (Cayman) Director Nissin Leasing (H.K.) Limited Director Marix Servicing, LLC Director Ameriquest Mortgage Director, Chairman of Audit Committee Waterfield Bank Director, Risk Management Committee Bank of China (Hong Kong) Limited Independent director Bank of China Hong Kong (Holdings) Co., Ltd. Independent director Guanghui Auto Mobile Services Co., Ltd. Director Nissin China Holdings, LLC Director TPG Capital, Limited Partner TCC International Holdings Limited Non-executive director Taiwan Cement Company Independent director Taishin Financial Holding Co., Ltd. Director China HWA BANK Director Edenvale Holdings Limited Director Shanghai Shimao Co., Ltd. Director Rosetta Stone Advisors Ltd. Director Shirui Investment Management Co., Ltd. Director Silver Grant International Industries Limited Independent non-executive director BYD Co., Ltd. Independent director Shenzhen Fanxing Technology Co., Ltd. Director Beijing Baihuiqing Investment Management Co., Ltd. Chairman of BOD Zhongfa International Assets Apprasial Co., Ltd. Honorary Chairman DongFeng Automobile Co., Ltd. Independent director Blue Star New Chemical Material Co., Ltd. Independent director China Textile Machinery Group Co., Ltd. Director Tianjin Eteda Technology Co., Ltd. Director Brookings-Tsinghua Center for Public Policy Director Brookings Institution Senior Fellow Shenzhen Investment Holding Corporation Vice Ggeneral Manager Guotai Junan Securities Co., Ltd. Director Nanfang Fund Management Co., Ltd. Director Shenzhen Capital Group Co., Ltd. Director China Nanshan Development (Group) Co., Ltd. Supervisor China International Economic and Trade Arbitration Committee Arbitrator Shenzhen Arbitration Committee Arbitrator
Position
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Information on Directors, Supervisors, Senior Management and Staff
D Work Experience of Directors, Supervisors and Senior Executives Name
Position
Work experience
Frank N. Newman Chairman of BOD & CEO 1963–1969 1969–1973 1973–1986 1986–1993 1993–1995 1995–1999 2000–2005 2004–2004 2004.12–2005.6 2005.5–2005.6 2005.6–Now Chen Wuzhao Independent director 1995–1998 1998–2000 2000–Now 2007.12–Now Daniel A. Carroll Director 1995–Now 2000–2005 2007–2008 2004.12–Now Hu Yuefei Director Vice President 1990–2006.3 2006.3–Now 2007.12–Now Li Jinghe Director 1982–1985 1985–1987 1987–2000 2003–Now 2000–2006 2006–2008.1 2008.1–Now 2007.12–Now Liu Baorui Director Vice President 1998.8–2003.3 2000.3–Now 2007.12–Now Ricky Lau Director 1993–1998 1998–Now 2007.12–Now Mary Ma Director 1978–1990 1990–2007 2007.9–Now 2007.12–Now
KPMG consultancy manager Citigroup vice president Wells Fargo vice president, senior vice president, executive vice president, and chief financial officer Bank of America vice chairman, chief financial officer and vice chairman of BOD Under secretary for U.S. Finance, and Deputy Treasury Secretary of the United States Department of the Treasury Senior vice chairman, president, chairman and CEO of Bankers Trust Co. Director, Korea First Bank CEO and vice chairman of the Broad Center for Management of School Systems Independent director of SDB Acting chairman and CEO of SDB Chairman and CEO of SDB Zhonghua Accounting Firm, Project Manager School of Economics and Management, Tsinghua University, Instructor of Accounting Accounting Research Institute of Tsinghua University, Associate Professor Independent Director of SDB Partner of TPG Capital, Limited Director of Korea First Bank Director of BankThai Public Co., Ltd. Director of SDB SDB Nantou Sub-branch manager, SDB Guangzhou Branch manager, assistant president Vice president of SDB Director of SDB Zhuhai Office of China National Electronics Import & Export – South China Branch Sales man Zhuhai Office of China National Electronics Import & Export – South China Branch Vice Director VGM, GM of China National Electronics Import & Export – Zhuhai Company COB of China National Electronics Import & Export – Zhuhai Company Director, GM, Vice secretary of CCP Committee of the China National Electronics Import & Export – Shenzhen Company Director,GM, Secretary of CCP Committee of the China National Electronics Import & Export – Shenzhen Company Vice Chairman, GM, Secretary of CCP Committee of the China National Electronics Import & Export – Shenzhen Company Director of SDB Assistant president and member of CPC committee, SDB Vice president and vice secretary of CPC committee, SDB Director of SDB Hopewell Holdings Limited Investment Manager TPG Capital Managing Director Director of SDB Bureau of International Cooperation, Chinese Academy of Science Senior Vice President and CFO of Lenovo Group Limited Partner and managing director of TPG Capital Director of SDB
Annual report 2008 Shenzhen Development Bank
Name
Position
Work experience
Michael O’Hanlon Independent director 1980–2005 2000–2002 2000–2005 2006–2008 2007–2007 2007–2008 2007–Now 2004.12–Now Robert T. Barnum Independent director 1969–1970 1970–1973 1973–1980 1980–1982 1982–1984 1984–1989 1989–1997 1997–Now 2007.6–Now Shan Weijian Director 1998–Now 2000–2005 2005.6–Now Wang Kaiguo Director 2001.6–Now 2006.6–Now Xiao Suining Director President 1990–1995 1995–1999 1999–2007.2 2007.2–Now 2007.6–Now Andy Xie Independent director 1990–1995 1995–1997 1997–2006 2007–Now 2007.12–Now Kang Dian Chairman of BOS 1984–1987 1987–1990 1990–1994 1994–2000 2001–2005 2005.6–Now Guan Weili External supervisor 1996–2004 1997–2004 2004–Now 2005.1–Now Jiao Jisheng Employee supervisor 1993–2007 2007–Now 2007.12–Now Ma Limin Employee supervisor 1988–1992 1992–1993 1993–2005 2005–Now 2007.12–Now
Managing director of Lehman Brothers Inc. Director of Aozora Bank Ltd. Director of Korea First Bank Senior Managing Director of Marathon Asset Management, LLC Director of BankThai Director of Doral Financial Corporation Director of Marix Servicing, LLC Independent Director of SDB US Saving & Loan Association, Analyst VP Finance of FHLB Seattle VP Finance of PMI Mortgage VP of FNMA CFO of Krupp Company EVP EVP, CFO of First Nationwide Bank (already merged into CITIGROUP) CFO and President & COO of American Savings Bank Poker Flats Investors Independent Director of SDB Partner of TPG Capital, Limited Director of Korea First Bank Director of SDB Chairman and Party secretary of Haitong Securities Co., Ltd. Director of SDB BOC Chongqing Branch director of HR & Education Department, assistant to general manager, vice president BOC Zhuhai Branch president, secretary of CCP Group, secretary of CCP Committee BOC Zhenzhen Branc h president, secretary of CCP Committee President of SDB Director of SDB World Bank, Economic Analyst Associate Director of Macquaire Bank Managing Director of Morgan Stanley Director of Rosetta Stone Advisors Ltd Independent Director of SDB Vice director/director of CITIC Vice general manager of China Rural Trust & Investment Co., Ltd. Vice general manager of China National Packaging Corporation Vice managing director of Guangdong Holdings Group Co., Ltd. Chairman and CEO of Shirui Investment Management Co., Ltd. Chairman of BOS of SDB President of China Enterprises Consulting Co., Ltd. Honorary chairman of BoD of China Enterprise Appraisals Chairman of BOD of Beijing Baihuiqing Investment Management Co., Ltd. External supervisor of SDB SDB, Vice president of Shatoujiao Sub-branch and Changcheng Sub-branch, VGM, GM of H.O Accounting Dept., GM of H.O IA Dept., VP of Dalian Branch, Financial Officer of Shenzhen Branch, GM of H.O Accounting Dept. VP of SDB Dalian Branch Employee Supervisor of SDB CBC Xi’an Branch, Vice director of International settlement Dept. Shenzhen Xihu Corporation Development Co., Ltd. SDB, Officer Manager, VGM, GM of Internationl Settlement Dept. SDB, GM of Trade Finance Dept. Employee Supervisor of SDB
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Information on Directors, Supervisors, Senior Management and Staff
Name
Position
Work experience
Xiao Geng Supervisor 1991–1992 1992–2007 2000–2003 2007–Now 2007–Now 2007.12–Now Ye Shuhong Employee supervisor 1988–2006 2006–2008.1 2008.2–Now 2007.12–Now Zhou Jianguo Supervisor 1983–1996 1996–1997 1997–2004 1999–2003 2004–Now 2007.12–Now Wang Bomin Chief financial officer 1995–2002 2002–2003 2003–2005 2005–Now Xu Jin Board secretary GM of 1999–2003 Legal Affairs Dept. 2001–2003 2003–Now 2005.1–2005 2005.5–Now
Consultant of the World Bank University of Hong Kong, Instructor, Associate Professor Advisor and Head of Research, Securities and Futures Commission of Hong Kong Director of the Brookings-Tsinghua Center for Public Policy Senior Fellow of the Brookings Institution Supervisor of SDB SDB, Director of Operation Dept. and Admin. Dept. of Changcheng Sub-Branch, Chief Auditor, Office Manager of Accounting Office, AGM of H.O IA Dept. GM of Southwesten Audit Center, Head of treasury and accounting line of H.O IA Dept. AGM of H.O IA Dept and, Head of treasury and accounting line of H.O IA Dept. Deputy GM of H.O.IA Dept. of SDB Employee Supervisor of SDB Deputy Dean and Head of Adult Education Dept. of Jiangxi University of Finance & Economics (Associate Professor) VGM of Shenzhen Zhong Lv Xin Industrial Co., Ltd. VGM, GM of Audit Dept. Head of Finance Supervision, Shenzhen Business & Trade Investment Holding Corporation (2002–2004 Assistant President) Board Chairman & Secretary of CPC, Shenzhen Business-holding Industrial Co., Ltd. VGM, Head of Accounting Dept., Shenzhen Investment Holding Corporation Supervisor of SDB Citibank Taiwan, Vice President, Treasury financial engineering and market risk supervision Head of Treasury Group of Taishin Financial Holding Co., Ltd. (Senior vice president, Deputy CFO) Head of Risk Control Group, senior vice president, Taishin Financial Holding Co., Ltd. Chief financial officer of SDB Vice general manager of Asset Security Department of SDB Head Office Director of Shenzhen Special Asset Management Center of SDB General manager of Legal Affairs Department of SDB Head Office Employee supervisor of 5th BOS of SDB Board secretary of SDB
E Annual Compensations Annual compensation of directors, supervisors and senior executives of the Bank is decided in the following procedures and based on the following resolutions: the compensation program for directors of the 6th board of directors and supervisors of 5th board of supervisors was reviewed and approved by the 2004 SDB Annual Shareholders’ Meeting, and was reviewed and revised by the 2006 & 2007 SDB Annual Shareholders’ Meeting; the compensation program for senior executives of the Bank was reviewed and approved by the 2nd and 4th meeting of the 7th board of directors. There was no change of non-executive directors’ compensation plan for 2008. The variations of specific compensation numbers were due to different number of board & committee meetings.
Annual report 2008 Shenzhen Development Bank
The following table shows the compensations (before-tax) paid to directors, supervisors and senior executives of the Bank for 2008 service (including amounts received during 2008 and received in 2009 for 2008 service): Name
Position
Total amount paid to each person (in RMB 10,000 Yuan)
Frank N. Newman Chairman of BOD & CEO Xiao Suining Director, President Chen Wuzhao Independent director Daniel A. Carroll Director Hu Yuefei Director, Vice president Li Jinghe Director Liu Baorui Director, Vice president Ricky Lau Director Mary Ma Director Michael O’Hanlon Independent director Robert T. Barnum Independent director Shan Weijian Director Wang Kaiguo Director Andy Xie Independent director Kang Dian Chairman of BOS (External supervisor) Guan Weili External Supervisor Jiao Jisheng Employee supervisor Ma Limin Employee supervisor Xiao Geng Supervisor Ye Shuhong Employee supervisor Zhou Jianguo Supervisor Wang Bomin CFO Xu Jin Board secretary, GM of Legal Affairs Dept. Total
1,598 418 79 48 299 42 292 37 48 106 81 40 43 57 145 79 138 165 55 116 53 286 148 4,373
Note: During 2008, the Bank achieved 41% growth in operating profit before provision, reached the CAR requirement, grew loans and deposits significantly, managed risks, and improved operations in a number of ways. The Committee & Board recognized that the large provision taken in 2008 was related almost totally to the old portfolio, and did not reflect the current-year performance of the bank officers. The Committee & Board also took into consideration the current environment in setting the compensation for executives, and concluded that, despite the Bank’s very good achievements in 2008, it would be appropriate for the executive compensation reported above to generally decline from the figures reported for 2007. In the case of President Xiao, 2007 was his first year with the bank, and was a partial year, so 2007 and 2008 are not directly comparable. The Board has determined that, in light of the environment in 2009, salaries for executives will be frozen for 2009, and target amounts for performance bonuses for executives will be reduced from the levels set for 2008. In addition, the Compensation Committee is examining alternative ways in which portions of annual performance bonuses for executives would be deferred and made contingent on continued performance of the bank over a period beyond a single year. The Board Intends to implement such a program in 2009.
Many directors donated portions of their fees during 2008 to support relief and rebuilding after the earthquake in Sichuan.
F Changes of Directors, Supervisors and Senior Management 1 Changes of directors In the reported period, there was no change of directors of the bank.
2 Changes of supervisors In the reported period, there was no change of supervisors of the bank.
3 Changes of senior executives Mr Hao Jianping was no longer the Vice President of the Bank starting from 31 December 2008.
G Employees of the Bank Up to 31 December 2008, the bank had 10,381 employees, among which there were 5,601 business employees, 3,223 financial and operating employees, and 956 managing and operation-supportive employees, 601 administrative and other employees. Among the bank’s employees, 67% of them have Bachelor’s Degree or the higher, and 94% of them have Diploma Degree or the higher. Besides, the Bank has 4,477 contingency employees and contract workers.
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Corporate Governance at the Bank A Corporate Governance The Bank abides by the Company Law, the Securities Law, the Commercial Banking Law and relevant rules and regulations, as well as regulatory requirements stipulated by China Securities Regulatory Commission (CSRC) and China Banking Regulatory Commission (CBRC), and keeps improving corporate governance system, improving corporate governance structure, enhancing the relevancy of the board decisions and promoting the overall governance standard. All the directors of the Bank have honored their public promises and fulfilled their duties with diligence. They have actively participated in all meetings, fully expressed their opinions, and carried out their various duties with seriousness. The Bank’s Board of Directors is directly responsible to the Shareholders. The Board holds meetings according to due legal procedures and exercises its rights in strict adherence to laws. The Board of Supervisors has focused on maintaining contact and communication with the Board of Directors and senior management levels. By attending various Board of Directors meetings and Audit Committee meetings for special committees within the Board of Directors, our Supervisors have been able to fulfill their responsibilities to provide opinion after reviewing the periodic financial reports drafted by the board of directors. The bank built basic standards in conformity with corporate governance and relevant laws and regulations, and management structure which are applicable for the bank’s specifics. The duties and reporting lines of the senior management team are clear. In the reported period, the Bank discloses information in a truthful, accurate, complete and timely manner. There is no case that the Bank released undisclosed information to large shareholders and actual controllers. The Bank carried out and completed “Special Activity for Corporate Governance” in 2007. In accordance with the requirement of CSRC [2008] No. 27 Announcement & CSRC – Shenzhen Corporate (2008) No. 62 Document, the Bank disclosed Explanation of Rectification on Special Activity for Corporate Governance of Shenzhen Development Bank on 18 July 2008, which made specific explanations on the rectification of events listed in the rectification report of corporate governance. In the evaluation activity of Sohu 2008 Annual Enterprise’s Public Image, the bank was honored as “Annual Enterprise Award for Best Corporate Governance”.
B Duty Performances by Independent Directors Within the reported period, all independent directors performed their duties and participated in important decision-making at the Bank by expressing independent opinions on major events based on relevant laws, rules and regulations and defended the overall interests of the Bank, in particular the legitimate rights of small shareholders.
Meeting Attendance Record for the Bank’s Independent Directors of the 7th board Name of Independent Director Michael O’Hanlon Robert T. Barnum Chen Wuzhao Andy Xie
No. of scheduled attendances
Actual attendances
Attendances by agents
Absences
10 10 10 7
9 9 10 6
1 1 0 1
0 0 0 0
Objections to proposals Nil Nil Nil Nil
Note: The post qualification of independent director Andy Xie was approved by CBRC on 4 April 2008.
At present, there are 14 directors in the board, including 4 independent directors, 4 managing directors and 6 other directors. The post qualification for directors is approved by CBRC. The bank will select qualified independent director candidate and submit to the shareholders meeting for review.
Annual report 2008 Shenzhen Development Bank
C The Separation of the Bank from its Largest Shareholder in Areas of Business, Personnel, Assets, Organization and Finance The Bank is completely separate from its controlling shareholder in areas of business, structure, personnel, finance and assets. The Bank is equipped to operate independently with its own independent business, complete assets, independent operations, and accountable for its own profitability and loss. Business-wise, the Bank has its own production and management and sales system, independent accounting, and bears liabilities and risks independently; Institution-wise, the Bank is structurally organized to be completely independent of its controlling shareholders, and no conditions whereby the Bank and its controlling shareholders joints office space exists, nor is there any superiorsubordinate relationship between the Bank and its controlling shareholders; personnel-wise, the Bank and its controlling shareholders are independent in areas such as labor, human resource, wage management, with all business management personals obtaining their wages from the Bank and do not hold positions at controlling shareholders’ institutions; finance-wise, the Bank has its independent accountancy department, with independent financial management regulations and accounting systems in place, such that both accounting and tax payments are standalone; assets-wise, the Bank is complete in its assets, and its relations with its assets are well-defined. The Bank is also independent in its business operational space and industrial proprietary rights, trademark registration rights, and possesses intangible assets such as non-proprietary technologies. In the reported period, there is no corporate governance non-standard that large shareholders and actual controllers interfere with the production, operation and management of listed companies.
D Evaluation and Incentive of Senior Management During the reported period, the Bank’s Shareholders’ Meeting and Directors have further improved the compensation management measure for senior management. The Board of Directors and compensation and performance appraisal committee under the board evaluate the performances of senior management based on the execution of annual work plan and achievement of major operating results. The bonus paid to senior management is based on the performance appraisal results. The Bank is continually refining the performance appraisal and incentive systems for senior management staff.
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Introduction on General Shareholders’ Meetings In the report period, the Company held totally 2 shareholders’ meeting, including 1 annual shareholders’ meeting and 1 extraordinary shareholders’ meeting. The brief information is as below:
A On 12 June 2008, the Company held the 2007 Annual Shareholders’ Meeting. The Resolution Announcement for 2007 Annual Shareholders’ Meeting of Shenzhen Development Bank Co., Ltd was disclosed on China Securities, Securities Times and Shanghai Securities News on 13 June 2008. B On 15 October 2008, the Company held the 2008 1st Extraordinary Shareholders’ Meeting. The Resolution Announcement for 2008 1st Extraordinary Shareholders’ Meeting of Shenzhen Development Bank Co., Ltd was disclosed on China Securities, Securities Times and Shanghai Securities News on 16 October 2008.
Annual report 2008 Shenzhen Development Bank
Report of the Board of Directors A Discussion and Analysis of Operations in the Reported Period 1 Range of operation The Bank engages in the range of various banking operations approved by the relevant authorities, primarily include: • • • • • • • • • • • • • • •
Renminbi deposits, loans, settlement, and remittance; Renminbi drafts acceptances and discounting; Trust business; Issuance and trading of Renminbi-denominated securities permitted by the regulatory authorities; Foreign currencies deposits and remittance; Borrowing in and outside of China; Issue and brokering the issue of valuable securities of foreign currency; Trading and non-trading settlement; Foreign currency drafts acceptances and discounting; Foreign currency advances; Brokering foreign currency and foreign securities trading, proprietary foreign currency trading; Creditworthiness investigation, advisory and witness business; Insurance agency; Gold trading, gold purchase, inter-bank lending and borrowing of gold, leasing gold to enterprise, gold financing, and providing retail product of gold investment to individual citizens. Other businesses approved or permitted by the regulatory authorities
We are one of the commercial banks licensed to operate nationwide in China. We strategically concentrate our distribution networks in China’s relatively affluent regions such as Pearl Delta Region, Bohai Rim, and Yangtze River Delta and meanwhile develop networks in key cities in Western China.
2 Financial Review In RMB million
Operating Income Pre-provision operating profit Operating Profit Net Profit
Reported year
Previous year
±%
14,513 8,138 803 614
10,808 5,776 3,722 2,650
34.28 40.89 -78.43 -76.83
In 2008, the domestic and international environments were abnormally complex. In the international background of sub prime crisis evolving to financial crisis, China’s economy entered into correction after a period of sustainable high growth. The domestic economic policy went through the process from “stable”, “tight” to “moderately loose”. Annual pre-provision operating profit recorded 8,140 million Yuan, increased by 40.9% compared with the same period of last year. Weighted return of pre-provision operating profit on average equity decreased by 15.6 percentage points from last year to 57.3%, in relation to diluted ROE growth caused by equity increase from the two blocks of warrant exercise at the end of 2007 and in the middle of 2008. In light of regulatory requirements on small and medium sized banks at the end of 2008 to deal with domestic and overseas financial and economic situations, the Bank made a special massive provision and write-offs in the 4th quarter. After that, net profit amounted to 614 million Yuan, dropped by 76.8% compared with the same period of last year. Average return on equity was 4.32%, declined by 29.09 percentage points compared with last year. Basic EPS was 0.20 Yuan, a decrease of 79.4% from last year.
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Report of the Board of Directors
Income and Profit (1) Net interest income Net interest income of the Bank increased by 31% compared with the same period of last year to 12,600 million Yuan, which accounts for 86.8% of the operating income, dropped by 2.1 percentage points compared with 88.9% of the same period of last year. Decrease of the proportion of net interest income to operating income reflects the Bank’s business mix adjustment and income diversification trend. Growth of net interest income is attributable to the growth of interest-earning assets. The following table lists the daily average balance of primary assets and liabilities, relevant interest income or interest expenditure and daily average yield or daily average cost ratio of the bank in the reporting period. 2008
Interest income/ In RMB million ADB payment
2007 Daily average Interest yield/cost income/ ratio (%) ADB payment
Daily average yield/cost ratio (%)
ASSETS 19,406 2,388 729 26,465 26,465
7.90 3.68 1.72 6.34 6.20
204,001 42,783 27,134 309,802 315,813
14,222 1,301 463 18,043 18,044
6.97 3.04 1.71 5.82 5.71
Deposits 330,307 8,564 Bonds issue 5,178 325 Total interest-bearing liabilities 399,027 13,867 Total liabilities 410,358 13,867 Net interest income 12,598 NIS NIM
2.59 6.29 3.48 3.38 2.86 3.02
261,208
5,048
1.93
297,762 308,621
8,438 8,438 9,606
2.83 2.73
Loans and advances Bonds investment Placement at central bank Total interest-earning assets Total assets
245,544 64,973 42,247 417,453 426,560
LIABILITIES
2.99 3.10
Interests income of loans and advances 2008
Interest In RMB million ADB income Corporate loans (Excl. discount) Retail loans Loans and advances (Excl. discount)
165,023 68,720 233,743
11,687 4,891 16,578
2007 Average yield/cost Interest ratio (%) ADB income 7.08 7.12 7.09
141,288 52,316 193,604
8,789 3,268 12,057
Average yield/cost ratio (%) 6.22 6.25 6.23
Interests paid for customer deposits
2008
In RMB million ADB
Interest payment
Average yield (%)
ADB
Interest payment
Average yield (%)
183,640 90,865 92,775 27,239 45,765 17,278 28,487 100,902 330,307
4,461 817 3,644 1,453 1,086 109 977 3,017 8,564
2.43 0.90 3.93 5.33 2.37 0.63 3.43 2.99 2.59
149,808 78,540 71,268 18,642 37,726 15,190 22,536 73,673 261,208
2,874 743 2,131 840 684 119 566 1,489 5,048
1.92 0.95 2.99 4.50 1.81 0.78 2.51 2.02 1.93
Corporate deposits Including: demand deposits time deposits including: treasury and negotiation deposits Retail deposits Including: demand deposits savings deposits Guarantee deposits Total deposits
2007
Annual report 2008 Shenzhen Development Bank
Analysis on change of composition, balance, and average cost ratio for average daily deposits (%) Analysis on composition changes 2008 2007 % Change Corporate deposits Including: demand deposits time deposits Including: treasury and negotiation deposits Retail deposits Including: demand deposits savings deposits Guarantee deposits Total deposits
55.60 27.51 28.09 8.25 13.85 5.23 8.62 30.55 100.00
57.35 30.07 27.28 7.14 14.45 5.82 8.63 28.20 100.00
-1.75 -2.56 0.81 1.11 -0.60 -0.59 -0.01 2.35 –
Analysis on balance changes (%)
Analysis on cost changes (%)
22.58 15.69 30.18 46.12 21.31 13.75 26.40 36.96 26.45
0.51 -0.05 0.94 0.83 0.56 -0.15 0.92 0.97 0.66
(2) Net fee income The net non-interest income of the bank posted good performance in 2008, increased by 59% to 1,900 million Yuan compared with the same period of last year, including net fee and commission income up by 64 % to 850 million Yuan. The growth of net fee and commission income is as follows: In RMB million
Fee income of domestic settlement Fee income of international settlement Fee income of agency business Fee income of entrusted loans Fee income of bank cards Consultation fee Others Subtotal of fee and commission income Fee outlay for bank card and agency businesses Others Subtotal of fee and commission outlay Net fee and commission income
2008
2007
±%
216 131 69 15 221 169 236 1,057 161 45 206 851
162 104 62 8 131
33.33 25.96 11.29 87.50 68.70
201 668 107 40 147 521
17.41 58.23 50.47 12.50 40.14 63.34
Annual settlement fee income (including domestic and international ones) rose by 30 % compared with the same period of last year, on account of business volume growth and customer increase. Annual agency fee income rose by 11 % compared with the same period of last year, largely attributable to volume growth of insurance and fund agency business. Annual trust loan fee income rose by 88 % compared with the same period of last year, following volume growth of trust business. Annual bank card fee income rose by 69 % compared with the same period of last year, in the face of growth of effective card number and transaction volume. Other fee income includes account management fee, and trade finance fee income. Other fee income increased by 101% compared with the same period of last year, reflecting customer base expansion and increase of trade finance business volume and product varieties. Fee and commission outlay rose by 40 %, for the reason that the credit card issue amount growth led to credit card fee outlay increase.
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Report of the Board of Directors
(3) Net other operating income Net other operating income includes investment return, gains/losses from fair value changes, foreign exchange gains/losses and other business income. In 2008, net other operating income increased by 56%. Compared with last year, among which growth of investment return and gains from foreign exchange difference play a larger role, as rose by 110% and 80% respectively. Augmentation of bond investment in 2008 and trading benefit brought by interest cut led to the growth of investment return. Exchange trading volume increase drove by foreign exchange variation led to the growth of gains from foreign exchange difference. (4) Operating expense Compared with the 34% increase of the operating income, operating expenses rose by 24%, which is largely due to headcount and business volume growth as well as enhanced investment on management process promotion and IT system. Cost to income ratio (excluding business tax) amounted to 35.99%, dropped by 2.94 percentage points from 2007. Labor cost increased by 26% over 2007 to 2,700 million Yuan, business expenses increased by 26% to 1,800 million Yuan, and depreciation, amortization and renting fee increased by 14% to 730 million Yuan. Average income tax rate was 22.5%, 7.2 percentage points down from the 29.7% of 2007, on the back of state income tax policy adjustment and tax rebate for NPLs disposal. The actual income tax in 2007 and 2008 were as follows: In RMB million
Profit before tax Income tax Actual income tax
2008
2007
Growth (%)
793 179 22.53%
3,772 1,122 29.74%
-78.98 -84.05 -7.21 percentage points
2008
2007
±%
474,440 458,039 360,514 283,741 16,401
352,539 339,533 281,277 221,036 13,006
34.58 34.90 28.17 28.37 26.10
Assets size In RMB million
Total assets Total liabilities Deposits Loans Owner’s equity
In the reported period, interest-earning assets were further expanded, balance sheet structure was further optimized, and capital got effectively supplemented. After the special massive provision and write-offs in line with regulatory requirements, as of 31 December 2008, total assets grew by 35% to 474,400 million Yuan; total loans (including discount bills) grew by 28% to 283,700 million Yuan; total liabilities grew by 35% to 458,000 million Yuan; total deposits grew by 28 % to 360,500 million Yuan; and owners’ equity rose by 26% to 16,400 million Yuan. Corporate deposits increased by 26% compared with last year to 302,300 million Yuan, accounting for 84% of total deposits; retail deposits increased by 42% to 58,200 million Yuan, as 16% of total deposits; corporate loans, increased by 33% to 209,800 million Yuan, as 74% of total loans; and retial loans increased by 16% to 73,900 million Yuan, as 26% of total loans.
Annual report 2008 Shenzhen Development Bank
Assets quality Asset quality measures continued its improvement trend since 2005, following measures to improve its internal management and collection processes. This was achieved by a combination of the Bank’s own initiatives and market measures. In 2008 the Bank collected 1,660 million Yuan NPLs in 2008, among which 1,180 million Yuan or 71% was collected in cash, 450 million Yuan or 27% was collected from repossessed assets, and 30 million Yuan or 2% was collected from restructured loans. Based on regulatory requirements in light of domestic and overseas economic and financial situations, the bank provisioned 5.6 billion Yuan and wrote off 9.4 billion Yuan NPLs in the 4th quarter. Plus the provision and write-offs made from January to September, the Bank totally provisioned 7,300 million Yuan provision in 2008, including credit provision of 6,970 million Yuan and non-credit provision of 360 million Yuan; wrote off 10,600 million Yuan NPLs and 440 million Yuan noncredit assets. At 31 December 2008, NPL balance amounted to 1,900 million Yuan, all of which was substandard loans; NPL ratio dropped by 4.96 percentage points from 2007 to 0.68%; provision coverage ratio rose by 56.86 percentage points from 2007 to 105.14%; and provision adequacy ratio rose by 237.45 percentage points from 2007 to 364.65%. With the material decline of NPL overall assets return will get less impact from low interest assets. (a) 5-tier loan classification at the end of reported period Please refers to the Key Business Data Highlights C.1. (b) Loans structure and quality by regions in the reported period 31 December 2008
31 December 2007
Balance NPL Ratio (%)
In RMB million
87,983 100,457 75,600 19,701 283,741
South China East China North China & Northeast region Southwest region Total
1.41 0.66 0.01 0.09 0.68
Balance
NPL Ratio (%)
78,646 78,062 49,967 14,361 221,036
12.46 2.92 0.41 1.29 5.64
Considering loan mix of regional segments, new loans were mainly concentrated in the Northern & Northeast and Eastern regions, increased by 25.6 billion Yuan and 22.4 billlion Yuan respectively compared with the beginning of the year, and respectively accounting for 41% and 36% of new loans of the year. Considering loan quality of regional segments, NPLs were mainly concentrated in Southern region at 31 December 2008, and NPLs of this region were primarily legacy NPLs initially issued before 2005. NPL rates of the rest regions were all lower than the average NPL rate of the Bank. (c) Loans structure and quality by products in the reported period 31 December 2008
In RMB million
Corporate loans Including: general loans discount Retail loans Including: housing mortgage loans operational loans credit cards receivables automobile loans others Total loans
31 December 2007
Total loans NPL Ratio (%) 209,835 167,617 42,218 73,906 44,431 10,305 3,722 3,275 12,173 283,741
0.88 1.10 – 0.12 0.07 0.19 0.64 0.02 0.08 0.68
Total loans
NPL Ratio (%)
Change of NPL Ratio (%)
157,493 149,713 7,780 63,543 41,752 9,231 2,011 1,359 9,190 221,036
7.58 7.97 – 0.85 0.51 1.33 3.88 1.53 1.10 5.64
-6.70 -6.87 – -0.73 -0.44 -1.14 -3.24 -1.51 -1.02 -4.96
In November 2008, the Bank entered a new Settlement Agreement with Beida Jade Group, Dong Hua Property and Cheng Jian Dong Hua with regard to the 1.5 billion Yuan loans. (Please refer to Board Announcement of Major Events on 21 November 2008 for specifics, Announcement: 2008-081)
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On 26 November 2008, after application was made by both parties to the Settlement Agreement, the Supreme People’s Court ruled out (2008) Civil 60 Second Trial Reconciliation Letter under such the causes of action that the Bank filed a lawsuit against Dong Han Property and Cheng Jian Dong Hua regarding the dispute of right of revocation [Case (2005) High Court Civil 1371 First Trial], affirming that the above Settlement Agreement was reached by both parties’ authentic will and it is not in violation of laws, administrative regulations and other prohibitive rules. On the same day, this Reconciliation Letter took effect by law after both parties signed it. Under such the causes of action that Cheng Jian Dong Hua did not perform the obligation to pay cash 0.7 billion Yuan to the Bank within the stipulated term (within three days after the Reconciliation letter comes into effect) of the above Reconciliation Letter, nor did Beida Jade and Dong Hua Property perform the guarantee responsibility as the guarantors, on 15 December 2008, the Bank entrusted the representative lawyer to file Application Letter for Enforcement to Beijing High People’s Court (“Beijing High Court”) which ruled the first trial of this case. On 22 December 2008, Beijing High Court ruled out (2009) High Court Execution 2 Notice of Acceptance of Application for Execution, which considered that the enforcement application by the Bank is subject to legal conditions and determined to register the case for execution. On 1 Febuary 2009, Beijing High Court ruled out (2009) High Court Execution 2 Civil Ruling, appointing Bejing No. 2 Intermediate People’s Court to execute the dispute of right of revocation between the Bank and Dong Hua Property and Cheng Jian Dong Hua. At present, the case is still under execution. Holding of foreign currency financial assets There are two sorts of foreign currency financial assets held by the Bank; the brokerage investment and proprietary investment. One part of brokerage investment is for close position of wealth management product, structure of which completed matched with wealth management product of the Bank, hedging against market risk entirely; another part of brokerage investment if for brokerage foreign currency exchange, which has simple product structure and adequate liquidity, with most trading partners as domestic major banks. Proprietary investment is mainly for bond investment and inter-bank borrowing and lending. Subjects of bond investment largely are foreign currency bonds issued by the Ministry of Finance of China or domestic policy banks, or bonds issued by overseas major banks backed in full amount by foreign governments. Investment product of this kind comprises simple structure, consistent price and stable market value. Counterparties of interbank borrowing and lending mainly are domestic banks, thus fund security is guaranteed. The Bank does not have any bond or assets/ properties backed securities investment with Freddie Mac and Fannie Mae, or any investment to Lehman Brothers. Most overseas trading partners are major international investment/commercial banks, home companies of which are mostly rated AA by Standard & Poor’s. We do not discover any major changes of their ratings despite overseas financial market volatility. The Bank is always precautious towards overseas securities investment, which does not make up for a big portion of overall investment, thus impact of its market risk on profit is limited. Gains/losses on fair value Opening variation during In RMB’000 balance the period
Fair value changes counted as equity
Impairment provision during the period
Ending balance
Financial assets Including: 1. financial liabilities designated at fair value and changes of which are booked as gains/losses in the period Including: derivative financial assets 2. Loans and receivables 3. Available-for-sale financial assets 4. Held-to-Maturity investment Total financial assets Financial liabilities Including: financial liabilities designated at fair value and changes of which are booked as gains/losses in the period Including: derivative financial liabilities Total financial liabilities
43,471 34,474 6,208,399 116,094 565,352 6,933,316
52,137 51,329 – – – 52,137
– – – 771 – 771
– – -428,473 -38,210 – -466,683
90,634 86,803 5,116,672 771 499,911 5,707,988
169,611 169,611 169,611
158,164 159,452 158,164
– – –
– – –
49,578 10,159 49,578
Annual report 2008 Shenzhen Development Bank
3 Business Review Corporate Banking Business In 2008, corporate business of the Bank reported good growth. Corporate deposits rose by 26%. The growth compared with the same period of last year ranked No. 1 among 14 national commercial banks (notes: growth ranking does not include Hengfeng, Zheshang and Bohai, same as below.); general loan balance (excluding NPL) rose by 20%, ranked high among 14 national commercial banks. Net fee income increased by 55% compared with the same period of last year. The brand name “SDB Supply Chain Finance” was further promoted. On-and-off balance sheet credit balance rose by 10%, a substantial drop from the peak at the end September to the end of the year on the back of trade finance volume shrinking in order to control the risk of goods price plummet in the 4th quarter. In face of changing domestic and overseas economic situations in 2008, the bank strengthened cooperation with logistics companies, set business early-warning and emergency systems and regulate monitoring process together, thus risk of trade finance was controlled and market challenges was conquered in the 4th quarter. In the reported period, the corporate banking continued to promote electronic products of supply chain finance, and released several electronic platforms including “Bank-Boarder Express”, new version E-banking for international business, factoring business system and #2 phase “Corporate Guard”. A new factoring business center was set under the trade finance department to realize specialized operation. In 2008, the Bank made notable progress in corporate strategic planning and brand building. The Bank cooperated with the Euro-China International Business College to publish the Supply Chain Finance – New Finance Under New Economy, streamlining experiences and establishing theory of trade finance. In 2008, the SDB “Supply Chain Finance” was honored several awards including the Golden Prize of the 2nd Best Practice Award of Harvard Business Review, the Best Supplier of Supply Chain Finance Service, and Most Innovative Technology Award of the Annual China Enterprise Competitiveness Meeting. A series of products of supply chain finance “Pool Finance” were honored as the Second Prize of the Shenzhen Finance Innovation Award; and received the title of “Top 10 China Commercial Bank Supporting SME Development” again in 2008. Development of trade finance business in 2008 is as follows: In RMB million
Domestic trade finance Including: South China East China North China & Northeast region Southwest and other regions International trade finance (including off-shore) Including: export trade finance Import trade finance Total balance of trade finance
31 December 2008
%
31 December 2007
%
Changes
81,692 30,593 17,618 28,740 4,741 5,119 1,436 3,683 86,811
94.10 35.24 20.29 33.11 5.46 5.90 1.66 4.24 100.00
73,587 33,414 14,002 22,771 3,400 5,563 1,369 4,194 79,150
92.97 42.22 17.69 28.76 4.30 7.03 1.73 5.30 100.00
11.01 -8.44 25.82 26.21 39.44 -7.98 4.89 -12.18 9.68
Facing global financial crisis and macro economy downturn, trade finance business of the Bank kept moderate growth and meanwhile credit risk was effectively controlled. Trade finance balance amounted 86,800 million Yuan, increased by 10%, or 7,700 million Yuan compared with last year; NPL ratio was 0.05%, dropped by 0.47 percentage point compared with the beginning of the year. Over 60% of the NPLs were made before 2005 Domestic trade finance business remains the main source of growth and the year-end balance reached 81,700 million Yuan with an increase of 11%. Client number rose by 30% compared with the end of 2007. Due to differences of regional industrial structure, development of trade finance in different regions varies. The export-featured South regions started the business early with larger shares got more impact of external economy, where trade finance business declined by 8%. The East, North, Northeast and Southwest regions were less affected, where business growth remained above 25%. In light of worsening global economy and shrinking import & export businesses, and maintaining high credit standards, international trade finance declined, with credit balance down by 440 million Yuan from last year.
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Retail Banking In 2008, facing economic uncertainties and rattling market environment, retail banking reacted in line with customer development strategy proactively, and realized fast growth of liabilities business and sustainable innovation of assets business, achieving processes in product development, brand building, system setting, customer service and volume growth. The Bank got the asset custody qualification and initiated the ever untouched custody business. Up to the end of 2008, average daily savings deposits (including guarantee deposits) amounted to 51,700 million Yuan, and deposit balance was 58,200 million Yuan, a record-high increase of 42% compared with last year. Average daily personal loans (including credit cards) increased by 31% to 68,700 million Yuan; balance of personal loans amounted to 73,900 million Yuan, increased by 16%. Net fee income rose by 35% to 300 million Yuan. New VIP customer number increased by 56% to 71,839 ones. 1.23 million effective debit cards were newly issued in 2008 accumulatively as an increase of 14%. 1.44 million credit cards were newly issued, and circulation of effective cards increased by 60% to over 3 million. NPL ratio of personal loans (including credit card) dropped to 0.12% after the large write-offs, a decrease of 0.73 percentage points from the beginning of the year. While economy slowing in 2008, retail banking strived for promoting outlet sales skill and management methods and apply differentiated marketing to customers in the manner of resources integration, CRM system building, and implementation of SFE project and cross-selling, thus passed on a strong information to market, promoted enhanced clients’ comprehensive contribution, and promoted competitiveness and social image of the Bank. In 2008, retail banking obtained some 20 awards in personal loans, wealth management products, and marketing and service recognized by the market and customers, including “Best Retail Credit Banking in China”, “Best Retail (Wealth Management) Bank” and several wealth management products prizes. Meanwhile, retail banking carried out an all-around process streamlining, system improvement and business training in risk control and internal management, remarkably improved ability to withhold risk and consolidated foundation for sustainable business development. Table of personal loans In RMB million
1. 2. 3. 4.
Personal loans excluding credit cards South China East China North China Southwest Head Office Total personal loans excluding credit cards Including: total NPLs Credit card loans Balance of credit card loans Balance of credit card NPL Total personal loans (including credit cards) Total NPL including that of credit cards Mortgage loans in personal loans Balance of mortgage loans Including: housing mortgage loans Mortgage NPL Including: housing mortgage NPL
31 December 2008
%
31 December 2007
%
23,145 26,482 16,013 4,534 10 70,184 61
32.97 37.73 22.82 6.46 0.02 100.00 0.09
23,251 21,318 13,648 3,256 59 61,532 462
37.78 34.65 22.18 5.29 0.10 100.00 0.75
3,722 24 73,906 85
100.00 0.64 100.00 0.12
2,011 78 63,543 540
100.00 3.88 100.00 0.85
46,538 44,431 47 31
62.97 60.12 0.10 0.07
44,809 41,752 293 214
70.52 65.71 0.65 0.51
Note: mortgage loans including mortgage for individual housing and commercial purpose, housing mortgage does not include housing both for residential and commercial purposes, office buildings and mortgage for stores. The “total personal loans (including credit card)” is the denominator for percentage of the “balance of mortgage loans” and “including: housing mortgage loans”; the “balance of mortgage loans” is the denominator for percentage of the “mortgage NPL”, and the “including: housing mortgage loans” is the denominator for percentage of the “including: housing mortgage NPL”. Up to the end of 2008, average LTV of personal loans is 63%
Most personal loans of the Bank floats on a yearly basis, and rate adjustments occurs through the months, so impact of interest cuts during 2008 will gradually come out. Furthermore, the Bank increasingly adjusted interest rate of qualified mortgage in light of the 70% discount policy applied to mortgage by PBOC since 27 October 2008, which diminished net interest income. Treasury and Inter-Bank Business In 2008, the Treasury and Inter-Bank Business stick to the concept of “Coordinated development of volume and quality, emphasis both on product innovation and management innovation”, accurately seized opportunity periodical opportunities in domestic market, reinforce internal control, and make product innovation prudentially. On the premise of guarantee reasonable liquidity, inter-bank volume and profit recorded multiple folds growth and hit historical high, basically realized the strategic target of “high-quality growth” and achieved promotion of both management and business performance.
Annual report 2008 Shenzhen Development Bank
In 2008, inter-bank assets rose by 116% compared with the same period of last year and inter-bank liabilities rose by 80%. Inter-bank transaction income increased by 119%, bond trading volume 74%, bond interest income 92%, bond price difference income 722%, and foreign currency settlement 87%. Trading volume of forward currency settlement ranked the first in Shenzhen region, and that of spot currency settlement ranked the second. Trading volume of foreign currency purchase was up by 76% compared with the same period of last year and gold business volume was up by 1100%. Personal gold trading volume ranked the third in industry, and account open number of gold trading ranked the fourth. It designed and issued 76 wealth management products, with the sales volume on a par with that of 2007. The Bank made substantial breakthrough in commercial wealth management products and achieved great increase. In 2008, put into consideration the operation features of capital market and features of balance sheet structure of the bank, the bank expanded inter-bank business scale and bonds investment volume. Although interest spread of inter-bank business is lower than that of loan business, and growth of inter-bank business brings down the average interest spread, considering inter-bank business takes up less risk weighted asset, it is still a profitable business division. Therefore, the Bank expanded inter-bank business scale in 2008. Meanwhile, the bank purchased PBOC notes and treasury bonds with the increased fund from time deposit growth to consolidate liquidity, and realized investment return partly brought by the PBOC interest cut in 2008. The Bank realized 400 million Yuan investment return in total. In respect of RMB bond investment, the Bank tracked the market trend and adopted flexible operation strategy, seizing every opportunity of bond yield turnaround, so as to realize price difference income and promote portfolio profitability; In respect of foreign currency bonds investment, the bank dealt with the financial crisis seriously and prevented new risks of foreign currency business. At the beginning of the year anticipated sub prime crisis will unravel in 2008, the Bank halted trading of foreign currency bonds. Bond investment mainly concentrated on the government bonds with high credit rating or bonds backed by government. In 2008, the Bank on the one hand developing inter-bank business with stable steps, on the other hand actively improved platform integration and process optimization; improved system, optimized process, refined authorization, strengthened training, strictly regulated trading approaches, emphasized risk awareness, expanded talent reservoir, improved professional skills of staff, and notably reinforced team spirit. The Bank improved liquidity management and assured liquidity safety for the whole year; realized all-around liquidity gap monitoring and liquidity mix management, and improved ability of predicting liquidity gap and capability of raising capital. The system of personal firm bid on buying and selling foreign exchange was put in place, which filled a business gap of the Bank. The Bank launched the open-end wealth management system and upgraded the gold trading system for odd/even month new contract types; launched new products including commercial single/ collective wealth management products, wealth management products for off-shore clients, bill trust wealth management products, and interbank brokerage wealth management products, thus products system and marketing channels tended to be more complete. The Bank make a breakthrough in underwriting debts financing instrument, successfully registered three issue projects which will be launched in 2009, this means that the business of debts financing instruments underwriting of the Bank comes to a new stage. The qualification of gold storage bank was approved by the Shanghai Gold Exchange, and the qualification of gold business broker of small and medium financial institutions was approved by the PBOC Shenzhen Sub-Branch. Liquidity management Management team of the Bank places great attention to liquidity management. Liquidity status is solid. At the end of 2008, all liquidity ratios met the regulatory requirements. Various deposits grew quickly in 2008 and growth between months was relatively stable, on account of considerable deposit inflow following capital market fluctuation. As lending growth was strictly in compliance with PBOC requirement, loan to deposit ratio fell down continuously compared with previous years. The Bank enhanced bond and PBOC note investment in the reported period, the bonds and PBOC notes that can be sold at secondary market right away rose remarkably compared with the beginning of the year, thus capacity to deal with liquidity pressure was reinforced. In 2008, the Bank issued 8 billion Yuan sub debts in aggregate; and exercise of the second block SFC2 warrants brought in 1.8 billion Yuan. Those two long-term funds added substantial liquidity to the Bank. The Bank kept on diversifying liquidity management measures, improved process of liquidity risk management, so as to monitor overall liquidity status accurately and timely. Sensitive analysis of interest rate In respect of interest rate management, as loan re-pricing is slower than deposit re-pricing in line with the re-pricing maturity structure of the Bank, deposit rate decline is faster than loan rate decline in the short term while in the downward rate cycle. However, because majority of deposits of the Bank are demand deposits and short-term time deposits, and demand deposit rate cut by PBOC for the five sessions was lower than the other deposits and loans rate cut, therefore, effect of deposit rate decline appeared early than loan rate decline. But net interest margin will not be greatly increased in the short term because the trend of total deposits rate decline will be dragged down by demand deposit. In the long run, with re-pricing effect shows up, impact of loan will cover impact of deposit and incur net interest margin narrowing down. Organizational construction In 2008, the bank set 29 new sub-branches, among which 9 ones are in Northern and Northeast China, 7 in Southwest China, 8 in Eastern China and 5 in Southern China.
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4 Segmental operation information Deposits by geographical region at the end of reported period Regions
31 December 2008 Amount
In RMB million
126,900 123,023 89,386 21,205 360,514
Southern China Eastern China Northern China and Northeast Northwest China Total
% 35.20 34.12 24.79 5.89 100.00
31 December 2007 Amount 102,539 93,612 68,457 16,669 281,277
% 36.45 33.28 24.34 5.93 100.00
Loans (including discount) by geographical region at the end of reported period Regions
31 December 2008 Amount
In RMB million
87,983 100,457 75,600 19,701 283,741
Southern China Eastern China Northern China and Northeast Northwest China Total
% 31.01 35.40 26.65 6.94 100.00
31 December 2007 Amount 78,646 78,062 49,967 14,361 221,036
% 35.58 35.32 22.60 6.50 100.00
Operating income and operating revenue by geographical region in the reported period Year 2008 Regions Operating income
Operating expenses
Pre-provision operating profit
Percentage of pre-provision operating profit by regions
8,040 3,495 2,150 828 14,513
3,220 1,691 1,133 332 6,376
4,820 1,804 1,017 496 8,137
59.23 22.17 12.50 6.10 100.00
Regions
In RMB million
Southern China Eastern China Northern China and Northeast Northwest China Total
Year 2007 In RMB million
Southern China Eastern China Northern China and Northeast Northwest China Total
Operating income
Operating expenses
Pre-provision operating profit
Percentage of pre-provision operating profit by regions
5,762 2,869 1,626 551 10,808
2,563 1,322 885 262 5,032
3,199 1,547 741 289 5,776
55.38 26.78 12.83 5.01 100.00
Business in southern China comprises business at the head office. As the bond and fund trading business were concentrated at the head office, the revenue before provision shows higher proportion in southern China compared with the other regions. Operating income by industries and products in the reported period Business types In RMB million
Loan interest income Inter-bank transaction income Reverse repurchase income Securities investment interest income Fee, commission and other business income Total business income
2008
2007
±%
19,406 4,532 138 2,388 8,224 34,689
14,222 2,381 139 1,301 1,348 19,391
36.45 90.34 -0.72 83.55 510.09 78.89
Annual report 2008 Shenzhen Development Bank
5 Profit segments by periods Profit by periods in 2008 is as follows: In RMB million
Operating income Net interest income Net fee and commission income Net other operating income Operating expenses Business tax and surcharge General and administrative expenses Operating profit before provision Asset impairment loss Operating profit Net non-operating gains/losses Profit before tax Income tax Net profit
1Q
2Q
Jan – Jun
3Q
4Q
Jul – Dec
2008
3,553 3,145 150 258 1,594 283 1,311 1,959 583 1,376 3.0 1,379 375 1,004
3,562 3,157 230 173 1,466 286 1,182 2,096 631 1,465 -18.4 1,447 307 1,140
7,115 6,303 381 431 3,060 568 2,492 4,055 1,214 2,841 -15.3 2,826 682 2,144
3,626 3,176 285 165 1,539 291 1,248 2,087 564 1,523 -34.2 1,489 316 1,173
3,772 3,119 185 467 1,777 293 1,484 1,995 5,556 -3,561 38.7 -3,522 -819 -2,701
7,398 6,295 470 633 3,316 584 2,732 4,082 6,120 -2,038 4.5 -2,033 -503 -1,528
14,513 12,598 851 1,064 6,376 1,152 5,224 8,137 7,334 803 -10.8 793 179 614
6 Future expectation and action plans Industry status quo, development trend and competition pattern In 2008, the global financial crisis swept real economy and some industries were trapped into difficulty. Credit risk was adding and asset quality of global banking industry was under pressure. According to public announcement, in face of downward macro economy, China’s economic policy switched from preventing economy overheating at the beginning of 2008 to maintaining the smooth, steady and rapid economic development as the primary task for 2009. China will employ the moderately loose monetary policy in this year. The Bank will actively adjust credit policy in line with policy guidance of central government, embrace opportunities brought by national economy stimulus projects, and actively issue good quality loans to realize sustainable business growth. The Bank will also promote fund using efficiency and offset negative impact of interest cut by enhancing interest rate management and guiding branches to price rationally. In the meantime, the Bank would always strictly control various risks, explore low risk businesses and fee business, and further improve internal control. The target is to promote both management and business performance through streamlining management methods, implementing process reengineering, and enhancing system development and training. In line with regulatory requirements for small and medium sized banks in the 4th quarter to deal with current domestic and overseas financial and economic situations, the Bank made a special large provision and write-offs at the end of 2008, which substantially disposed legacy NPLs and laid a good foundation for the Bank to resist future credit risk and other uncertainties. Meanwhile, improved overall asset profitability of the Bank will pave the way for future profit growth, which will also help improve provision level and risk withholding capability. Trends at start of 2009 In light of the unusual economic environment, the Bank notes the following business trends in early 2009: (a) Business growth The overall business of the Bank YTD 2009 has been stable and sound. The Bank has achieved continuous strong growth in deposits, both commercial and retail. From late 2008, after PBC relieved the lending limit on banks, in response to the government stimulus program, the bank initiated new lending programs and loans achieved good growth. However, in light of uncertainties in the economy, the Bank has been giving special attention to matters of credit quality, as a condition of loan growth. (b) Profit Net profit for the first 2 months of 2009 exceeded that of the same period in 2008. Net interest income in the first 2 months in 2009 achieved single digit percentage growth compared with the same period in 2008, due to good growth in average earning assets and improvements in the balance sheet more than offsetting some decline in NIM. The Bank expects the NIM to decline in future quarters of 2009 as a result of the interest rate reduction by PBOC in late 2008 as well as increases in the Bank’s portfolio of interbank assets, resulting largely from strong deposit growth. The bank hopes to help offset part of the effect of spread pressure by growth of good assets, combined with appropriate management of the balance sheet.
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(c) Asset Quality Despite that NPL increase in the first 2 months of 2009 amounted less than 0.05% of total loans, and NPL ratio has no material change. However, the Bank made appropriate additions to credit provisions, in light of the economy, and the Provision Coverage Ratio and Provision Sufficiency Ratios both increased from the figures of 31 December 2008. The Bank plans to release 2009 First Quarter Report during late April. Business plans for 2009 Entering into 2009, the Bank has made preparation for domestic and overseas economic uncertainties and set a good start in aspects of asset quality and risk prevention. Considering situation in the 1st quarter of 2009, asset quality is overall in good shape after the big provision and write-offs, and NPL variation is under control. Facing narrowing interest spread in 2009, the Bank will adopt active balance sheet management, reduce impact of interest adjustment on interest margin, and endeavor to offset income decline caused by interest spread shrink by solid business growth a. Enhancing infrastructure and developing service outlets and channels and increase investment on IT. Now that the CCAR meets and CAR met regulatory requirements, the Bank has planned to open three branches and more sub-branches. The implementation of relevant plans is subject to the approval of CBRC. Besides, the Bank will equip more self-service machines across the country and upgrade function of online banking and telephone banking. In 2008 Capex for IT projects amounted to some 250 million Yuan (including self-service equipments, 190 million Yuan if excluding self-service equipments), increased by 39% over 2007. The Bank will continue improvement of and input to IT system. b. Reinforcing capital management. A prudential balance sheet management policy will be adopted in order to realize rational asset growth under strict capital constraint, using the measures of plan and assessment, and limitation management. In the meantime promoting CAR to meet regulatory requirement and business development necessity through capital plans such as sub-debts and hybrid bond issue. c. In corporate banking, taking “becoming a leading bank providing professional supply chain finance service in China” as the key strategy, actively handling changes of macro economy and customer necessities tendency, and expanding basic and strategic customer group through promoting comprehensive service ability. In 2009, the Bank will reinforce cooperation with core enterprises, promote wholesale marketing of supply chain finance, and fasten the work of building electronic platform of supply chain finance. Meanwhile the Bank will actively research for cooperative mechanism of consortium loan with regional banks, expand marketing channels for assets businesses, strengthen cross-selling with retail and inter-bank banking, so as to improve marketing ability in a comprehensive manner. d. Basic thinking for retail business in 2009 is to emphasize on developing valuable customers and build core competitiveness in line with the strategy of “advanced product, excellent service, convenient trading, appropriate pricing, and unique experience”. The retail banking will grasp the opportunity of economic correction to consolidate basic business and make a good effort to promote deposits, continuously make product innovation and optimize business process so as to keep stable development of assets business; put emphasis on the idea of customer grading, promote cross-selling, and cultivate potential value-added customers; strive for the position of primary bank for target customers, and promote customer contribution in an all-around manner. The retail banking will further build a innovative and stable retail product pool with ample products, enhance e-channel development with emphasis of outlet and self-service equipments, and establish a integral product selling and service channel system; continue to improve teambuilding, promote selling ability of basic outlets, reform and improve assessment system, and set a consolidated business system that is in compliance. e. On the premises of risk control, inter-banking business will cultivate the customer-oriented trading service, expand customer group of brokerage business from various channels and grow brokerage business through providing tailored and competitive products and services for branches and clients, regulate and promote asset management service, and obtain stable revenue. Developing investment wealth management products and investment banking continuously; accelerating development of new products and systems and improving fund products service; striving for new business qualifications such as foreign exchange market maker; reinforcing market analysis and prediction; improving measures of utilizing bond portfolio; endeavor to improve investment return and price margin income; and actively exploring time profit opportunities of certain markets. f. With respect to risk management, as China employed active fiscal policy and moderately loose monetary policy in 2009, the Bank will actively give lending support to the industries favored by state industry policy in accordance with the principle of “applying differentiated treatment to the industries to be braced and the ones to be refrained”, on the premises of risk control. The Bank will continue to put emphasis on SMEs, trade finance, and retail credit businesses. g. Further improving compliance management system and cultivating compliance culture, streamlining and optimizing various systems and business processes, and implementing business process reengineering.
Annual report 2008 Shenzhen Development Bank
7 Capital Plan In 2008, the bank recorded profit and added 0.614 billion Yuan core capital through self accumulation, completed the exercise of “SDB SFC2” warrants which brought in 1.8 billion Yuan core capital, and successfully issued two blocks of sub-debts to the inter-bank markets which added 7.35 billion Yuan supplementary capital to the bank (Due to the limitation on net capital, 0.65 billion Yuan out of 8 billion Yuan has not been computed into supplementary capital.). At 31 December 2008, CCAR and CAR reached 5.27% and 8.58% respectively, all satisfied the regulatory requirements. Increase of risk weighted assets will consume capital with business expansion, and although it profit accumulation adds to Tier 1 capital, it cannot add to Tier 2 capital. Therefore, the Bank will engage a series of capital plan including sub-debts issue, hybrid capital bond issue, aiming at meeting 10% CAR in 2009. Continuous growth of capital base will support business growth. At present, relevant subordinated debts and hybrid capital bond plans in 2009 are being reviewed by the regulators. In RMB million
Core CAR CAR Capital compositions Core capital Share equity Capital reserve Surplus reserve General provision Undistributed profit Minority shareholders’ equity Deducted item of core capital Net core capital Supplementary capital General loan loss provisions Re-evaluation reserve Long-term subordinated debts Total capital Less: good will Unconsolidated shareholding investment Others Net capital Total risk-weighted assets On-balance sheet risk-weighted assets Off-balance sheet risk-weighted assets
31 December 2008
31 December 2007
31 December 2006
5.27% 8.58%
5.77% 5.77%
3.68% 3.71%
15,038 3,105 6,963 934 3,583 453 – 328 14,710 9,578 1,445 778 7,355 24,616
12,806 2,293 5,203 719 2,716 1,874 – 113 12,693 112
6,384 1,946 1,558 454 1,680 746 – 5 6,379 45
112
45
12,918
6,429
434 223 23,959 279,113 220,032 59,081
5 221 12,692 220,056 170,779 49,278
9 6,420 173,222 138,807 34,415
Note: 1. Capital reserve and undistributed profit in the above table have deducted unrealized gain caused by change of assets fair value, in accordance with the CBRC computation method.
2. Re-evaluation reserve includes re-evaluation reserve for available-for-sale financial assets and investment properties.
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8 Investments of the Bank in the reported period Shareholding of other listed company Code Initial investment
Portion of total Ending shareholding face value
Gains/Losses in reported period
Change of equity in reported year
Accounting subjects
Shares sources
000040 Shen Hong Ji 3,215 0.30% 2,790 – (9,980 ) Available-for-Sale 000005 Shiji Xinyuan 405 0.04% – – (2,372 ) Available-for-Sale 000150 Yihua Property 10,000 2.79% 10,000 – – Available-for-Sale 000505 Zhujiang Real Estate 9,650 0.27% – – – Long-term equity 600515 ST Zhuxin 664 0.22% – – – Long-term equity 600038 Hafei Shares 39,088 0.37% 5,631 (24,549 ) 776 Available-for-Sale 600664 S Hayao shareholding 80,199 0.39% 48,467 (39,738 ) 12,875 Available-for-Sale 000012 Nanbo A 1,739 0.15% – 13,312 – Available-for-Sale Visa Inc. – 0.01% 771 771 Available-for-Sale Total 144,960 67,659 (50,975 ) 2,070
Historic investment Historic investment Repossessed equity Historic investment Historic investment Repossessed equity Repossessed equity Repossessed equity Historic investment
In RMB’000 Name
Shareholding of other unlisted financial institutions and unlisted companies InvestMENT Company Name In RMB’000
Chengdu Industry Investment Assets Operation Co., Ltd. China Bank Unionpay Co. Ltd. Wuhan Steel Electricity Co., Ltd. Shandong Xinkaiyuan Property Co., Ltd. Yongan Insurance Company Chengdu Juyou Web Co.,Ltd. Taiyang Securities Co., Ltd. Shenzhen Zoto Investment Co., Ltd. SWIFT Jintian Industrial Group Co., Ltd. Meizhou Terylene Group Company Guangdong Samsung Corporate Group Co., Ltd. Hainan Baiyunshan Co., Ltd. Hainan Hainan Zhonghailian Real Estate Co., Ltd Hainan Saige Co., Ltd. Hainan Wuzhou Traveling Co., Ltd. Junhe Traveling Co., Ltd. Shenzhen Jiafen Textile Company Total
Investment amount
Impairment provision
Ending face value
269,065 50,000 32,175 30,607 67,000 20,000 4,283 2,500 230 9,662 1,100 500 1,000 1,000 1,000 5,220 2,800 16,725 514,867
(20,000 ) – – – (38,470 ) – – – – (9,662 ) (1,100 ) (500 ) (1,000 ) (1,000 ) (1,000 ) (5,220 ) (2,800 ) (16,725 ) (97,477 )
249,065 50,000 32,175 30,607 28,530 20,000 4,283 2,500 230 – – – – – – – – – 417,390
The above investments are all historical investment or repossessed equity of the Bank.
Annual report 2008 Shenzhen Development Bank
Controlling company The Bank did not increase investment of controlling company or any other equity. At the request of CBRC, the Bank has completed the decoupling with and liquidation of its previous controlling subsidiary Yuansheng Company. Usage of raised fund Up to the end of reported period, the Bank has completed the exercise of first block warrants with the actual exercise rate of 91.42%, raising fund of some 1.8 billion Yuan. The fund has all been used to add core capital after deducting relevant expenses. In RMB’000
Total raised fund Raised fund of change of usage Raised fund ratio of change of usage
1,812,373 0 0
Invested raised fund of this year
1,812,373
Accumulatively used raised fund
1,812,373
Invested Accumulatively Change Amount to amount invested Predicted Return Promised items or not be invested of the year amount Progress return status Supplementary capital Total
No No
1,812,373 1,812,373
1,812,373 1,812,373
1,812,373 1,812,373
100% 100%
– –
– –
Actual process of and return on major non-share-offering investment project In the reported period, the Bank has no non-share-offering investment project.
9 Items with over 30% growth in comparative financial statements Items in Financial Statements Inter-bank placement Inter-bank lending Financial assets designated at fair value and changes of which are booked as gains/losses in the period Available-for-sale financial assets Interest receivable Account receivable Loans and advances Long-term equity investment Intangible assets Assets of deferred income tax Inter-bank borrowing Repurchase agreements of financial assets Financial liabilities designated at fair value and changes of which are booked as gains/losses in the period Derivative financial liabilities Salary payable Tax payable Interest payable Account payable Subordinated bonds payable Predicted liability Liabilities of deferred income tax
±%
Cause for change
435.69 249.52 -97.20
Increase of inter-bank business Increase of inter-bank business Maturity of wealth management products
173.37 42.55 74.74 31.02 65.66 68.21 82.20 220.87 136.32 -96.84
Increase of investment scale Increase of interest-earning assets scale and interest rate Increase of re-financing for import business Increase of loan size volume Increase of repo equity Increase of software purchase Impact from sale of non-performing assets and big provision & write-off at the end of the year Increase of inter-bank business Adjustment of business structure Maturity of wealth management products
-77.04 34.80 46.12 71.48 49.13 100.00 -66.67 246.73
Decrease of derivative instruments for closing position of wealth management products Increase of staff number Increase of income tax in the period Growth of interest-bering liabilities and interest rate hike Increase of re-financing for import business New issuance of subordinated bonds of this year Closure of unsettled lawsuits with payment Improvement of profitability in different tax rate regions
Whether feasibility is changed substantially No No
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Report of the Board of Directors
Items in Financial Statements
±%
Cause for change
Other liabilities -49.00 Decrease of dissolved promissory note Shares equity 35.41 Exercise of second block warrants, renders three shares for every ten shares in the interim distribution plan Capital reserve 53.04 Exercise of second block warrants General provision 31.95 Appropriate 1% of newly added risk assets for general provision Undistributed profits -61.28 Increase of profit in the period and interim profit distribution Net interest income 31.15 Increase of business size Fee and commission income 63.50 Increase of fees income brought by product types and business volume Investment return 109.75 Increase of investment return brought by selling available-for-sale bonds Foreign exchange gain 79.74 Increase of business Other business income -30.93 Value-added tax of Gold-for-Interest provision Business tax and surcharges 39.71 Large increase of operating income Assets impairment loss 257.11 Big provision and write-offs in accordance with regulatory requirements at the end of the year Non-operating revenue -41.70 Decrease of income on disposal of fixed assets and repossessed assets Non-operating expense 58.26 Donation for Sichuan earthquake and increase of predicted liabilities Expense on income tax -84.08 Decrease of profit before tax in the period Net profit -76.83 Big provision and write-offs in accordance with regulatory requirements at the end of the year
10 Fair values Subject to the existence of financial instruments in an active market, the bank adopts the price of active markets to determine its fair values for preference. Subject to the existence of financial instruments in an inactive market, the bank adopts evaluation technology to determine its fair values. Evaluation technology includes reference to familiar circumstances and the price used in latest market trading of each party voluntary for trading, and reference to the current fair values and discounted cash flow technique of other essentially same financial instruments. Evaluation technology may use market parameter if feasible. However, the management tem needs to evaluate in light of the credit risk, market fluctuation rate and relevance of itself and the trading counterparts when lack of market parameter. The change of those relevant assumptions will influence the fair values of financial instruments. The following methods and assumptions have been used in estimating fair value by the bank: i Financial assets/financial liabilities at fair value through profit or loss (including derivative financial assets/derivative financial liabilities) are measured at fair value by reference to the quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of discounted cash flows or by reference to the quotes provided by counterparty. The carrying amounts of these items are equal to their fair values. ii The fair values of the held-to-maturity investments and the receivables-bond investments are determined with reference to the available market values. If quoted market prices are not available, then fair values are estimated on the basis of discounted cash flows. The fair values of bonds assets of receivables are determined by the cost; iii The fair values of other financial assets and financial liabilities maturing within 12 months are assumed to be approximately equal to their carrying amounts due to their short maturity. iv The fair values of the fixed rate loans are estimated by comparing the market interest rates when the loans are granted with the current market rates offered on similar loans. Changes in credit quality of loans within the portfolio are not taken into account in determining gross fair values as the impact of credit risk is recognised separately by deducting the amount of the impairment provision from both the carrying amount and the fair value. v Interest rates on customer deposits might either be floating or fixed depending on the types of products. The fair values of saving accounts and deposits without maturity date are the amounts payable on demand to customers. The fair values of deposits with fixed terms are determined by the discounted cash flow method. The discount rate adopted is the current interest rate on deposits with the same maturity as the remaining maturity of those deposits. vi
Investment real estate is evaluated by independent value with certified qualification each year, and analysis report is issued every quarter.
Annual report 2008 Shenzhen Development Bank
11 The work summary of the Board of Directors Meetings and resolutions of the board of directors in the reported period The 1st meeting of the 7th board of directors of the Bank was convened in the way of voting by correspondence. The notice of the meeting was sent to each director on 22 January 2008, and the voting deadline was set for 3:00pm on 24 January 2008. The meeting reviewed and approved the Proposal for Component Members of the Audit and Related Party Transactions Committee of the 7th Board of Directors and Proposal for Component Members of the Compensation and Examination Committee of the 7th Board of Directors in the way of voting by correspondence. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 25 January 2008. The 2nd meeting of the 7th Board of Directors was convened on 28 January 2008. The meeting reviewed and approved the Proposal for Electing the Chairman of the 7th Board of Directors, Proposal for 2007 4Q Write-off of Loss NPA, Proposal for 2008 Business and Financial Plan, Proposal for Relevant Events of Managing Directors’ Participation in Review of Compensation Issues and Proposal for Authorization of Selling Assets in Operating Activities to the Chairman & CEO. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 31 January 2008. The 3rd meeting of the 7th Board of Directors was convened on 19 March 2008. The meeting reviewed and approved the Annual Accounting Statement and Audit Report as of 31 December 2007 of Shenzhen Development Bank provided by EY-Huaming Accounting Firm, the Annual Audit Report of Shenzhen Development Bank (12 December 2007) provided by EY Accounting Firm, 2007 Annual Profit Distribution Plan, 2007 Annual Report of Shenzhen Development Bank, 2007 Annual Report & Abstract of Shenzhen Development Bank, 2007 Annual Internal Control Self-Appraisal Report of Shenzhen Development Bank, Proposal for Engagement of Mr Wang Ji as Special Consultant, Proposal for Engagement of Mr Zhang Yuanliang as Chief Information Officer, Proposal for Property Purchase by the Operating Center of Head Office, and Proposal for Authorization of Assets Purchase Approval to the Chairman. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 20 March 2008. The 4th meeting of the 7th Board of Directors was convened on 23 April 2008. The meeting reviewed and approved the Proposal for 2008 1Q Write-off of NPLs, 2008 1Q Report of Shenzhen Development Bank, Proposal for Engagement of Accounting Firm for 2008, Proposal for Purchase of Responsibility Insurance for Directors and Senior Staff, Administrative Measures for Capital Raising of Shenzhen Development Bank, Guidelines for Audit and Related Party Transactions Committee (Revised in April 2008), Proposal for Granting Facilities to China UnionPay, 2007 Final Financial Report of Shenzhen Development Bank, 2008 Budget Report of Shenzhen Development Bank, 2007 Board of Directors Work Report, 2007 Annual Work Report of Independent Directors, Proposal for 2008 Total Target Bonus for Senior Executives, Proposal for Revision of Relevant Engagement Contracts, 2008 Deferred Bonus Plan, Proposal for Compensation for Directors and Supervisors, Proposal for Component Members of Relevant Special Committees and Proposal for Purchase of Office Building by Nanjing Branch. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 24 April 2008. The 5th meeting of the 7th Board of Directors was convened on 21 May 2008. The meeting reviewed and approved the Proposal for Convening 2007 Annual Shareholders Meeting of Shenzhen Development Bank. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 22 May 2008. The 6th meeting of the 7th Board of Directors was convened on 17 July 2008. The meeting reviewed and approved the Proposal for Confirming Major Articles for Sub Bonds Issuance, Proposal for Opening Special Account for Fund Raising, Explanation of the Rectification of Special Activity of Corporate Governance, and Self-examination & Summary Report of Funds Taken up by Large Shareholders and the Related Parties. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 18 July 2008. The 7th meeting of the 7th Board of Directors was convened on 20 August 2008. The meeting reviewed and approved the Proposal for 2008 2Q NPL Write-offs, Accounting Statement and Audit Report of 30 June 2008 of Shenzhen Development Bank provided by EY-Huaming Accounting Firm, 2008 Interim Profit Distribution Pre-plan, 2008 Half Year Report of Shenzhen Development Bank, 2008 Half Year Report & Abstract of Shenzhen Development Bank, and Proposal for Wealth Management Strategy and Product Policy of Shenzhen Development Bank, and reviewed and approved eight RPTs one by one, including the Proposal for Granting Facilities to Shenzhen Small & Medium Enterprises Credit Guarantee Center Co., Ltd. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 21 August 2008. The 8th meeting of the 7th Board of Directors was convened on 25 September 2008. The meeting reviewed and approved the Proposal for Termination of Subscription Agreement with Bao Steel, Proposal for Adjusting 2008 Interim Profit Distribution Plan, Proposal for Sub Bond Issuance, Proposal for Financial Bond Issuance, Proposal for Adjusting Relevant Provisions of Hybrid Bond Issuance, Proposal for Convening 2008 1st Extraordinary Shareholders Meeting and Proposal for NPL Packaging Sale. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 26 September 2008.
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Report of the Board of Directors
The 9th meeting of the 7th Board of Directors was convened on 23 October 2008. The meeting reviewed and approved the Proposal for 2008 3Q NPL Write-offs, 2008 3Q Report of Shenzhen Development Bank, Proposal for Granting Facilities to Shenzhen Investment Holdings Co., Ltd, and Proposal for Mr He Zhijiang’s Post Title. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 24 October 2008. The 10th meeting of the 7th Board of Directors was convened on 17 December 2008. The meeting reviewed and approved the Proposal for Establishment of New Branches and the Arrangement of Capital Expenditure and Proposal for Mr Hao Jianping’s Separation of Shenzhen Development Bank as Vice President. The relevant resolutions were published on China Securities, Securities Times and Shanghai Securities on 18 December 2008. The Execution of Shareholders’ Meeting Resolution by the Board The BOD of the Bank seriously exercised every resolution of shareholders’ meeting during the reported period. As of the end of report period, except the proposals need to get regulators approval, such as Proposal for Sub-debt Issuance, Proposal for Hybrid Capital Bond Issuance and Proposal for Adjusting Relevant Provisions of Hybrid Bond Issuance approved by the 1st extraordinary shareholders’ meeting, the Bank exercised and implemented all the shareholders’ meeting resolutions including 2007 annual profit distribution plan and 2008 interim profit distribution plan. Duty Performance of Audit and Related Party Transaction Control Committee During the reported period, the Audit and Related Party Transaction Control Committee held totally 9 meetings, assisting the BOD to supervise the completeness of corporate financial report and internal control system and the effectiveness of internal audit function; supervising the annual independent audit on corporate financial statement, and made evaluation on independent auditors qualification, independence and working behavior; supervising the compliance in meeting legal requirements and regulatory requirements; supervising the exercise of corporate information disclosure control and procedure and its efficiency; supervising the fairness and justice of related party transaction and performed other duties specified by the working rules of the Audit and Related Party Transaction Control Committee. Audit and Related Party Transaction Control Committee formulated Work Rules for Annual Audit, and carried out communications and coordination with the accounting firm for annual audit, in accordance with work rules and rules of the Committee. (a) Two audit opinions on corporate financial report The Audit and Related Party Transaction Control Committee already negotiated the time arrangement for 2008 annual report auditing work with the accounting firm, and urged accounting firm to submit auditors’ report within the specified time limit. The Audit and Related Party Transaction Control Committee reviewed the financial statement prepared by the company before the annual auditing CPA officially came into work, and believed that the financial report already prepared in accordance with the rules of new accounting standard and fully reflected the asset-liability situation as of 31 December 2008 and the business result and cash flow of the company in 2008 in all significant respects. After annual auditing CPA came to work, the Audit and Related Party Transaction Control Committee strengthened the communication with them. After issuing the preliminary audit opinion by the annual auditing CPA, the Audit and Related Party Transaction Control Committee reviewed corporate financial report the second time in the meeting held on 17 March 2009, and believed that the financial report is true, accurate and complete, and is in accordance with corporate accounting standards and relevant regulations, there is no dispute with the accountant on significant issues. (b) Supervision on audit work The Audit and Related Party Transaction Control Committee made annual audit deployment in advance, and negotiated the scale and time progress of auditors’ report with the accounting firm. After auditors came to work, they made communication with main project managers and know the auditing progress and issue that CPA pay attention to. the Audit and Related Party Transaction Control Committee also urged auditors to hand in the report according to specified time limit so as to ensure the progress and accomplishment of annual auditing and information disclosure work, under the pre-condition of ensuring auditing work quality. (c) Submitted summary report on auditors work in last year to BOD Current CPA completed the auditing work on 20078annual report and semi-annual report, and the review work of agreed upon procedure of 1Q report and 3Q report. According to the working rules of the Audit and Related Party Transaction Control Committee, it will carry out annual evaluation on the working behavior of independent auditors. In the review process, the Audit and Related Party Transaction Control Committee and management will communicate with the principles of internal audit and review the report getting from the independent auditors. The Audit and Related Party Transaction Control Committee is satisfied with the qualifications and independence of current CPA. They completed the 2008 financial statement review and other work satisfactorily according to audit regulations and rules. (d) Resolution on reappointing accounting firm in the next year Suggest Shenzhen Development Bank Co., Ltd engaging E&Y Huaming as the domestic audit service agency and E&Y as the international audit service agency in 2009.
Annual report 2008 Shenzhen Development Bank
Performance of Compensation and Assessment Committee Within the report period, the Compensation Committee held totally 5 meetings, reviewed senior management examination benchmark and carried out examination, and made investigation on compensation policy and plan of directors, supervisors and senior management, and implemented other compensation relevant issue authorized by the BOD. (a) Examination opinion of compensation of directors, supervisors and senior management disclosed by this report The Compensation Committee paid social attention to senior executives’ compensation needed to be disclosed, on the basis of regulatory requirements. The Compensation Committee examined the compensation of directors, supervisors and senior management disclosed by this report, and believed that it is consistent with relevant resolutions of shareholders’ meeting, BOD meeting, Compensation Committee meeting, and relevant system of the Bank. The disclosure is truthfulness, accuracy and completeness. (b) The Bank didn’t implement equity incentive plan
12 The 2008 profit distribution plan The 2008 legitimated financial statement (audited by domestic CPA – E&Y Huaming Accounting Firm) reported net profit 614,034,806 Yuan, and distributable profits 1,058,180,871 Yuan. In mid-2008, the Bank appropriated legitimated surplus reserve of 214,383,444 Yuan at a ratio of 10% of profits after tax audited by domestic CPA; and appropriated general provision of 608,623,820 Yuan; meanwhile, renders 3 shares for every 10 shares and RMB 0.335 in cash (including tax), on the basis of total equity of 2,388,795,202 shares on 30 June 2008. The 2008 interim profits distribution plan has been approved by the 2008 1st Extraordinary Shareholders’ Meeting and has been implemented. According to the said profit result and relevant state regulations, the profits distribution for the 2008 full year is as follows: i The Bank should appropriate RMB 61,403,481 Yuan legitimated surplus reserve as 10% of the annual net profit of RMB 614,034,806 Yuan in 2008. Considering RMB 214,383,444 Yuan legitimated surplus reserve has been set aside in the middle of 2008, the Bank reverse surplus reserve of RMB 152,979,963 Yuan at the year end of 2008. ii
Appropriated general provision of 258,968,249 Yuan;
iii In order to facilitate the long-term development of the bank, the Bank has no cash dividends and no statutory common reserve converting into capital at present; iv Upon the said profits distribution, as of 31 December 2008, balance of surplus reserve amounted to 780,884,544 Yuan; general provision 3,583,296,414 Yuan; and undistributed profit 952,192,585 Yuan, used for supplementing capital, left for profit distribution in the future years. The above plan is subject to review and approval by 2008 Annual Shareholders’ Meeting of the Bank. Cash dividend distribution in 2008 and the previous three years: In RMB’000
2008 2007 2006 2005
Cash dividend (tax included)
Net profit attributed to holding company in the consolidated report
Cash dividend to net profit attributed to holding company in the consolidated report
80,024 12,666 – –
614,035 2,649,903 1,411,947 324,544
13.03% 0.48% 0% 0%
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Report of Board of Supervisors In 2008, the Board of Supervisors (BOS) of Shenzhen Development Bank has seriously exercised its responsibilities and obligations, and fully implemented its supervising functions on directors and senior executives, on the basis of protection the interests of our shareholders and staff, in accordance with Corporate Law, Securities Law, AOA of the bank and Rules of Procedure for BOS. This has had positively effect on the standardized operation and development of the bank.
A Meetings of the BOS 8 BOS meetings were held during the reported period. Detailed contents of the meetings are as follows:
1 The 1st meeting by the 6th BOS The BOS held the 1st meeting on the afternoon of 3 January 2008 at the conference room of Beijing Branch. Mr Kang Dian was elected as the Chairman of the 6th BOS; Mr Guan Weili was elected as the Chairman of Audit and Risk Management Committee of the 6th BOS, and Zhou Jianguo, Jiao Jisheng and Ma Liming as the members of Audit and Risk Management Committee; Mr Kang Dian was elected as the Chairman of Nomination Committee of the 6th BOS, and Mr Xiao Geng and Miss Ye Shuhong are the members of Nomination Committee.
2 The 2nd meeting by the 6th BOS The BOS held the 2nd meeting on the afternoon of 18 March 2008 at the conference room on 6th floor of the head office. Discussed Work Report of BOS for 2007 of SDB; Reported on “2.27 Case” of SDB and relevant matters of Audit Committee meeting of BOD on 17 March; Reviewed and approved 2007 BOS Report of SDB, 2007 Annual Report of SDB and 2007 Internal Control Self-Appraisal Report of SDB.
3 The 3rd meeting by the 6th BOS The BOS held the 3rd meeting on the afternoon of 22 April 2008 at NO. 2804 conference room on the 28th floor of the heard office. Reviewed and approved Commenting Report on 2008 1Q Report of SDB by BOS; The Chairman of BOS Mr Kang Dian reported on relevant matters of Audit Committee meeting of BOD on 21 April and visit to Shenzhen CBRC on 15 April.
4 The 4th meeting by the 6th BOS The BOS held the 4th meeting of the 6th BOS on 6 June 2008 by telephone conference. The Chairman of BOS Mr Kang Dian reported on the latest progress of “2.27 Case” of the bank and Chairman Mr Frank Newman’s visit to Chairman Liu Mingkang of CBRC on 4 June; Secretary of the BOS Miss Liu Zhiling reported to the supervisors at the meeting on CBRC’s Supervisory Notice to SDB for 2007, and supervisors at the meeting had a deep discussion based on this notice.
5 The 5th meeting by the 6th BOS The BOS held the 5th meeting of the 6th BOS at 9:00am on 1 August 2008 in Zhuhai. Supervisors at the meeting discussed the collection of information by BOS and communications; Summarized and discussed relevant status of Surveys by Joint-Stock Commercial Banks for 2008 of the BOS, and raised constructive suggestions on the revision of Summary of Survey Report; Full discussions were made on the BOS 2008 Patrol Inspection Work, and constructive suggestions on revising the Petrol Inspection Work Report were raised.
6 The 6th meeting by the 6th BOS The BOS held the 6th meeting of the 6th BOS on the afternoon of 19 August 2007 in No. 2 conference room on the 6th floor of the head office. BOS Chairman Kang briefly reported to the BOS issues on the Audit Committee meeting of the BOD on 18 August, and invited CFO Mr Wang Boming to make relevant analysis and explanation on the 2008 Half Year Report to the BOS; The meeting reviewed and approved 2008 Half Year Report of SDB, Audit Opinion Report of 2008 Half Year Report of SDB, and Code of Conduct for Directors and Supervisors of SDB (Revised in August 2008).
7 The 7th meeting by the 6th BOS The BOS held the 7th meeting of the 6th BOS on the afternoon of 22 October 2008 at the conference room on the 32nd floor of the head office. Supervisor Guan Weili reported to the BOS on issues about Audit Committee meeting of BOD held on 21 October; Chairman Kang reported to the BOS about CBRC’s organization and convening of Operation and Analysis Meeting for the Third Quarter; the meeting reviewed and approved 2008 3Q Report of SDB and Audit Opinion Report of 2008 3Q Report of SDB.
8 The 8th meeting by the 6th BOS The BOS held the 8th meeting of the 6th BOS on the afternoon of 17 December 2008 at the conference room on the 32nd floor of the head office. Chairman Kang reported to the BOS on the latest regulatory requirements to the Bank issued by CBRC, Speech Abstract of Deputy Director Chen Minggang on the Year-end Work Symposium of Joint-Stock Commercial Banks, Speech of Vice Chairman Wang Zhaoxing on the (Telephone) Conference of BOD, Operational Team and Supervising Cadre of Joint-Stock Commercial Banks and recent issues of the bank.
Annual report 2008 Shenzhen Development Bank
B BOS hereby express its independent opinion on the following matters: 1 Legal compliance on corporate operation In the reported period, the bank established and improved the corporate governance structure in accordance with relevant laws of the state, administrative rules and Article of Association of the bank, and decision procedures were in line with relevant regulations; There is no discoveries of BOD or senior executives breaching the laws, policies, AOA of the bank or resolutions of the Shareholders meeting.
2 Inspection of the Bank’s financial status In 2008, the bank standardized the conducts in conformity with the AOA of the bank in terms of major aspects including financial accounting, and there is no discovery of displaying conducts which are detrimental to the interest of the bank and the shareholders.
3 Fund raising, purchase/sale of assets During the reported period, no major purchase or sale of assets happened.
4 Related party transaction All Related party transactions are conducted under normal business processes and policies during the reporting period and there is no occurrence of any actions that might detriment to the interest of the bank and the shareholders.
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Important Events A Material Lawsuits and Arbitrations Within the reported period, there were no lawsuits and arbitrations that have material impact on operation of the Bank. The Bank, as defendant, was involved in 35 lawsuits and up to RMB 179 million Yuan in disputed funds, all of which had no verdicts yet.
B There were no Merger and Acquisition, Asset Sales in the Reported Period The bank sold its subsidiary controlling company in the reported period, as requested by CBRC.
C Important Related Party Transactions during the Reported Period Related party loans to legal persons where the Bank’s directors, supervisors and senior executives with their close relatives hold positions. Up to 31 December 2008, the Bank approved related party loans to legal persons where the Bank’s directors, supervisors and senior executives with their close relatives hold positions totaling 2,602 million Yuan with 1,089 million in outstanding balance. The off-balance sheet credit line balance totaled 267 million Yuan.
D Important Contracts and their Implementation 1
There were no significant custodian, contracting and leasing business in the reported period.
2 Except normal guarantees business approved by the China Banking Regulatory Commission, the Bank had no other significant guarantees. 3
The Bank did not entrust others to handle management of cash assets in the reported period.
4
Significant contract commitment: The Bank had no significant contract disputes in the reported period.
E Commitment by the Bank or the Bank’s Shareholders holding 5% of Stake or above In June 2008, the major shareholder of the Bank Newbridge Asia AIV III, L.P. made the following commitments when the first batch of restricted shares after the reform were to be listed:
1 Our company has no plan at present to publicly sell the released shares which account for 5% of the total shares through SSE trading system in six months after the release. If our company plans to sell the released SDB shares through SSE trading system in the future and the sold amount in six months would be over 5% from the first batch of selling, our company would disclose a reminding announcement for the selling through SDB in two trading days prior to the first batch of selling. 2 If we expect to publicly sell the released shares which accounts for more than 1% of the total shares of SDB within one month in the future, our company would sell the shares through SSE block trading system. 3 If we sell the shares through SSE block trading system, our company would promise to observe the relevant rules and regulations of the SSE and Clearing Company – Shenzhen Branch. 4 While the SDB shares we sell reach 1% of released shares or above, our company would promise to perform the obligation of information disclosure timely and accurately in accordance with the SSE rules. 5 Our company understands and would strictly abide by the “Guidance on Transfer of Released Shares of Listed Company and other rules and regulations. F Certified Public Accountants Engagement The Bank engaged the Ernst & Young Hua Ming Accounting Firm for the auditing assignment in the reported period. According to regulations by the China Securities Regulatory Commission, the Bank engaged the Ernst & Young Accounting Firm to workout the supplementary financial statement under IFRS. In 2008, the Bank paid 5.04 million Yuan to the Ernst & Young Hua Ming Accounting Firm, and 0.6 million Yuan to the Ernst & Young Accounting Firm. Travel expenses of these two accountant firms were not reimbursed by the Bank. The Ernst & Young Hua Ming Accounting Firm has provided services for the Bank for 2 years; the Ernst & Young Accounting Firm has provided services for the Bank for 8 years;
Annual report 2008 Shenzhen Development Bank
G During the reported period, the Bank, the Board of Directors and its members were not examined or penalized by the China Securities Regulatory Commission, nor publicly denounced by the Shenzhen Stock Exchange. H Fund Utilization by Controlling Shareholder and its Subsidiaries At the end of the report period, there were no funds used by controlling shareholders of the Bank its subsidiaries and other related parties:
I Explanations and Independent Opinions of Independent Directors Concerning External Guarantee offered by the Bank We, as independent directors of Shenzhen Development Bank, checked the external guarantee offered by the Bank in an impartial, fair and objective manner pursuant to Document [2003] 56 of CSRC. We think that the external guarantee business conducted by Shenzhen Development Bank is a regular banking business approved by the PBOC and CBRC. Shenzhen Development Bank attaches importance to the risk management of this business, and strictly follows the relevant operation flow and examination and approval procedures, thus ensuring effective control of the risk of the external guarantee business.
J Bonds Issuance On 21 March 2008, the bank issued 6.5 bn Yuan sub bonds in inter-bank bonds market after approved by CBRC and PBOC (CBRC [2008] No. 59, Inter-bank Market Permission [2008] No. 11). Those sub bonds are fixed interest rate type and floating interest rate type, among which the issuance amount of fixed interest rate type is 6 bn Yuan and the floating interest rate type 0.5 bn Yuan. The term of those bonds is 10 years. The bank has call option at the end of the fifth year. UBS Securities Company Limited is the main underwriter, book runner and rating consultant. After the comprehensive rating by China Lianhe Credit Rating Co., Ltd, the rating for bonds issuing main body is AA+, and the credit rating for the bond is AA. On 24 October 2008, the bank issued 1.5 bn Yuan sub bonds in inter-bank bonds market after approved by CBRC and PBOC (CBRC [2008] No. 374, Inter-bank Market Permission [2008] No. 42). Those sub bonds are fixed interest rate type, and the term of those bonds is 10 years. The bank has call option at the end of the fifth year. ICBC is the main underwriter and book runner. After the comprehensive rating by China Lianhe Credit Rating Co., Ltd, the rating for bonds issuing main body is AA+, and the credit rating for the bond is AA.
K Reception of Investigation, Communication and Interview within the Reported Period In the reported period, the Bank conducts communication with institutions for many times in the manner of performance press conference, analyst meeting, and investor investigation in respect of performance, financial status, and other issues. The Bank also accepts inquiry by phone from individual investors. The contents mainly include: development strategy, exercise of warrants, periodic report, interim report with illustration, disclosed business and management information and major events, corporate culture, and other related information. According to the requirement of SSE Guidelines on Fair Information Disclosure of Listed Company, the Bank and relevant information disclosure obligators strictly observe the principle of fair information disclosure, and there is no situation in violation of it. The main information of investors received by the company are as follows: Time
Location
Reception manner
Subject
Contents and provided materials
11 January 2008 Shenzhen Face to face interview Morgan Stanley Fundamental 15 January 2008 Shenzhen Face to face interview Merrill Lynch Fundamental 22 January 2008 Shenzhen Face to face interview Tx Investment Fundamental 26 January 2008 Shanghai Face to face interview Investor Fundamental 26 Feburary 2008 Shenzhen Face to face interview Merchant Securities, Fundamental Boshi Fund, AIG-Huatai 19 March 2008 Shenzhen Press release & conference call Investor, analyst Performance press release of Annual Report 20 March 2008 Beijing Face to face interview Investor, analyst Investors interview of Annual Report 21 March 2008 Shanghai Face to face interview Investor, analyst Investors communications meeting of Annual Report 25 March 2008 HK Face to face interview Investor, analyst Investors interview of Annual Report
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Important Events
Time
Location
Reception manner
Subject
Contents and provided materials
1 April 2008 Shenzhen Face to face interview Credit Suisse Fundamental 23 April 2008 Shenzhen Press release & conference call Investor, analyst 1Q performance press release 24 April 2008 Beijing Face to face interview CICC, Goldman Sachs 1Q performance 24 April 2008 Beijing Face to face interview Investor, analyst 1Q performance press release 7 May 2008 Shenzhen Face to face interview Guotai Junan Securities Fundamental 20 May 2008 Shenzhen Face to face interview UBS Fundamental 23 May 2008 Shenzhen Face to face interview Morgan Stanley Fundamental 27 May 2008 Shenzhen Face to face interview Merchant Securities, Fundamental BOC International, Essense Securities, Penghua Fund, Jiashi Fund 5 June 2008 Qingdao Face to face interview Xingye Securities/Dacheng Fund, Fundamental Huaxia Fund, Guangfa und, South Fund 16 June 2008 Shenzhen Conference call Goldman Sachs Fundamental 24 June 2008 Shenzhen Conference call Guangfa Fund Fundamental 25 June 2008 Shanghai Face to face interview Essense Securities/JP Morgan, Fundamental Baoying Fund and other institutional investors 27 June 2008 Kunming Face to face interview Guoxin Securities, Guangfa Fund, Fundamental Jinying Fund, Merchant Fund 27 June 2008 Shenzhen Face to face interview Zhongtou Securities, Yifangda Fund Fundamental 3 July 2008 Shenzhen Face to face interview Fox-Pitt Kelton Fundamental 16 July 2008 Shanghai Face to face interview Zhongjin and other institutional investor Fundamental 17 July 2008 Shenzhen Face to face interview Merchant Securities and Fundamental other institutional investor 31 July 2008 Shenzhen Face to face interview Qilu Securities Fundamental 20 August 2008 Shenzhen Press release & conference call Investor, analyst Half Year performance press release 22 August 2008 Shanghai Face to face interview Investor, analyst Half Year performance press release 26 August 2008 Guangzhou Face to face interview Guangfa Funds, Yifangda, Investors communications meeting Jinying Funds of Annual Report 27 August 2008 Shenzhen Face to face interview CITIC Securities Investors communications meeting of Annual Report 28 August 2008 Shenzhen Face to face interview Pacific Assets Manangement Company Investors communications meeting of Annual Report 28 August 2008 Shenzhen Face to face interview Goldman Sachs, NEZU Investors communications meeting of Annual Report 29 August 2008 HK Face to face interview Investor, analyst Half Year Performance Press Release 3 September 2008 Shenzhen Face to face interview Bohai Securities Fundamental 3 September 2008 Shenzhen Conference call Fortress, Macq.sec. Fundamental 10 September 2008 HK Face to face interview Overseas investors Fundamental 11 September 2008 Singapore Face to face interview Overseas investors Fundamental 22 September 2008 Shenzhen Face to face interview Shumway Capital Fundamental 24 October 2008 Shenzhen Press release & conference call Investor, analyst 3Q performance press release 27 October 2008 Beijing Face to face interview Investor, analyst 3Q performance press release 29 October 2008 HK Face to face interview Investor, analyst 3Q performance press release 4 November 2008 Beijing Face to face interview Goldman Sachs and Fundamental other institutional investors 28 November 2008 Shanghai Face to face interview Haitong Securities and Fundamental other institutional investors 13 December 2008 Haikou Face to face interview Guotai Junan and Fundamental other institutional investors 18 December 2008 Xiamen Face to face interview Merchant Securities and Fundamental other institutional investors
Annual report 2008 Shenzhen Development Bank
L Reference of Other Important Information Disclosure Issue
Date
Publication
Announcement regarding the exercise of “SDB SFC1” and “SDB SFC2” warrants 4 January 2008, 8 January 2008, 18 January 2008, 22 March 2008, 8 April 2008, 18 April 2008, 26 April 2008, 30 April 2008, 9 May 2008, 15 May 2008, transaction days from 16 May to 27 June 2008, 30 June 2008, 4 July 2008 Resolution Announcement of Board of Supervisors 8 January 2008 Announcement of 2007 Annual Performance Forecast 18 January 2008 Resolution Announcement of the 1st Meeting of the 7th Board of Directors 25 January 2008 Resolution Announcement of the 2nd Meeting of the 7th Board of Directors 31 January 2008 Clarification Announcement of SDB 5 March 2008 Announcement of Approval for Sub Bonds Issuance from Regulator 14 March 2008 Resolution Announcement of the 3rd Meeting of the 7th Board of Directors 20 March 2008 2007 Annual Report & Abstract 20 March 2008 Special Explanation of Funds Taken up by Controlling Shareholders 20 March 2008 and Other Related Parties Resolution Announcement of Board of Supervisors 20 March 2008 Announcement of the Completion of Sub Bonds Issuance 25 March 2008 Announcement of 2008 1Q Performance Forecast 15 April 2008 Resolution Announcement of the 4th Meeting of the 7th Board of Directors 24 April 2008 2008 1Q Report 24 April 2008 Announcement of Major Events of Board of Directors 15 May 2008 Clarification Announcement of SDB 20 May 2008 Resolution Announcement of the 5th Meeting of the 7th Board of Directors 22 May 2008 Notice of Convening 2007 Annual SH Meeting 22 May 2008 Resolution Announcement of 2007 Annual SH Meeting 13 June 2008 Announcement of 2008 Interim Performance Forecast 23 June 2008 Reminder Announcement of Restricted Shares to be Listed 25 June 2008
China Securities, Securities Times and Shanghai Securities
China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities
75
76
Important Events
Issue
Date
Publication
Explanation of the Rectification of Special Activity of Corporate Governance 18 July 2008 Resolution Announcement of the 6th Meeting of the 7th Board of Directors 18 July 2008 Announcement of Signing Third-Party Supervision Agreement of Capital Raising 15 August 2008 2008 Half Year Report & Abstract 21 August 2008 Resolution Announcement of the 7th Meeting of the 7th Board of Directors 21 August 2008 Announcement: Approval of the Qualification for Post-holding of Senior Managers 27 August 2008 of YE Ping Fund Custodian Industry Announcement: Approval of the Qualification for Securities Investment Fund Custodian 27 August 2008 Announcement of Board of Directors 19 September 2008 Notice of Convening 2008 1st Extraordinary SH Meeting 26 September 2008 Resolution Announcement of the 8th Meeting of the 7th Board of Directors 26 September 2008 Announcement of 2008 3Q Performance Forecast 13 October 2008 Resolution Announcement of 2008 1st Extraordinary SH Meeting 16 October 2008 Resolution Announcement of the 9th Meeting of the 7th Board of Directors 24 October 2008 2008 3Q Report 24 October 2008 Implementation Announcement of 2008 Interim Dividend Distribution Plan 24 October 2008 Announcement of the Completion of Sub Bonds Issuance 30 October 2008 Announcement of Major Events of Board of Directors 21 November 2008 Resolution Announcement of the 10th Meeting of the 7th Board of Directors 18 December 2008
China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities China Securities, Securities Times and Shanghai Securities
Financial Results
PRC GAAP Financial Statements IFRS Financial Statements
Our finance team
PRC GAAP Financial Statements 79
Auditors’ Report
80
Balance Sheet
81
Income Statement
82
Cash Flows Statement
84
Statement of Changes in Shareholders’ Equity
86
Notes to the Financial Statements
135
Appendix: Supplementary Financial Information IFRS Financial Statements
136
Independent Auditors’ Report
137
Income Statement
138
Balance Sheet
139
Statement of Changes in Equity
141
Cash Flows Statement
142
Notes to the Financial Statements
Annual report 2008 Shenzhen Development Bank
Auditors’ Report Ernst & Young Hua Ming (2009) Shenzi No. 60438538_H01 To the shareholders of Shenzhen Development Bank Co., Limited We have audited the accompanying financial statements of Shenzhen Development Bank Co., Ltd. (the “Company”), which comprise the balance sheet as at 31 December 2008, and the income statement, statement of changes in shareholders’ equity and cash flow statement for the year then ended and notes to the financial statements.
Management’s Responsibility for the Financial Statements The management is responsible for preparing financial statements in accordance with Accounting Standards for Business Enterprises. This responsibility includes (1) designing, implementing and maintaining the internal control relevant to the preparation of the financial statements that are free from material misstatement whether due to fraud or error; (2) selecting and applying appropriate accounting policies; and (3) making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Chinese Auditing Standards issued by the Chinese Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain a reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider the internal control relevant to the entity’s preparation of financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of the accounting polices used and the reasonableness of the accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements of the Company have been prepared in accordance with Accounting Standards for Business Enterprises, and present fairly, in all material aspects, the financial position of the Company as of 31 December 2008 and the results of its operations and its cash flows for the year ended. Ernst & Young Hua Ming
Chinese Certified Public Accountant
Beijing, the People’s Republic of China 19 March 2009
Zhang Xiaodong
Chinese Certified Public Accountant
Xu Xuming
79
80
PRC GAAP Financial Statements
Balance Sheet at 31 December 2008
Note D
31 December 2008
31 December 2007
Cash on hand and due from the Central Bank 1 Precious metals Placement of deposits with other financial institutions 2 Funds loaned to other financial institutions 3 Financial assets at fair value through profit or loss 4 Derivative financial assets 5 Reverse repurchase agreements 6 Accounts receivable 7 Interest receivable 8 Loans and advances 9 Available-for-sale financial assets 10 Held-to-maturity investments 11 Receivables – bond investments 12 Long term equity investments 13 Investment properties 14 Fixed assets 15 Intangible assets Deferred tax assets 16 Other assets 17 Total assets
39,767,901 9,225 21,500,809 9,236,676 41,441 290,751 34,733,353 1,359,592 1,605,636 281,714,687 48,799,716 15,584,755 13,750,000 417,390 411,690 1,674,924 113,917 1,811,816 1,615,894 474,440,173
40,726,387 8,200 4,013,690 2,642,656 1,477,625 291,816 33,768,925 778,069 1,126,372 215,011,565 17,850,892 15,911,486 13,450,000 251,948 441,098 1,554,278 67,725 994,389 2,172,240 352,539,361
36,063,032 7,380,000 39,420 58,598 38,916,115 360,514,036 1,247,420 1,197,849 507,483 2,963,224 7,964,282 25,809 341,679 820,436 458,039,383
32,388,762 2,300,000 1,246,657 255,173 16,467,582 281,276,981 925,411 819,756 340,297 1,728,071 – 77,447 98,544 1,608,617 339,533,298
3,105,434 7,978,982 780,885 3,583,296 952,193 16,400,790 474,440,173
2,293,407 5,213,654 719,481 2,715,704 2,063,817 13,006,063 352,539,361
In RMB’000
ASSETS
LIABILITIES Placement of deposits from other financial institutions 19 Funds borrowed from other financial institutions 20 Financial liabilities at fair value through profit or loss 4 Derivative financial liabilities 5 Repurchase agreements 21 Customer deposits 22 Employee benefits payable 23 Tax payable 24 Accounts payable 25 Interest payable 26 Subordinated bonds payable 27 Provisions Deferred tax liabilities 16 Other liabilities 28 Total liabilities
SHAREHOLDERS’ EQUITY Share capital 29 Capital reserve 30 Surplus reserve 31 General reserve 32 Unappropriated profit 33 Total shareholders’ equity Total liabilities and shareholders’ equity The accounting policies and explanatory notes (page 86 – 134) form an integral part of the financial statements.
Legal Representative Frank N. Newman
President Xiao Suining
Chief Financial Officer Wang Bomin
Accounting Manager Li Weiquan
Annual report 2008 Shenzhen Development Bank
Income Statement for the year ended 31 December 2008
Note D
2008
Operating income Interest income 34 Interest expense 34 Net interest income 34 Fee and commission income 35 Fee and commission expense 35 Net fee and commission income 35 Investment income 36 Share of profits of associates Gains or losses from changes in fair values 37 Net foreign exchange difference 38 Other operating income 39 Total operating income
26,465,264 (13,867,376 ) 12,597,888 1,056,647 (205,259 ) 851,388 421,556 22,675 65,800 462,543 113,944 14,513,119
18,043,900 (8,438,051 ) 9,605,849 667,751 (147,038 ) 520,713 200,984 – 57,641 257,346 164,969 10,807,502
Operating costs Business tax and surcharge General and administrative expenses 40 Total operating costs
(1,151,665 ) (5,223,866 ) (6,375,531 )
(824,307 ) (4,207,494 ) (5,031,801 )
Operating profit before impairment losses on assets Impairment losses on assets 41
8,137,588 (7,334,162 )
5,775,701 (2,053,759 )
Operating profit Add: Non-operating income Less: Non-operating expenses
803,426 52,310 (63,127 )
3,721,942 89,720 (39,887 )
Profit before tax Less: Income tax expense 42
792,609 (178,574 )
3,771,775 (1,121,872 )
Profit for the year
614,035
2,649,903
In RMB’000
2007
Earnings per share Basic earnings per share (Renminbi Yuan)
43
0.20
0.97
Diluted earnings per share (Renminbi Yuan)
43
0.20
0.95
The accounting policies and explanatory notes (page 86 – 134) form an integral part of the financial statements.
Legal Representative Frank N. Newman
President Xiao Suining
Chief Financial Officer Wang Bomin
Accounting Manager Li Weiquan
81
82
PRC GAAP Financial Statements
Cash Flows Statement for the year ended 31 December 2008
Note D
In RMB’000
2008
2007
Cash flows from operating activities Net increase in customer deposits and placement of deposits from other financial institutions Net increase in funds borrowed from other financial institutions Net increase in repurchase agreements Cash receipts from interest and fee and commission income Cash receipts relating to other operating activities Subtotal of cash inflows from operating activities Net increase in loans and advances Net increase in amounts due from the Central Bank and placement of deposits with other financial institutions Net increase in funds loaned to other financial institutions Net increase in reverse repurchase agreements Cash payments for interest and fee and commission expenses Cash payments for salaries and staff expenses Cash payments for taxes Cash payments relating to other operating activities Subtotal of cash outflows from operating activities Net cash flows generated from operating activities
82,911,325 5,080,000 22,448,533 24,691,230 2,076,226 137,207,314 74,220,352
64,390,171 2,300,000 15,726,572 16,685,740 1,216,409 100,318,892 42,083,860
14,782,982 2,090,056 648,650 12,813,497 2,363,094 1,821,485 4,124,587 112,864,703 24,342,611
15,582,324 806,570 11,279,835 7,799,556 1,819,547 1,784,754 2,110,870 83,267,316 17,051,576
Cash flows from investing activities Cash receipts from disposal of a subsidiary Cash receipts from investments upon disposal/maturity Cash receipts from investment income Cash receipts from disposal of fixed assets and investment properties Subtotal of cash inflows from investing activities Cash payments for investments Cash payments for fixed assets, intangible assets and construction in progress Subtotal of cash outflows from investing activities Net cash flows used in investing activities
61,000 104,701,106 1,509,948 42,977 106,315,031 133,691,351 838,003 134,529,354 (28,214,323 )
– 111,371,414 680,642 128,240 112,180,296 123,539,875 372,198 123,912,073 (11,731,777 )
Cash flows from financing activities Cash receipts from exercise of warrants Cash receipts from bond issue Subtotal of cash inflows from financing activities Cash payments for dividend distribution and bond interest Cash payments for bond issue Cash payments for expenses of share reform and exercise of warrants Subtotal of cash outflows from financing activities Net cash flows generated from financing activities
2,602,335 8,000,000 10,602,335 101,712 37,865 22,003 161,580 10,440,755
3,136,366 – 3,136,366 20,858 – 13,120 33,978 3,102,388
Effect of exchange rate changes on cash and cash equivalents
–
–
Net increase in cash and cash equivalents Add: Cash and cash equivalents at beginning of the year
6,569,043 30,555,415
8,422,187 22,133,228
Cash and cash equivalents at end of the year
37,124,458
30,555,415
44
The accounting policies and explanatory notes (page 86 – 134) form an integral part of the financial statements.
Legal Representative Frank N. Newman
President Xiao Suining
Chief Financial Officer Wang Bomin
Accounting Manager Li Weiquan
Annual report 2008 Shenzhen Development Bank
Note D
In RMB’000
2008
2007
614,035 7,334,162
2,649,903 2,053,759
SUPPLEMENTARY INFORMATION Adjustment of profit for the year to cash flows generated from operating activities Profit for the year Impairment losses on assets Interests related to unwinding of discounts of provisions for impaired financial assets Depreciation of fixed assets Amortisation of intangible assets Amortisation of long term prepaid expenses Losses/(gains) on disposal of fixed assets and investment properties Gains from changes in fair values Interest on bond investments and investment income Decrease/(increase) in deferred tax assets Decrease in deferred tax liabilities Interest paid on subordinated bonds Increase in operating receivables Increase in operating payables Collections of amounts already written-off Increase in provisions Net cash flows generated from operating activities
(384,238 ) 211,925 20,852 78,108 158 (65,800 ) (2,694,272 ) (830,289 ) (8,781 ) 325,488 (90,547,887 ) 110,229,494 29,944 29,712 24,342,611
(518,592 ) 206,652 14,275 71,404 (14,700 ) (57,641 ) (1,484,248 ) 32,941 (151,705 ) – (71,311,740 ) 85,503,209 34,061 23,998 17,051,576
Net increase in cash and cash equivalents Cash at end of the year 44 Less: Cash at beginning of the year Add: Cash equivalents at end of the year 44 Less: Cash equivalents at beginning of the year Net increase in cash and cash equivalents
981,859 1,062,241 36,142,599 29,493,174 6,569,043
1,062,241 909,080 29,493,174 21,224,148 8,422,187
The accounting policies and explanatory notes (page 86 – 134) form an integral part of the financial statements.
Legal Representative Frank N. Newman
President Xiao Suining
Chief Financial Officer Wang Bomin
Accounting Manager Li Weiquan
83
84
PRC GAAP Financial Statements
Statement of Changes in Shareholders’ Equity for the year ended 31 December 2008
Share Capital In RMB’000 Note D capital reserve At 1 January 2008 Movements in the year 1. Profit for the year 2. Gains and losses recognised directly in shareholders’ equity (i) Net change in fair value of available-for-sale financial assets (a) Valuation gain/ (loss) taken into equity (b) Transferred to the income statement (ii) Revaluation surplus on owner-occupied properties transferred to investment properties (iii) Share of the changes in owners’ equity of an associate (v) Tax on items taken directly into or transferred from equity Total recognised income and expense for the year 3. Exercise of warrants 4. Profit appropriation (i) Appropriation to surplus reserve 31 (ii) Appropriation to general reserve 32 (iii) Dividends – stock dividends 33 Dividends – cash dividends 33 At 31 December 2008
Of which: Of which: Cumulative Revaluation changes in surplus on fair value of owner-occupied available- properties for-sale transferred to financial investment assets properties
Surplus reserve
General Unappropriated reserve profit
Total
2,293,407
5,213,654
(60,120 )
10,240
719,481
2,715,704
2,063,817 13,006,063
–
–
–
–
–
–
614,035
614,035
–
1,055,592
1,062,915
2,803
–
–
–
1,055,592
–
1,326,680
1,326,680
–
–
–
–
1,326,680
–
1,276,798
1,276,798
–
–
–
–
1,276,798
–
49,882
49,882
–
–
–
–
49,882
–
3,816
–
3,816
–
–
–
3,816
–
(10,126 )
–
–
–
–
–
(10,126 )
–
(264,778 )
(263,765 )
(1,013 )
–
–
–
(264,778 )
– 95,388 716,639
1,055,592 1,709,736 –
1,062,915 – –
2,803 – –
– – 61,404
– – 867,592
614,035 – (1,725,659 )
1,669,627 1,805,124 (80,024 )
–
–
–
–
61,404
–
(61,404 )
–
–
–
–
–
–
867,592
(867,592 )
–
716,639
–
–
–
–
–
(716,639 )
–
– 3,105,434
– 7,978,982
– 1,002,795
– 13,043
– 780,885
– 3,583,296
(80,024 ) (80,024 ) 952,193 16,400,790
The accounting policies and explanatory notes (page 86 – 134) form an integral part of the financial statements.
Legal Representative Frank N. Newman
President Xiao Suining
Chief Financial Officer Wang Bomin
Accounting Manager Li Weiquan
Annual report 2008 Shenzhen Development Bank
Share Capital In RMB’000 Note D capital reserve At 1 January 2007 Movements in the year 1. Profit for the year 2. Gains and losses recognised directly in shareholders’ equity (i) Net change in fair value of available-for-sale financial assets (a) Valuation gain/ (loss) taken into equity (b) Transferred to the income statement (ii) Revaluation surplus on owner-occupied properties transferred to investment properties (iii) Tax on items taken directly into or transferred from equity Total recognised income and expense for the year 3. Exercise of warrants 4. Expenses of share reform plan 5. Profit appropriation (i) Appropriation to surplus reserve 31 (ii) Appropriation to general reserve 32 (iii) Dividends – stock dividends 33 Dividends – cash dividends 33 At 31 December 2007
Of which: Of which: Cumulative Revaluation changes in surplus on fair value of owner-occupied available- properties for-sale transferred to financial investment assets properties
Surplus reserve
General Unappropriated reserve profit
Total
1,945,822
1,648,517
76,787
–
454,491
1,679,704
868,506
6,597,040
–
–
–
–
–
–
2,649,903
2,649,903
–
(126,667 )
(136,907 )
10,240
–
–
–
(126,667 )
–
(162,975 )
(162,975 )
–
–
–
–
(162,975 )
–
(102,259 )
(102,259 )
–
–
–
–
(102,259 )
–
(60,716 )
(60,716 )
–
–
–
–
(60,716 )
–
12,489
–
12,489
–
–
–
12,489
–
23,819
26,068
(2,249 )
–
–
–
23,819
– 206,649
(126,667 ) 3,698,598
(136,907 ) –
10,240 –
– –
– –
2,649,903 –
2,523,236 3,905,247
– 140,936
(6,794 ) –
– –
– –
– 264,990
– 1,036,000
– (1,454,592 )
–
–
–
–
264,990
–
(264,990 )
–
–
–
–
–
–
1,036,000
(1,036,000 )
–
140,936
–
–
–
–
–
(140,936 )
–
– 2,293,407
– 5,213,654
– (60,120 )
– 10,240
– 719,481
– 2,715,704
(12,666 ) 2,063,817
(6,794 ) (12,666 )
(12,666 ) 13,006,063
The accounting policies and explanatory notes (page 86 – 134) form an integral part of the financial statements.
Legal Representative Frank N. Newman
President Xiao Suining
Chief Financial Officer Wang Bomin
Accounting Manager Li Weiquan
85
86
PRC GAAP Financial Statements
Notes to the Financial Statements A General Information Shenzhen Development Bank Co., Ltd. (the “Company”) was established in the People’s Republic of China (the “PRC”) as a result of the restructuring of six agricultural credit co-operatives into a joint stock commercial bank with limited liability. The Company was established on 22 December 1987 after the initial public offering of its RMB ordinary shares on 10 May 1987. The Company was listed on the Shenzhen Stock Exchange on 3 April 1991 and the stock code is 000001. The institution number of the Company on the 00000028 approval document issued by the China Banking Regulatory Commission is B0014H144030001. The business licence number of the Company issued by the Shenzhen Municipal Administration of Industry and Commerce is 440301103098545. The Company is principally engaged in authorised commercial and retail banking activities in the PRC. The registered office of the Company is located at No. 5047, Shennan Road East, Luohu District, Shenzhen, Guangdong Province, PRC. Headquartered in Shenzhen, the Company operates its business in the PRC.
B Basis of Preparation The financial statements have been prepared in accordance with the “Accounting Standards for Business Enterprises – Basic Standard” and 38 specific standards, Implementation Guidance, Interpretations and other relevant regulations (hereafter collectively referred to as “ASBEs”), issued by the Ministry of Finance, PRC (hereafter referred to as the “MOF”) in February 2006. The financial statements of the Company are prepared on a going concern basis.
Statement of compliance The financial statements have been prepared in accordance with ASBEs and present fairly the financial position of the Company as at 31 December 2008 and the results of its operation and its cash flows for the year ended 31 December 2008.
C Summary of Significant Accounting Policies and Accounting Estimates 1 Accounting year The accounting year of the Company is from 1 January to 31 December.
2 Functional currency The Company’s functional and presentation currency is Renminbi (“RMB”). Unless otherwise stated, the values are rounded to the nearest thousand of Renminbi.
3 Basis of accounting and measurement The Company’s financial statements have been prepared on an accrual basis using the historical cost as the basis of measurement, except for financial assets and financial liabilities held at fair value through profit or loss, available-for-sale financial assets, investment properties and share-based payments that have been measured at fair value. If an asset is impaired, a provision for impairment loss of the asset is recognised in accordance with the relevant requirements.
4 Foreign currency translation The Company translates the amount of foreign currency transactions into its functional currency. A foreign currency transaction is recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated using the spot exchange rate at the balance sheet date. All exchange differences are recognised in the income statement. Foreign currency non-monetary items measured at historical cost continue to be translated at the spot exchange rates at the dates of the transactions. Non-monetary items measured at fair value in a foreign currency are translated using the spot exchange rates at the date when the fair value was determined. All exchange differences are recognised in the income statement.
5 Precious metal The Company’s precious metals represent gold. Precious metals are initially measured at cost. At the balance sheet date, precious metals are measured at the lower of cost and net realisable value. If the cost of precious metals is higher than the net realisable value, a provision for the decline in value of precious metals is recognised in the income statement.
Annual report 2008 Shenzhen Development Bank
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
6 Reverse repurchase and repurchase agreements Assets sold under agreements to repurchase at a specific future date are not derecognised from the balance sheet. The corresponding proceeds are recognised on the balance sheet under “Repurchase agreements”. The difference between the sale price and the repurchase price is treated as interest expense and is accrued over the life of the agreement using the effective interest method. Conversely, assets purchased under agreements to resell at a specific future date are not recognised on the balance sheet. The corresponding cost is recognised on the balance sheet under “Reverse repurchase agreements”. The difference between the purchase price and the resale price is treated as interest income and is accrued over the life of the agreement using the effective interest method.
7 Financial assets The Company classifies its financial assets into four categories: financial assets at fair value through profit or loss; held-to-maturity investments; loans and receivables; and available-for-sale financial assets. When financial assets are recognised initially, they are measured at fair value. In the case of a financial asset at fair value through profit or loss, transaction costs are charged to the income statement. For other financial assets, transaction costs are included in their initial recognition amounts. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and those designated as at fair value through profit or loss by management upon initial recognition. Financial assets classified as held for trading include those financial assets that meet one of the following conditions: 1) they are acquired principally for the purpose of selling in the near term; 2) they are part of a portfolio of identified financial instruments that are managed together and for which there is objective evidence of a recent pattern of short-term profit-taking; or 3) they are derivative instruments unless they are designated and effective hedging instruments. After initial recognition, these financial assets are measured at their fair values. All related realised and unrealised gains or losses are included in the income statement. Of which, changes in fair value are recognised in “Gains or losses from changes in fair values” and interest earned is accrued in interest income according to the terms of the contract. A hybrid instrument can be designated as a financial asset or financial liability at fair value through profit or loss unless the embedded derivative does not significantly modify the cash flows of the hybrid instrument; or it is clear with little or no analysis when a similar hybrid instrument is considered that separation of the embedded derivative is prohibited. A financial asset or financial liability may be designated, on initial recognition, as at fair value through profit or loss only when one of the following conditions is met: (i) the designation eliminates or significantly reduces a measurement or recognition inconsistency of the related gains or losses that would otherwise result from measuring assets or liabilities on a different basis. (ii) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, and the information about the group is reported on that basis to the Company’s key management personnel. Formal documentation has been prepared with respect to such risk management or investment strategy. (iii) the hybrid instrument is embedded with derivatives which are required to be separately accounted for. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and a fixed maturity date that the Company has the positive intention and ability to hold to maturity. After initial measurement, held-to-maturity financial investments are subsequently measured at amortised cost using the effective interest method. Gains or losses are recognised in the income statement when the held-to-maturity investments are derecognised or impaired, and through the amortisation process. If the Company has, during the current financial year, sold or reclassified (to available-for-sale financial assets) items of held-to-maturity investments, whose amount is significant in relation to the total amount of the held-to-maturity investments before the sale or reclassification, the Company shall reclassify the remaining portion of the held-to-maturity investments as available-for-sale investments, and the Company shall not again classify any financial assets as held-to-maturity investments in the current and the next two financial years. However, sales or reclassifications under the following circumstances are exceptions to the above: (i) sales or reclassifications are so close to maturity or the financial asset’s call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value. (ii) sales or reclassifications of the remaining portion of the financial asset occur after the Company has collected substantially all of the financial asset’s original principal through scheduled payments or prepayments. (iii) sales or reclassifications are attributable to an isolated event that is beyond the Company’s control and is non-recurring and could not have been reasonably anticipated by the Company.
87
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PRC GAAP Financial Statements
Notes to the Financial Statements
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
7 Financial assets (Continued) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are subsequently measured at amortised cost using the effective interest method. Gains or losses are recognised in the income statement when the loans and receivables are derecognised or impaired, and through the amortisation process. Loans and receivables mainly include loans and advances to customers, receivables and discounted bills. Discounted bills are granted by the Company to its customers based on the bank acceptance held which has not matured. Discounted bills are carried at fair value less unrealised interest income. The interest income of the discounted bills is recognised on an accrual basis. Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated on initial recognition as available-for-sale or those financial assets that are not classified as other categories. After the initial recognition, available-for-sale financial assets are subsequently measured at fair value. Interest earned whilst holding available-for-sale financial assets is reported as interest income using the effective interest rate. Gains or losses arising from a change in the fair value of available-for-sale financial assets are recognised directly in owner’s equity, except for impairment losses and foreign exchange gains and losses resulted from monetary financial assets, until the financial assets are derecognised, at which time the cumulative gains or losses previously recognised in owner’s equity are removed from owner’s equity and recognised in the income statement.
8 Impairment of financial assets An assessment is made at each balance sheet date to determine whether there is evidence of impairment of financial assets (other than those at fair value through profit or loss) as a result of one or more events that occur after the initial recognition of those assets (an incurred “loss event”) and whether that loss event has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and the situation where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments has been incurred, the carrying amount of the financial asset is reduced to the present value of estimated future cash flows (excluding future credit losses that have not been incurred). The amount of reduction is recognised as an impairment loss in the income statement. Present value of estimated future cash flows is discounted at the financial asset’s original effective interest rate and includes the value of any related collateral. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. Future cash flows of a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the impact of current conditions that did not affect the period on which the historical loss experience is based and to eliminate the impact of historical conditions that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Company. If, subsequent to the recognition of an impairment loss on a financial asset carried at amortised cost, there is objective evidence of a recovery in value of the financial asset which can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss shall be reversed and recognised in the income statement. However, the reversal shall not result in a carrying amount of the financial asset that exceeds what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. Financial assets carried at cost If there is objective evidence that an impairment loss on a financial asset has been incurred, the amount of the impairment loss is measured as the difference between the carrying amount of that financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The impairment loss on the financial asset shall not be reversed.
Annual report 2008 Shenzhen Development Bank
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
8 Impairment of financial assets (Continued) Available-for-sale financial assets If an available-for-sale asset is impaired, the cumulative loss arising from the decline in fair value that had been recognised directly in owners’ equity shall be removed from owners’ equity and recognised in the income statement. The amount of the accumulated loss that is removed from owners’ equity shall be the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss on that financial asset previously recognised in the income statement. A provision for impairment is made for available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below its cost or where objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgement. If, after an impairment loss has been recognised on an available-for-sale debt instrument, the fair value of the debt instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognised, the impairment loss shall be reversed, with the amount of the reversal recognised in the income statement. Impairment losses recognised for an investment in an equity instrument classified as available-for-sale shall not be reversed through the income statement.
9 Financial liabilities The Company classifies its financial liabilities into financial liabilities at fair value through profit or loss, financial guarantee contracts, deposits and other financial liabilities. Financial liabilities at fair value through profit or loss The Company classifies its financial liabilities at fair value through profit or loss into financial liabilities held for trading and financial liabilities designated as at fair value through profit or loss by management upon initial recognition. Changes in fair value are recognised in “Gains or losses from changes in fair values” and interest incurred is accrued in interest expense according to the terms of the contract. Financial guarantee contracts The Company gives financial guarantees consisting of letters of credit, guarantees, and acceptances. Financial guarantee contracts are initially recognised at fair value, in “Other liabilities”, being the premium received. The guarantee fee is amortised over the period of the contract and is recognised as fee and commission income. Subsequent to initial recognition, the Company’s liability under each guarantee contract is measured at the higher of the initial fair value less cumulative amortisation, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is taken to the income statement. Other financial liabilities Except for financial liabilities at fair value through profit or loss and financial guarantee contracts, deposits and other financial liabilities are subsequently measured at amortised cost using the effective interest method.
10 Recognition and derecognition of financial instruments A financial asset or a financial liability is recognised when the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognised when one of the following conditions is met: (i) the contractual rights to the cash flows from the financial asset expire; or (ii) the financial asset has been transferred and the transfer qualifies for derecognition as set out below. Transfer of financial assets The Company transfers a financial asset in one of the following ways: (i) the Company transfers the contractual rights to receive the cash flows of the financial asset to another party; or (ii) the Company retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to the eventual recipient(s) in an arrangement that meets all of the following conditions: (a) the Company’s obligation to pay amounts to the eventual recipient(s) arises only when it has collected equivalent amounts from the original financial asset. Short-term advances by the Company with the right of full recovery of the amount lent plus accrued interest at market rates for bank loans of equivalent terms do not violate this condition. (b) the Company is prohibited by the terms of the transfer contract from selling or pledging the original asset other than as security to the eventual recipient(s) for the obligation to pay them cash flows. (c) the Company has an obligation to remit any cash flows it collects on behalf of the eventual recipient(s) without material delay. In addition, the Company is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents during the intervening period between two consecutive payments, which are invested in accordance with the terms of the contract. Income earned on such investments (i.e., reinvesting the cash flows according to the terms of the contract) is passed to the eventual recipient(s) according to the contract terms. When the Company transfers substantially all the risks and rewards of ownership of a financial asset to the transferee, the financial asset is derecognised. When the Company retains substantially all the risks and rewards of ownership of a financial asset, the financial asset is not derecognised.
89
90
PRC GAAP Financial Statements
Notes to the Financial Statements
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
10 Recognition and derecognition of financial instruments (Continued) Transfer of financial assets (Continued) When the Company neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, it accounts for the transaction as follows: (i) when the Company has not retained control of the financial asset, the financial asset is derecognised; (ii) when the Company has retained control of the financial asset, the financial asset is recognised to the extent of the Company’s continuing involvement in the transferred financial asset and an associated liability is recognised. A financial liability is derecognised when the underlying present obligation is performed, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.
11 Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the hybrid instrument is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with the changes in fair value recognised in the income statement. Certain derivative transactions, while providing effective economic hedges under the Company’s risk management positions, do not qualify for hedge accounting and are therefore treated as derivatives held for trading with fair value gains or losses recognised in the income statement.
12 Long term equity investments A long term equity investment is measured initially at its investment cost. A long term investment is accounted for using the cost method if the Company can exercise control over the investee, or does not have joint control or significant influence over the investee and the investment is not quoted in an active market and its fair value cannot be reliably measured. Under the cost method, a long term equity investment is measured at its initial investment cost. Cash dividends or profit distributions declared by the investee are recognised as investment income in the current period. However, investment income recognised is limited to the amount distributed to it out of accumulated net profits of the investee arising after the investment was made. Any cash dividends or distributions received in excess of this amount are treated as a recovery of initial investment cost. When the Company can exercise joint control or significant influence over the investee, a long term equity investment is accounted for using the equity method. Under the equity method, when the initial investment cost of a long term equity investment exceeds the Company’s interest in the fair values of the investee’s identifiable net assets at the acquisition date, no adjustment is made to the initial investment cost. When initial investment cost is less than the Company’s interest in the fair value of the investee’s identifiable net assets at the acquisition date, the difference is charged to the income statement for the current year, and the cost of the long term equity investment is adjusted accordingly. Under the equity method, after acquiring a long term equity investment, the Company recognises its share of the net profits or losses made by the investee as investment income or losses, and adjusts the carrying amount of the investment accordingly. The carrying amount of the investment is reduced by the portion of any profit distributions or cash dividends declared by the investee that is attributed to the Company. The Company shall discontinue recognising its share of net losses of the investee after the carrying amount of the long term equity investment together with any long term interest that in substance form part of the investor’s net investment in the investee are reduced to zero, except to the extent that the Company has incurred obligations to assume additional losses. The Company shall adjust the carrying amount of the long term investment for other changes in owners’ equity of the investee (other than net profits or losses), and include the corresponding adjustment in equity. On disposal of a long term equity investment, the difference between the proceeds actually received and the carrying amount is recognised in the income statement. For a long term equity investment accounted for using the equity method, any changes in the owners’ equity of the investee (other than net profits or losses) included in the owners’ equity of the Company, is transferred to the income statement on a pro-rata basis according to the proportion disposed of. For a long term equity investment accounted for using the cost method and which is not quoted in an active market and its fair value cannot be reliably measured, the amount of impairment loss is measured as the difference between the carrying amount of that financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The impairment loss on the financial asset shall not be reversed. For long term equity investments accounted for using the equity method, any impairment is accounted for in accordance with the accounting policy set out in Note C.17.
Annual report 2008 Shenzhen Development Bank
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
13 Investment properties Investment properties are properties held to earn rentals or for capital appreciation or both. The investment properties of the Company are buildings that are leased out. The Company adopts the fair value model for the measurement of investment properties which are not depreciated or amortised. At each period end, the carrying value of the investment properties is adjusted based on the fair value, and any difference between the carrying amount and the fair value is accounted for in the income statement. For a transfer of owner-occupied property to investment property, the investment property is measured at its fair value at the date of transfer. If the fair value at the date of transfer is less than the original carrying amount, the difference is charged to the income statement. If the fair value at the date of transfer exceeds the original carrying amount, the difference is recognised as capital reserve in owners’ equity. On disposal of an investment property, the amount that had been recognised in equity is transferred to the income statement. For a transfer from investment property to owner-occupied property, its fair value at the date of transfer is regarded as the carrying amount of the owner-occupied property. The difference between the fair value and the original carrying amount is recognised in the income statement.
14 Fixed assets Recognition of fixed assets Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and have useful lives more than one accounting year. A fixed asset is recognised only when it is probable that economic benefits associated with the asset will flow to the Company and the cost of the asset can be measured reliably. Subsequent expenditures incurred for a fixed asset that meet the above conditions are included in the cost of the fixed asset, otherwise they are recognised in the income statement in the period in which they are incurred. Measurement and depreciation of fixed assets Fixed assets are initially measured at cost. All fixed assets are stated at cost less any accumulated depreciation and any impairment losses. The cost of an asset comprises the purchase price, related taxes, and any directly attributable expenditures of bringing the asset to working condition for its intended use, such as delivery and handling costs, installation costs and professional fees. Depreciation is calculated using the straight-line method. The Company reasonably determines the useful lives and estimated net residual values of the fixed assets according to the natures and use patterns of the fixed assets as follows: Properties and buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement
Useful life
Estimated net residual value (%)
Annual depreciation rate (%)
30 years 6 years 3 or 5 years 5 or 10 years 5 or 10 years
1 3 1 1 –
3.3 16.2 33.0 or 19.8 19.8 or 9.9 20.0 or 10.0
The useful life and estimated net residual value of a fixed asset and the depreciation method applied are reviewed at each balance sheet date.
15 Construction in progress Construction in progress represents costs incurred in the construction of fixed assets. Costs comprise direct costs incurred during the period of construction. Interest charged on related borrowings for the construction is capitalised and such capitalisation of interest ceases when the assets under construction are completed and are ready for their intended use. No capitalisation of interest is made if the cost incurred during the construction is from the Company’s own fund. Construction in progress is not depreciated. Construction in progress is reclassified to the appropriate category of fixed assets when completed and ready for use.
91
92
PRC GAAP Financial Statements
Notes to the Financial Statements
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
16 Intangible assets Intangible assets are identifiable non-monetary assets without physical substance owned or controlled by the Company. The Company’s intangible assets comprise the value of computer software. Intangible assets are measured initially at cost. The Company analyses and assesses the useful life of an intangible asset on its acquisition. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate economic benefits for the Company. When the asset is available for use, an intangible asset with a finite useful life is amortised over its useful life. The amortisation method selected reflects the pattern in which the asset’s economic benefits are expected to be realised. If that pattern cannot be determined reliably, the straight-line method is used. An intangible asset with an indefinite useful life is not amortised. The useful life and amortisation method for intangible assets with finite useful lives are reviewed at each balance sheet date. If the expected useful life of the asset or the amortisation method differs significantly from previous assessments, the amortisation period or amortisation method is changed accordingly as a change in accounting estimate.
17 Impairment of assets For assets excluding financial assets and repossessed assets, the Company assesses impairment of assets as follows. At each balance sheet date, the Company assesses whether there is any indication that assets may be impaired. If there is any indication that an asset may be impaired, a recoverable amount is estimated for the asset. For an asset with an indefinite useful life, the asset is tested for impairment at least at each financial year-end, irrespective of whether there is any indication of impairment. The recoverable amount of an asset is the higher of its fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. The Company estimates the recoverable amount of an asset on an individual basis. If the result of the recoverable amount calculation indicates the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is recognised as an impairment loss and charged to the income statement. A provision for impairment loss of the asset is recognised accordingly. Once an impairment loss is recognised, it shall not be reversed in a subsequent period.
18 Repossessed assets Repossessed assets are initially recognised at fair value. The difference between the initial fair value and the sum of the related loan principal, interest receivable and impairment provision is taken into the income statement. At the balance sheet date, the repossessed assets are measured at the lower of their carrying value and net realisable value. When the carrying value of the repossessed assets is higher than the net realisable value, a provision for the decline in value of repossessed assets is recognised in the income statement.
19 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and when the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Interest income and interest expense For all financial instruments measured at amortised cost and interest-bearing financial instruments classified as available-for-sale financial investments, interest income or expense is recorded at the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the effective interest rate, but not the future credit losses. The carrying amount of the financial asset or financial liability is adjusted if the Company revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate. The change in carrying amount is recorded as interest income or expense. Once the recorded value of a financial assets or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the original effective interest rate applied to the new carrying amount. Fee and commission income Fee and commission income is recognised when the services have been rendered and the proceeds can be reasonably estimated.
Annual report 2008 Shenzhen Development Bank
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
20 Income tax Income tax comprises current tax and movements in deferred tax balances. Current tax is the amount of income taxes payable in respect of the taxable profit for a period. Taxable profit is the profit for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable. Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the tax authorities. Deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, using tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax assets also arise from unused tax losses and unused tax credits. A deferred tax liability is recognised for all taxable temporary differences, except: (i) where the deferred tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction which contains both of the following characteristics, in this case the transaction is not a business combination; and it affects neither accounting profit nor taxable profit (or deductible loss) at the time of the transaction; (ii) in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in jointly-controlled enterprises, where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. For deductible temporary differences, the carryforward of unused deductible losses and tax credits, the Company recognises the corresponding deferred tax asset to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, the deductible losses and tax credits can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that: 1) is not a business combination; and 2) at the time of the transaction, affects neither accounting profit nor taxable profit (or deductible loss). For deductible temporary differences arising from investments in subsidiaries, associates, and interests in jointly-controlled enterprises, the corresponding deferred tax asset is recognised, to the extent that, it is probable that the temporary differences will reverse in the foreseeable future and taxable profits will be available in the future, against which the temporary differences can be utilised. At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, according to the requirements of tax laws. At the balance sheet date, the Company reviews the carrying amount of a deferred tax asset. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that sufficient taxable profits will be available in future periods to allow the benefit of the deferred tax asset to be utilised. Any such reduction in the amount is reversed to the extent that it becomes probable that sufficient taxable profits will be available. Current and deferred tax of the Company is recognised as income or an expense and included in the income statement for the current period, except to the extent that the tax arises from a business combination or a transaction or event which is recognised directly in owner’s equity.
21 Employee benefits Short term employee benefits Salaries and bonuses, social security contributions and other short-term employee benefits are accrued in the period in which services are rendered by the employees of the Company. Defined contribution plans According to the statutory requirements in Mainland China, the Company is required to make contributions to the pension and insurance schemes that are separately administered by the local government authorities. Contributions to these plans are recognised in the income statement as incurred. In addition, the Company participates in a defined contribution retirement benefit insurance plan managed by an insurance company. Obligation for contributions to the insurance plan is borne by the Company, and contributions paid by the Company are recognised in the income statement as incurred. Supplementary retirement benefits Certain employees of the Company in Mainland China can enjoy supplementary retirement benefits after retirement. These benefits are unfunded. The cost of providing benefits is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognised in the income statement in the period in which they occur.
93
94
PRC GAAP Financial Statements
Notes to the Financial Statements
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
21 Employee benefits (Continued) Share-based payment transactions The Company grants equity instruments or incurs liabilities for amounts that are determined based on the price of equity instruments, in return for services rendered by employees or other parties. The cost of cash-settled transactions is measured initially at fair value at the grant date using an appropriate pricing model taking into account the terms and conditions upon which the instruments were granted. The fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is remeasured at each balance sheet date up to and including the settlement date, with changes in fair value recognised in the income statement.
22 Definition of cash equivalents Cash and cash equivalents are short-term, highly liquid monetary assets that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, including the unrestricted balance with the Central Bank, amounts due from banks and other financial institutions and reverse repurchase agreements that have short original maturity of generally within three months.
23 Related parties If a party has the power to control, jointly control or exercise significant influence over another party in making financial and operating decisions, they are regarded as related parties. Two or more parties are also regarded as related parties if they are subject to control, joint control or significant influence from the same party. The following are related parties of an enterprise: (1) the enterprise’s parents; (2) the enterprise’s subsidiaries; (3) other enterprises which are controlled by the enterprise’s parents; (4) an investor who has joint control over the enterprise; (5) an investor who can exercise significant influence over the enterprise; (6) a joint venture in which the enterprise is a venturer; (7) an associate of the enterprise; (8) principal individual investors of the enterprise, and close family members of such individuals; (9) key management personnel of the enterprise or its parent, and close family members of such individuals; (10) other enterprises that are controlled, jointly controlled, or significantly influenced by the enterprise’s principal individual investors, key management personnel, or close family members of such individuals. Enterprises are not regarded as related parties simply because they are under common control from the state, if no other related party relationships exist between them.
24 Fiduciary activities Where the Company acts in a fiduciary capacity such as nominee, trustee or agent, assets arising thereon together with the related undertakings to return such assets to customers are excluded from the financial statements. Entrusted loans granted by the Company on behalf of third-party lenders are recorded as off-balance sheet items. The Company acts as an agent and grants such entrusted loans to borrowers under the direction of the third-party lenders who fund these loans. The Company has been contracted by the third-party lenders to manage the administration and collection of these loans on their behalf. The third-party lenders determine both the underwriting criteria for and the terms of all entrusted loans including their purposes, amounts, interest rates, and repayment schedules. The Company charges a commission related to the management of the entrusted loans. The commission income is recognized pro rata over the period in which the service is provided. The risk of loan loss is borne by the third-party lenders.
25 Leases A lease that transfers in substance all the risks and rewards incident to ownership of an asset is classified as a finance lease. An operating lease is a lease other than a finance lease. perating leases for lessees O Lease payments under an operating lease are recognized by a lessee on a straight-line basis over the lease term, and either included in the cost of another related asset or charged to the income statement. Operating leases for lessors Lease income from operating leases is recognized by the lessor in the income statement on a straight-line basis over the lease term.
Annual report 2008 Shenzhen Development Bank
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
26 Contingent liabilities A contingent liability is a possible obligation that arises from past transactions or events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events. It can also be a present obligation arising from past transactions or events but is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably.
27 Provisions An obligation related to a contingency is recognised as a provision when all of the following conditions are satisfied: (i) the obligation is a present obligation of the Company; (ii) it is probable that an outflow of economic benefits will be required to settle the obligation; and (iii) the amount of the obligation can be measured reliably. A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors pertaining to a contingency such as the risks, uncertainties and time value of money are taken into account as a whole in reaching the best estimate. The Company reviews the carrying amount of a provision at the balance sheet date. When there is clear evidence that the carrying amount of a provision does not reflect the current best estimate, the carrying amount is adjusted to the current best estimate.
28 Trade date accounting Except for loans and receivables, all regular way purchases and sales of financial assets are recognised on the trade date, that is, the date on which the Company commits to purchase or sell the asset. A regular way purchase and sale is the purchase or sale of financial assets that requires delivery of assets within the time frame generally established by regulation or convention in the marketplace.
29 Offsetting Financial assets and financial liabilities are offset only when the Company has a legally enforceable right to offset the recognised amounts and both parties of the transaction intend to settle on a net basis.
30 Dividends Dividends are recognized as a liability and deducted from equity when they are approved by the Company’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Company. Dividends for the year that are approved after the balance sheet date are disclosed as an event after the balance sheet date.
31 Significant accounting judgements and estimates In the process of applying the Company’s accounting policies, management has made assumptions of impacts arising from uncertain future events on the financial information. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year/period are discussed below. Apart from those assumptions and estimations, judgements are also made and are set out below. Designation of held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and a fixed maturity are classified as held-to-maturity investments when the Company has the positive intention and ability to hold the investments to maturity. Accordingly, in evaluating whether a financial asset shall be classified as held-to-maturity investment, significant management judgement is required. If the Company fails to correctly assess its intention and ability to hold the investments to maturity and the Company sells or reclassifies more than an insignificant amount of held-to-maturity investments before maturity, the Company shall classify the whole held-to-maturity investment portfolio as available-for-sale. Impairment losses of loans and advances The Company determines periodically whether there is any objective evidence that an impairment loss on loans and advances has been incurred. If any such evidence exists, the Company assesses the amount of impairment losses. The amount of impairment losses is measured as the difference between the carrying amount and the present value of estimated future cash flows. Assessing the amount of impairment losses requires significant judgement on whether objective evidence for impairment exists and also significant estimates when determining the present value of the expected future cash flows.
95
96
PRC GAAP Financial Statements
Notes to the Financial Statements
C Summary of Significant Accounting Policies and Accounting Estimates
(Continued)
31 Significant accounting judgements and estimates (Continued) Income tax Determining income tax provisions requires the Company to estimate the future tax treatment of certain transactions. The Company carefully evaluates tax implications of transactions in accordance with prevailing tax regulations and makes tax provisions accordingly. In addition, deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. This requires significant estimates on the tax treatments of certain transactions and also significant assessment on the probability that adequate future taxable profits will be available for the deferred income tax assets to be recovered. Fair value of financial instruments If the market for a financial instrument is not active, the Company establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable willing parties, if available, reference to the current fair value of another instrument that is substantially the same, and a discounted cash flow analysis. To the extent practicable, the valuation technique makes maximum use of market inputs. However, where market inputs are not available, management needs to make estimates on areas such as credit risk (both the Company’s and the counterparty’s), volatility and correlation. Changes in assumptions about these factors could affect the reported fair values of financial instruments. Impairment of available-for-sale and held-to-maturity investments In determining whether there is any objective evidence that impairment losses on available-for-sale and held-to-maturity investments have occurred, the Company assesses periodically whether there has been a significant or prolonged decline in the fair value of the investment below its cost or carrying amount, or whether other objective evidence of impairment exists based on the investee’s financial conditions and business prospects, including industry environment, change of technology, operating and financing cash flows, etc. This requires significant level of judgement of the management, which would affect the amount of impairment losses.
32 Taxes Major taxes and related tax rates applicable to the Company are as follows: TAX
Basis of tax assessment
Business Tax Business income (not including interest income from transactions with financial institutions) City Maintenance and Construction Tax Amount of business tax Corporate Income Tax Amount of taxable income
Tax rate (%) 5 1 to 7 18, 25
During the 5th Session of the 10th National People’s Congress, which was concluded on 16 March 2007, the PRC Corporate Income Tax Law (“the New Corporate Income Tax Law”) was approved and became effective on 1 January 2008. The New Corporate Income Tax Law introduces a wide range of changes which include, but are not limited to, the unification of the income tax rate for domestic-invested and foreign-invested enterprises at 25%. The income tax rate applicable to the branches in Shenzhen, Zhuhai and Haikou will progressively increase to the tax rate of 25% in five years. The income tax rate applicable to the branches in other regions decreased from 33% to 25% effective from 1 January 2008.
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements 1 Cash on hand and due from the Central Bank In RMB’000
Cash on hand Statutory reserve with the Central Bank – RMB Statutory reserve with the Central Bank – foreign currency Unrestricted balance with the Central Bank Other deposits with the Central Bank – fiscal deposits Total
31 December 2008
31 December 2007
981,859 29,321,249 309,783 9,144,712 10,298 39,767,901
1,062,241 28,894,261 327,038 10,436,341 6,506 40,726,387
Based on the related RMB and foreign currency deposits, the Company places respective statutory reserves with the Central Bank in accordance with the requirements from the People’s Bank of China. These reserve deposits are not available for use in the Company’s daily operations. Fiscal deposits represent the amounts received from government-related bodies that are required to be deposited with the Central Bank according to the relevant regulations.
2 Placement of deposits with other financial institutions Analysed by location and counterparty In RMB’000
Domestic banks Other domestic financial institutions Overseas banks Subtotal Less: Impairment provision (Note D.18) Total
31 December 2008 18,313,172 45,462 3,182,870 21,541,504 (40,695 ) 21,500,809
31 December 2007 2,273,251 68,150 1,739,075 4,080,476 (66,786 ) 4,013,690
As at 31 December 2008, included in this total amount of placements of deposits with other financial institutions is an amount of RMB 44,520 thousand (31 December 2007: RMB 69,920 thousand) impaired assets brought forward from prior years.
97
98
PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
3 Funds loaned to other financial institutions Analysed by location and counterparty In RMB’000
Domestic banks Domestic financial companies Domestic trust investment companies Overseas banks Subtotal Less: Impairment provision (Note D.18) Total
31 December 2008 4,101,050 158,550 25,022 4,981,133 9,265,755 (29,079 ) 9,236,676
31 December 2007 687,940 48,550 80,511 2,135,552 2,952,553 (309,897 ) 2,642,656
As at 31 December 2008, included in this total amount of loans funded to other financial institutions is an amount of RMB 33,572 thousand (31 December 2007: RMB 323,771 thousand) impaired assets brought forward from prior years.
4 Financial assets/financial liabilities at fair value through profit or loss Financial assets at fair value through profit or loss 31 December 2008
31 December 2007
Bonds held for trading Financial assets designated at fair value through profit or loss Total
36,610 4,831 41,441
276,802 1,200,823 1,477,625
Bond investments analysed by issuer Governments and the Central Bank Policy banks Other banks and non-bank financial institutions Total
– 36,610 4,831 41,441
816,669 616,136 44,820 1,477,625
In RMB’000
In the opinion of management, there are no significant restrictions on realising the financial assets at fair value through profit or loss. Financial liabilities at fair value through profit or loss In RMB’000
Financial liabilities designated at fair value through profit or loss
31 December 2008
31 December 2007
39,420
1,246,657
As at 31 December 2008, the Company designated financial liabilities of RMB 39,420 thousand (31 December 2007: RMB 1,246,657 thousand) as at fair value through profit or loss upon their initial recognition. The amount of change in their total fair value that was attributable to changes in the credit risk was not significant as the credit spread of the Company remained stable during the year. The difference between the carrying amount and the amount that the Company would be contractually required to pay at maturity to the holders of these financial liabilities is RMB 567 thousand (31 December 2007: RMB 31,506 thousand).
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
5 Derivative financial instruments A derivative is a financial instrument, the value of which is derived from the value of another “underlying” financial instrument, an index or some other variables. Typically, an “underlying” financial instrument is a share, a commodity or bond price, an index value or an exchange or interest rate. The Company uses derivative financial instruments such as forward contracts, swaps and options. The notional amount of a derivative represents the amount of an underlying asset upon which the value of the derivative is based. It indicates the volume of business transacted by the Company but does not reflect the risk. The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s length transaction. At each balance sheet date, the Company has positions in the following types of derivatives:
31 December 2008 Notional amounts with remaining lives of
Fair value
Up to 3 months
3 months to 1 year
1 to 5 years
Total
Assets
11,720,148
7,181,310
73,121
18,974,579
182,345
(27,016 )
–
130,000
1,140,000
1,270,000
86,632
(6,733 )
Equity derivative instruments Equity option contracts Equity swap contracts
511,437 –
1,508,952 46,767
– –
2,020,389 46,767
21,312 –
(21,312 ) (3,075 )
Other derivative instruments Total
19,219 12,250,804
407,060 9,274,089
– 1,213,121
426,279 22,738,014
462 290,751
(462 ) (58,598 )
In RMB’000
Foreign exchange derivative instruments Forward foreign exchange contracts Interest rate derivative instruments Interest rate swap contracts
Liabilities
31 December 2007 Notional amounts with remaining lives of
Fair value
Up to 3 months
3 months to 1 year
1 to 5 years
Total
Assets
5,847,222
5,077,180
–
10,924,402
166,122
(139,604 )
–
–
170,000
170,000
–
(1,553 )
Equity derivative instruments Equity option contracts Equity swap contracts
805,824 –
224,966 482,036
1,531,691 –
2,562,481 482,036
71,417 16,410
(76,149 ) –
Other derivative instruments Total
– 6,653,046
1,482,337 7,266,519
– 1,701,691
1,482,337 15,621,256
37,867 291,816
(37,867 ) (255,173 )
In RMB’000
Foreign exchange derivative instruments Forward foreign exchange contracts Interest rate derivative instruments Interest rate swap contracts
As at 31 December 2008 and 31 December 2007, no derivatives were designated as hedging instruments.
Liabilities
99
100 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
6 Reverse repurchase agreements Analysed by counterparty 31 December 2008
In RMB’000
31,854,311 2,908,042 34,762,353 (29,000 ) 34,733,353
Banks Non-bank financial institutions Subtotal Less: Impairment provisions (Note D.18) Total
31 December 2007 22,499,511 11,299,963 33,799,474 (30,549 ) 33,768,925
As at 31 December 2008, included in this total amount of reverse repurchase agreements is an amount of RMB 50 million (31 December 2007: RMB 51,722 thousand) impaired assets brought forward from prior years. Analysed by collateral 31 December 2008
In RMB’000
1,020,000 33,572,353 170,000 34,762,353 (29,000 ) 34,733,353
Securities Bills Loans Subtotal Less: Impairment provisions (Note D.18) Total
31 December 2007 551,722 22,470,502 10,777,250 33,799,474 (30,549 ) 33,768,925
air value of collateral F Under certain reverse repurchase agreements, the Company has held collateral that is permitted to be sold or re-pledged in the absence of default by the owners of the collateral. At the balance sheet date, the fair values of the collateral held on such terms are as follows:
31 December 2008
Amount of reverse repurchase Fair value agreements of collateral
In RMB’000
Bills Loans Total
33,572,353 170,000 33,742,353
31 December 2007
33,572,353 170,000 33,742,353
Amount of reverse repurchase agreements
Fair value of collateral
11,425,106 10,777,250 22,202,356
11,425,106 10,777,250 22,202,356
The above fair value of collateral included bills amounting to RMB 15,578,493 thousand (31 December 2007: RMB 1,393,049 thousand) that were re-pledged at the year end. The Company has an obligation to return such collateral.
7 Accounts receivable In RMB’000
31 December 2008
31 December 2007
1,119,445 240,147 1,359,592
778,069 – 778,069
Receivables with respect to making payments on behalf of customers Receivables under factoring Total
8 Interest receivable In RMB’000
Interest receivable on bond investments Interest receivable on loans and amounts due from other financial institutions Total
Balance at beginning of the year
Increase during the year
Collection during the year
Balance at end of the year
548,480
1,819,818
(1,508,071 )
860,227
577,892 1,126,372
17,367,898 19,187,716
(17,200,381 ) (18,708,452 )
745,409 1,605,636
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
9 Loans and advances a
Analysed by corporation and individual 31 December 2008
31 December 2007
Loans and advances to corporations Loans Discounted bills Subtotal
167,617,360 42,217,821 209,835,181
149,712,815 7,780,001 157,492,816
Loans and advances to individuals Credit cards Residential mortgages Others Subtotal Total loans and advances Less: Loan impairment provisions (Note D.9f) Loans and advances, net
3,722,178 65,861,574 4,322,433 73,906,185 283,741,366 (2,026,679 ) 281,714,687
2,010,827 59,297,346 2,234,540 63,542,713 221,035,529 (6,023,964 ) 215,011,565
In RMB’000
As at 31 December 2008, included in the discounted bills is an amount of RMB 12,691,340 thousand (31 December 2007: Nil) that was pledged for repurchase agreements. In addition, as at 31 December 2008, the Company has transferred out (without recourse) discounted bills amounting to RMB 30.5 billion (31 December 2007: RMB 28.3 billion) that have not yet matured at the year end. b
Analysed by industry
In RMB’000
Agriculture, husbandry and fisheries Extraction (Heavy industry) Manufacturing (Light industry) Energy Transportation, storage and communication Commercial Real estate Service, technology, culture and sanitary industries Construction Others Total loans and advances Less: Loan impairment provisions (Note D.9f) Loans and advances, net
c
31 December 2008 598,700 2,990,127 69,633,354 12,437,428 13,138,335 44,889,464 15,882,930 38,325,644 10,770,355 75,075,029 283,741,366 (2,026,679 ) 281,714,687
31 December 2007 506,927 2,812,800 55,249,167 7,832,400 12,497,393 26,281,499 14,411,307 29,969,369 7,340,077 64,134,590 221,035,529 (6,023,964 ) 215,011,565
Analysed by type of collateral held or other credit enhancement
In RMB’000
Unsecured Guaranteed Secured by collateral of which: secured by mortgages secured by monetary assets Subtotal Discounted bills Total loans and advances Less: Loan impairment provisions (Note D.9f) Loans and advances, net
31 December 2008 47,041,232 59,769,814 134,712,499 111,667,469 23,045,030 241,523,545 42,217,821 283,741,366 (2,026,679 ) 281,714,687
31 December 2007 31,864,556 62,372,647 119,018,325 89,703,166 29,315,159 213,255,528 7,780,001 221,035,529 (6,023,964 ) 215,011,565
101
102 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
9 Loans and advances (Continued) d
Ageing analysis of past due loans
31 December 2008
In RMB’000
Unsecured Guaranteed Secured by collateral of which: secured by mortgages secured by monetary assets Total
Overdue by 1 to 90 days, inclusive
Overdue by 90 days to 1 year, inclusive
Overdue by 1 to 3 years, inclusive
Overdue by more than 3 years
Total
480,859 217,842 2,554,398 2,315,592 238,806 3,253,099
23,932 221,673 494,824 466,465 28,359 740,429
– 6,204 586,104 406,337 179,767 592,308
– 261,646 640,253 520,253 120,000 901,899
504,791 707,365 4,275,579 3,708,647 566,932 5,487,735
Overdue by 1 to 90 days, inclusive
Overdue by 90 days to 1 year, inclusive
Overdue by 1 to 3 years, inclusive
Overdue by more than 3 years
Total
239,346 120,429 2,265,619 1,977,097 288,522 2,625,394
46,310 126,920 836,882 559,370 277,512 1,010,112
100,395 2,527,372 1,449,149 1,029,084 420,065 4,076,916
25,132 3,996,214 2,724,078 1,881,857 842,221 6,745,424
411,183 6,770,935 7,275,728 5,447,408 1,828,320 14,457,846
31 December 2007
In RMB’000
Unsecured Guaranteed Secured by collateral of which: secured by mortgages secured by monetary assets Total
Overdue loans refer to the loans with either principal or interest being overdue by one day or more. e
Analysed by geographical region 31 December 2008
In RMB’000
86,815,602 100,457,432 75,600,230 19,700,651 1,167,451 283,741,366 (2,026,679 ) 281,714,687
Southern China Eastern China Northern and north-eastern China South-western China Offshore businesses Total loans and advances Less: Loan impairment provisions (Note D.9f) Loans and advances, net
f
31 December 2007 78,054,481 78,061,876 49,966,780 14,360,528 591,864 221,035,529 (6,023,964 ) 215,011,565
Movements in impairment provisions for loans and advances 2008
In RMB’000
Balance at beginning of the year Charge for the year Amounts written off Reversal for the year Recovery of loans written off previously Unwinding of discounts of provisions for impaired loans and advances Other changes for the year Balance at end of the year (Note D.18)
Indiviual 5,073,555 5,667,836 (9,896,652 )
2007
Collective
Total
Individual
Collective
950,409 6,023,964 1,305,003 6,972,839 (710,060 ) (10,606,712 )
6,452,271 1,380,948 (2,202,225 )
484,870 565,295 (99,756 )
29,944
–
29,944
34,061
–
(384,238 ) (9,118 ) 481,327
– – 1,545,352
(384,238 ) (9,118 ) 2,026,679
(518,592 ) (72,908 ) 5,073,555
– – 950,409
Total 6,937,141 1,946,243 (2,301,981 ) 34,061 (518,592 ) (72,908 ) 6,023,964
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
10 Available-for-sale financial assets In RMB’000
Bond investments analysed by issuer Governments and the Central Bank Policy banks Other banks and non-bank financial institutions Corporations Total bond investments Equity investments Total
31 December 2008
31 December 2007
29,697,175 18,789,453 112,335 133,094 48,732,057 67,659 48,799,716
10,733,081 6,621,821 272,851 88,522 17,716,275 134,617 17,850,892
As at 31 December 2008, included in the bond investments is an amount of RMB 1,984,666 thousand (31 December 2007: Nil) that was pledged for repurchase agreements.
11 Held-to-maturity investments In RMB’000
Bond investments analysed by issuer Governments and the Central Bank Policy banks Other banks and non-bank financial institutions Corporations Total
31 December 2008
31 December 2007
8,712,820 5,786,616 649,751 435,568 15,584,755
9,508,400 5,738,760 319,472 344,854 15,911,486
As at 31 December 2008, included in the bond investments are amounts of RMB 205,485 thousand (31 December 2007: RMB 1,124,046 thousand), RMB 3,612,979 thousand (31 December 2007: Nil), RMB 5,405,600 thousand (31 December 2007: RMB 14,555,660 thousand) that were pledged for loan guarantee contracts, agreements of time deposit from PBOC and repurchase agreements, respectively. There are no changes in the assessment of the Company’s intention and ability to hold the investments to maturity.
12 Receivables – bond investments In RMB’000
PBOC bills Subordinated bonds issued by financial institutions Total
31 December 2008
31 December 2007
13,450,000 300,000 13,750,000
13,450,000 – 13,450,000
These bond investments are financial assets with fixed or determinable payments that are not quoted in an active market. As at 31 December 2008, included in the bond investments is an amount of RMB 3,000,000 thousand (31 December 2007: Nil) that was pledged for repurchase agreements.
103
104 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
13 Long term equity investments NAME OF INVESTEE In RMB’000
31 December 2008
31 December 2007
– 50,000 9,662 9,650 5,220 1,100 2,500 2,800 500 1,000 1,000 500 1,000 16,725 230 67,000 32,175 4,283 – 20,000 225,345
507,348 50,000 9,662 9,650 5,220 1,100 2,500 2,800 500 1,000 1,000 500 1,000 16,725 230 67,000 32,175 4,283 10,000 – 722,693
269,065 30,607 299,672 525,017 (107,627 ) 417,390
– – – 722,693 (470,745 ) 251,948
Cost method Shenzhen Yuan Sheng Industrial Co., Ltd. China UnionPay Co., Ltd. Gintian Industry (Group) Co., Ltd. Hainan Pearl River Holdings Co., Ltd. Hainan Wuzhou Travel Co., Ltd. Meizhou Polyester (Group) Co. Shenzhen Zoto Investment Co.,Ltd. (Note 1) Hainan Junhe Travel Co., Ltd. Guangdong Sanxing Enterprises (Group) Co., Ltd. Hainan Baiyunshan Co., Ltd. Hainan Saige Co., Ltd. Hainan Zhuxin Investment Co., Ltd. (Note 2) Hainan Zhonghailian Real Estate Co., Ltd. Shenzhen Jiafeng Textile Industrial Co., Ltd. SWIFT Yong An Property Insurance Co., Ltd. Wuhan Steel Electricity Co., Ltd. Founder Securities Co., Ltd. (Note 3) Yihua Real Estate Co., Ltd. (Note 4) Chengdu Unionfriend Network Co. Ltd. Total Equity method Associates Chengdu Gongtou Assets Management Co., Ltd. Shandong Xinkaiyuan Real Estate Co., Ltd. Long term equity investments Less: Impairment provisions (Note D.18) Long term equity investments, net Notes: 1. Shenzhen Zoto Investment Co., Ltd. was originally named as Shenzhen Central South China Industrial Co..
2. Hainan Zhuxin Investment Co., Ltd. was originally named as Hainan First Investment Co., Ltd..
3. The original investee was Sun Securities Co., Ltd.. At 12 May 2008, Founder Securities Co., Ltd. was approved to acquire Sun Securities Co., Ltd..
4. Yihua Real Estate Co., Ltd. was originally named as Macat Optics & Electronics Co., Ltd..
The movement in impairment provisions for long term equity investments is as follows: In RMB’000
Shenzhen Yuan Sheng Industrial Co., Ltd. Chengdu Gongtou Assets Management Co., Ltd. Others Total
Balance at beginning of the year 391,118 – 79,627 470,745
Charged for the year Other movements 55,184 20,000 8,000 83,184
(446,302 ) – – (446,302 )
Balance at end of the year – 20,000 87,627 107,627
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
13 Long term equity investments (Continued) The movements in the associates during the year are as follows: Jan–Dec 2008
Movements in equity
In RMB’000
Percentage of registered Initial capital (%) investment
Chengdu Gongtou Assets Management Co., Ltd. (Note 1) 33.20 Shandong Xinkaiyuan Real Estate Co.,Ltd. (Note 2) 15.42
Share of Accumulated profit for Dividend share of the year distribution profit
Change in other equity
Impairment provision Charge for Accumulated the year balance
Balance at end of the year
259,836
22,675
(3,320 )
19,355
(10,126 )
(20,000 )
(20,000 )
249,065
30,607 290,443
– 22,675
– (3,320 )
– 19,355
– (10,126 )
– (20,000 )
– (20,000 )
30,607 279,672
Notes: 1. At 30 January 2008, the Company obtained 33.2% of the shareholding of Chengdu Gongtou Assets Management Co., Ltd. as repossessed assets.
2. At 18 August 2008, the Company obtained 15.42% of the shareholding of Shandong Xinkaiyuan Real Estate Co., Ltd. as repossessed assets. The Company has appointed a representative at the board of the investee.
The key financial information of the associates is as follows: Place of Nature of Registered In RMB’000 registration business capital Chengdu Gongtou Assets Management Co., Ltd. Shandong Xinkaiyuan Real Estate Co.,Ltd.
Percentage of Percentage of equity held by voting right held by the Company (%) the Company (%)
Chengdu
Asset management
518,700
33.20
33.20
Jinan
Real estate
50,000
15.42
15.42
31 December 2008 In RMB’000
Chengdu Gongtou Assets Management Co., Ltd.
From 30 January 2008 to 31 December 2008
Total assets
Total liabilities
Operating income
Net profit (Note)
1,458,061
632,679
72,994
68,300
31 December 2008 In RMB’000
Shandong Xinkaiyuan Real Estate Co.,Ltd.
From 18 August 2008 to 31 December 2008
Total assets
Total liabilities
Operating income
Net profit
288,105
78,102
–
–
Note: The amount represents the net profit attributable to the parent company on the face of the consolidated income statement of Chengdu Gongtou Assets Management Co., Ltd.
14 Investment properties In RMB’000
Balance at beginning of the year Disposals during the year Fair value changes recognised in the income statement Transferred to owner-occupied properties during the year, net Balance at end of the year
31 December 2008 441,098 (2,058 ) (15,087 ) (12,263 ) 411,690
31 December 2007 460,656 (25,251 ) 42,733 (37,040 ) 441,098
The Company’s investment properties are mainly properties and buildings, which are rented to third parties under operating leases. The investment properties are situated in locations where there are active property markets and the fair value of the investment properties can be reliably determinable on a continuing basis. Accordingly, management decided to adopt the fair value model for subsequent measurement of the investment properties, which are valued by independent professionally qualified valuers on, at least, an annual basis. The revaluation as at 31 December 2008 was performed by Shenzhen Guozi Land and Real Estate Valuation Co., Ltd. In connection with this, the valuation was carried out by qualified persons who are members of the Shenzhen Institute of Real Estate Appraisers. Certain investment properties were transferred to owner-occupied properties mainly because the rental agreements of these properties expired during the year.
105
106 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
14 Investment properties (Continued) The gross rental income earned from the investment properties during the year amounted to RMB 38,982 thousand (2007: RMB 45,377 thousand). The total direct operating expense (including repairs and maintenance expenses) for the investment properties, with or without rental income generated during the year, was RMB 2,589 thousand (2007: RMB 3,284 thousand).
15 Fixed assets 2008
In RMB’000
Balance at beginning of the year Addition
Transfer from construction in progress Subtraction
At cost Properties and buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Total
1,536,206 95,235 700,932 307,632 318,845 2,958,850
Accumulated depreciation Properties and Buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Total Less: Impairment provision (Note D.18) Net book value
413,076 51,594 – (9,299 ) 73,338 7,278 – (25,170 ) 471,129 97,726 – (120,125 ) 203,740 36,116 – (16,621 ) 243,289 19,211 – (303 ) 1,404,572 211,925 – (171,518 ) – 1,554,278
35,262 15,612 194,663 88,250 6,677 340,464
In RMB’000
– 957 7,132 16,383 10,759 35,231
(32,966 ) (29,010 ) (126,691 ) (19,033 ) (653 ) (208,353 )
Balance at end of the year 1,538,502 82,794 776,036 393,232 335,628 3,126,192 455,371 55,446 448,730 223,235 262,197 1,444,979 (6,289 ) 1,674,924
2007 Balance at beginning of the year Addition
Transfer from construction in progress Subtraction
Balance at end of the year
At cost Properties and buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Total
1,518,063 218,195 601,519 269,035 301,766 2,908,578
(35,565 ) (129,495 ) (35,972 ) (20,685 ) (10,549 ) (232,266 )
1,536,206 95,235 700,932 307,632 318,845 2,958,850
Accumulated depreciation Properties and Buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Total Net book value
373,005 51,728 – (11,657 ) 171,586 17,321 – (115,569 ) 413,418 83,560 – (25,849 ) 182,440 32,609 – (11,309 ) 225,340 21,434 – (3,485 ) 1,365,789 206,652 – (167,869 ) 1,542,789
413,076 73,338 471,129 203,740 243,289 1,404,572 1,554,278
53,708 6,535 134,271 49,125 2,489 246,128
– – 1,114 10,157 25,139 36,410
As at 31 December 2008, the original cost and net book value of properties and buildings amounting to RMB 143,053 thousand (31 December 2007: RMB 130,831 thousand) and RMB 88,723 thousand (31 December 2007: RMB 87,453 thousand) respectively, are in use by the Company without having the registration certificates of property rights.
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
16 Deferred tax assets/deferred tax liabilities
2008 Balance at beginning of the year
Recognised in the income statement (Note D.42)
Recognised directly in equity
Balance at end of the year
Deferred tax assets Impairment provisions Others Subtotal
945,647 48,742 994,389
796,813 33,476 830,289
– (12,862 ) (12,862 )
1,742,460 69,356 1,811,816
Deferred tax liabilities Tax losses deducted against taxable profits of different tax rate Changes in fair values Subtotal Total
(54,135 ) (44,409 ) (98,544 ) 895,845
54,135 (45,354 ) 8,781 839,070
– (251,916 ) (251,916 ) (264,778 )
– (341,679 ) (341,679 ) 1,470,137
In RMB’000
2007 Recognised in the income statement (Note D.42)
Recognised directly in equity
Balance at end of the year
In RMB’000
Balance at beginning of the year
Deferred tax assets Impairment provisions Others Subtotal
988,120 27,810 1,015,930
(42,473 ) 9,532 (32,941 )
– 11,400 11,400
945,647 48,742 994,389
(211,652 ) (40,747 ) (10,269 ) (262,668 ) 753,262
157,517 (16,081 ) 10,269 151,705 118,764
– 12,419 – 12,419 23,819
(54,135 ) (44,409 ) – (98,544 ) 895,845
Deferred tax liabilities Tax losses deducted against taxable profits of different tax rate Changes in fair values Others Subtotal Total
107
108 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
17 Other assets a
Analysed by nature
In RMB’000
Prepayments Prepaid legal expenses Long term deferred expenses Repossessed assets (Note D.17b) Construction in progress Receivable of exercise of warrants Receivable of bills due from other banks Others Total other assets Less: Impairment provision Repossessed assets (Note D.17b) Others (Note D.18) Total impairment provision Other assets, net
b
31 December 2008
31 December 2007
167,323 113,948 355,458 937,303 257,040 – 54,274 262,665 2,148,011
93,963 164,437 276,758 1,005,318 10,809 789,961 2,288 265,297 2,608,831
(319,480 ) (212,637 ) (532,117 ) 1,615,894
(198,143 ) (238,448 ) (436,591 ) 2,172,240
Repossessed assets
In RMB’000
Land, properties and buildings Others Total Less: Provision for decline in value (Note D.18) Repossessed assets, net
31 December 2008 915,282 22,021 937,303 (319,480 ) 617,823
31 December 2007 983,027 22,291 1,005,318 (198,143 ) 807,175
During the year, the Company took possession of collateral held as security with a carrying amount of RMB 52,152 thousand (2007: RMB 37,319 thousand). The collateral mainly comprises buildings. During the year, the Company disposed of repossessed assets with their gross carrying value amounting to RMB 120,167 thousand (2007: RMB 175,270 thousand). The Company plans to dispose of the repossessed assets through auctions, bidding or transfers in future.
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
18 Impairment losses on assets
2008
Unwinding of discounts of Balance at Charge/ Recovery of provisions for beginning (reversal) Amounts loans written impaired loans Other of the year for the year written off off previously and advances movements In RMB’000 Note D (Note D.41) Provision for decline in value of precious metals Impairment provision for placement of deposits with other financial institutions 2 Impairment provision for funds loaned to other financial institutions 3 Impairment provision for reverse repurchase agreements 6 Impairment provision for loans and advances 9f Impairment provision for long term equity investments 13 Provision for decline in value of repossessed assets 17b Impairment provision for fixed assets 15 Impairment provision for other assets 17a Total
61
198
–
–
–
–
259
66,786
(1,496 )
(25,400 )
–
–
805
40,695
309,897
8,619
(284,987 )
–
–
(4,450 )
29,079
30,549
172
(1,721 )
–
–
–
29,000
6,972,839 (10,606,712 )
29,944
(384,238 )
(9,118 )
2,026,679
–
–
–
(446,302 )
107,627
126,114 – 6,289 – 37,990 (61,447 ) 7,233,909 (10,980,267 )
– – – 29,944
– – – (384,238 )
(4,777 ) – (2,354 ) (466,196 )
319,480 6,289 212,637 2,771,745
6,023,964 470,745 198,143 – 238,448 7,338,593
83,184
2007
Unwinding of discounts of Balance at Charge/ Recovery of provisions for beginning (reversal) Amounts loans written impaired loans Other of the year for the year written off off previously and advances movements In RMB’000 Note D (Note D.41) Provision for decline in value of precious metals Impairment provision for placement of deposits with other financial institutions 2 Impairment provision for funds loaned to other financial institutions 3 Impairment provision for reverse repurchase agreements 6 Impairment provision for loans and advances 9f Impairment provision for long term equity investments 13 Provision for decline in value of repossessed assets 17b Impairment provision for other assets 17a Total
Balance at end of the year
Balance at end of the year
–
61
–
–
–
–
61
67,425
361
(1,000 )
–
–
–
66,786
324,985
8,283
(17,498 )
–
–
(5,873 )
309,897
27,550
2,999
–
–
–
–
30,549
6,937,141
1,946,243
(2,301,981 )
34,061
(518,592 )
(72,908 )
6,023,964
470,745
–
–
–
–
–
470,745
189,538 188,891 8,206,275
14,419 51,393 2,023,759
– – (2,320,479 )
– – 34,061
– – (518,592 )
(5,814 ) (1,836 ) (86,431 )
198,143 238,448 7,338,593
109
110 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
19 Placement of deposits from other financial institutions 31 December 2008
31 December 2007
21,891,481 14,171,551 36,063,032
16,789,193 15,599,569 32,388,762
31 December 2008
31 December 2007
7,380,000
2,300,000
31 December 2008
31 December 2007
Analysed by collateral Securities Bills Total
10,360,000 28,556,115 38,916,115
14,110,800 2,356,782 16,467,582
Analysed by counterparty Banks Non-bank financial institutions Total
36,006,698 2,909,417 38,916,115
11,099,633 5,367,949 16,467,582
31 December 2008
31 December 2007
Current deposits Corporate customers Personal customers Subtotal
86,279,463 19,234,242 105,513,705
80,950,179 16,518,537 97,468,716
Fixed deposits Corporate customers Personal customers Subtotal Guarantee deposits Fiscal deposits Time deposits from PBOC Inward and outward remittances Total
100,842,409 38,836,902 139,679,311 104,393,453 6,772,448 3,000,000 1,155,119 360,514,036
76,783,023 24,371,478 101,154,501 74,801,665 6,717,154 – 1,134,945 281,276,981
In RMB’000
Domestic banks Domestic non-bank financial institutions Total
20 Funds borrowed from other financial institutions In RMB’000
Domestic banks
21 Repurchase agreements In RMB’000
22 Customer deposits In RMB’000
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
23 Employee benefits payable
In RMB’000
Salaries, bonuses, allowances and subsidies including: Deferred bonus accrual (Note) Social insurance, supplementary pension contributions and staff welfare Housing funds Labour union and training expenses Others Total
2008 Balance at beginning of the year
Increase during the year
Payment made during the year
Balance at end of the year
706,104 42,800
2,034,524 89,148
(1,740,211 ) –
1,000,417 131,948
219,307 – – – 925,411
494,408 89,934 56,875 9,362 2,685,103
(466,712 ) (89,934 ) (56,875 ) (9,362 ) (2,363,094 )
247,003 – – – 1,247,420
In RMB’000
Salaries, bonuses, allowances and subsidies including: Deferred bonus accrual (Note) Social insurance, supplementary pension contributions and staff welfare Housing funds Labour union and training expenses Others Total
2007 Balance at beginning of the year
Increase during the year
Payment made during the year
Balance at end of the year
453,633 9,000
1,599,861 33,800
(1,347,390 ) –
706,104 42,800
160,995 – – – 614,628
364,568 69,842 54,177 41,882 2,130,330
(306,256 ) (69,842 ) (54,177 ) (41,882 ) (1,819,547 )
219,307 – – – 925,411
Note: The amount of deferred bonus is determined based on the indicators of asset quality and profitability and the share price of the Company; and will be settled in cash in accordance with the terms of the arrangement. No payment has been made by the Company since the set up of the deferred bonus schemes.
24 Tax payable In RMB’000
31 December 2008
31 December 2007
688,812 382,269 126,768 1,197,849
412,970 320,823 85,963 819,756
31 December 2008
31 December 2007
507,483
340,297
Corporate income tax Business tax and surcharges Others Total
25 Accounts payable In RMB’000
Payables with respect to amounts owed to other financial institutions
26 Interest payable In RMB’000
Interest payable for deposits from customers and financial institutions Interest payable for subordinated bonds Total
Balance at beginning of the year
Increase during the year
Payment made during the year
Balance at end of the year
1,728,071 – 1,728,071
13,232,505 323,341 13,555,846
(12,298,855 ) (21,838 ) (12,320,693 )
2,661,721 301,503 2,963,224
111
112 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
27 Subordinated bonds payable In RMB’000
31 December 2008
31 December 2007
7,964,282
–
Subordinated bonds payable
As approved by the CBRC and PBOC, the Company issued three sets of subordinated bonds with a total amount of RMB 8 billion in the interbank bond market on 21 March 2008 and 28 October 2008. These subordinated bonds comprise two sets of fixed-rate bonds with nominal values of RMB 6 billion and RMB 1.5 billion respectively; and one set of floating-rate bonds with a nominal value of RMB 0.5 billion. The duration of the bonds is of 10 years with a call option at the end of the fifth year. The coupon rates for the first five years are 6.10% and 5.30% for the two sets of fixed-rate bonds; and SHIBOR3M+1.40% for the floating-rate bonds. If the Company does not exercise the call option at the end of the fifth year, both the fixed and floating coupon rates will increase by 3%.
28 Other liabilities In RMB’000
31 December 2008
31 December 2007
195,295 57,917 53,324 29,456 108,002 – 44,414 14,172 16,798 301,058 820,436
712,635 91,552 32,595 25,425 90,511 250,000 62,367 14,022 106,481 223,029 1,608,617
Bank drafts Amounts pending for settlement and clearing Financial guarantee contracts Amounts payable for bond redemption as intermediaries Accrued expenses Amounts payable for acquisition of bonds Inactive deposit account balances Dividends payable Subscription monies of open-ended funds Others Total
29 Share capital As at 31 December 2008, the number of the Company’s registered, issued and fully paid shares was 3,105,434 thousand, with a price of RMB 1 each. The nature and the structure of the share capital are as follows: In RMB’000
Restricted tradable shares State-owned corporation shares Domestic non-state-owned corporation shares Domestic individual shares Foreign corporation shares Total restricted tradable shares Unrestricted tradable shares RMB ordinary shares Total unrestricted tradable shares Total shares
31 December 2007 %
Movement for the year
31 December 2008
%
4,626
0.20
(4,626 )
–
–
183,314 543 348,103 536,586
8.00 0.02 15.18 23.40
(179,459 ) (465 ) (31,208 ) (215,758 )
3,855 78 316,895 320,828
0.13 – 10.20 10.33
1,756,821 1,756,821 2,293,407
76.60 76.60 100
1,027,785 1,027,785 812,027
2,784,606 2,784,606 3,105,434
89.67 89.67 100.00
In accordance with the Measures for the Administration of the Share-trading Reform of Listed Companies, the original non-tradable shareholders of the Company promised not to conduct any transfer or trading of the non-tradable shares held within 12 months since the day when the trading right is acquired. After the expiration of the above commitment term, the former non-tradable shares trading through the stock exchange shall not be over 5% of the total shares of the Company within 12 months, and not over 10% within 24 months.
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
29 Share capital (Continued) The increase in share capital during the year was because of the exercise of warrants and appropriation of share dividends. Pursuant to the resolution of the first 2007 extraordinary shareholders’ meeting held on 8 June 2007, the Company has issued 104,337,917 12-month Bermuda warrants (hereinafter referred to as “SFC 2”) to the shareholders registered in the shareholders’ register on the registration date of warrant issue. Each shareholder obtains 0.5 warrants for every 10 shares. Each warrant can be used to purchase one share of the Company, at an exercise price of RMB 19 Yuan for each share. According to the relevant rules of the warrant issue, the warrants held by the holders of restricted tradable shares, and directors, supervisors and senior management of the Company are not tradable whereas the other warrants are tradable. Up to the last trading date for SFC 2 on 27 June 2008, there were 95,388,057 SFC 2 exercised in total, increasing the share capital of the Company by RMB 95,388,057 Yuan. Pursuant to the resolution of the first 2008 extraordinary shareholders’ meeting held on 15 October 2008, the Company appropriated dividends of 3 shares for every 10 shares, based on 2,388,795,202 outstanding shares prior to the share dividend. After the appropriation of share dividend, the total number of shares increased by 716,638,560 to 3,105,433,762 as at 31 October 2008.
30 Capital reserve In RMB’000
Share premium Cumulative changes in fair value of available-for-sale financial assets Revaluation surplus on owner-occupied properties transferred to investment properties Share of the changes in owners’ equity of an associate Total
31 December 2008
31 December 2007
6,973,270 1,002,795 13,043 (10,126 ) 7,978,982
5,263,534 (60,120 ) 10,240 – 5,213,654
31 Surplus reserve In RMB’000
Statutory surplus reserve
31 December 2008
31 December 2007
780,885
719,481
In accordance with the Company Law, the Company is required to appropriate 10% of its profit after tax to its statutory surplus reserve until the reserve balance reaches 50% of its registered capital. Subject to the approval of shareholders, the statutory surplus reserve may be used to offset accumulated losses, if any, and may also be converted into capital, provided that the balance of the statutory surplus reserve after such capitalisation is not less than 25% of the registered capital. The Company may also appropriate its profit after tax to the discretionary surplus reserve upon approval of the shareholders in general meetings. As at 31 December 2008 and 31 December 2007, the amount of the surplus reserve represented the statutory surplus reserve.
32 General reserve Pursuant to the relevant regulations issued by the MOF, the Company is required to maintain a general reserve within equity, through the appropriation of net profit, which should not be less than 1% of the year end balance of its risk assets. The reserve is to be appropriated over a period of not more than five years, beginning in July 2005. As at 31 December 2008, the Company has met the above reserve requirement.
33 Unappropriated profit Pursuant to a board resolution on 19 March 2008, based on the audited profit for the year as reported in the statutory financial statements for the year ended 31 December 2007, in addition to the profit appropriations for the first half of 2007, the Company appropriated its net profit amounting to RMB 152,592 thousand and RMB 136,000 thousand to the statutory surplus reserve and the general reserve, respectively for the second half of 2007. The above appropriations were approved at the Company’s annual general meeting held on 12 June 2008. Pursuant to a board resolution on 20 August 2008, an appropriation of RMB 214,384 thousand based 10% of net profit as reported in the Company’s statutory financial statements for the first half of 2008 was made to the statutory surplus reserve; an appropriation of RMB 608,624 thousand was made to the general reserve; and dividends of 3 shares and RMB 0.335 Yuan for every 10 shares were appropriated from the unappropriated profit, amounting to RMB 796,663 thousand in total. The above appropriations were approved at the Company’s shareholders’ meeting held on 15 October 2008. Pursuant to a board resolution on 19 March 2009, based on the audited profit for the year as reported in the statutory financial statements for the year ended 31 December 2008, the Company reversed the statutory surplus reserve amounting to RMB 152,980 thousand in the second half of the year considering the respective appropriation in the first half of 2008, with the result that an appropriation of RMB 61,404 thousand was made to the statutory surplus reserve for 2008 based on 10% of the profit for the year; and an appropriation of RMB 258,968 thousand was made to the general reserve for the second half of 2008. The above proposed appropriations are pending approval from shareholders at the forthcoming annual general meeting.
113
114 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
34 Net interest income In RMB’000
2008
2007
728,694 3,941,979
463,496 2,057,207
Interest income Due from the Central Bank Due from financial institutions Loans and advances Corporate loans and advances Individual loans and advances Discounted bills Interest income on investment securities (excluding financial assets at fair value through profit or loss) Subtotal Interest income on financial assets at fair value through profit or loss Total Including: Interest related to unwinding of discounts of provisions for impaired financial assets
11,686,554 4,891,174 2,828,661
8,789,274 3,268,017 2,164,801
2,330,843 26,407,905 57,359 26,465,264 384,238
1,261,540 18,004,335 39,565 18,043,900 518,592
Interest expense Due to financial institutions Customer deposits Subordinated bonds Subtotal Interest expense on financial liabilities at fair value through profit or loss Total Net interest income
4,977,674 8,556,601 325,488 13,859,763 7,613 13,867,376 12,597,888
3,390,478 5,014,596 – 8,405,074 32,977 8,438,051 9,605,849
2008
2007
215,993 131,020 69,372 14,683 221,086 404,493 1,056,647
161,744 103,565 62,113 8,305 131,102 200,922 667,751
160,538 44,721 205,259 851,388
106,579 40,459 147,038 520,713
2008
2007
35 Net fee and commission income In RMB’000
Fee and commission income Settlement fee income International settlement fee income Agency business fee income Entrusted loan fee income Bank card fee income Others Subtotal Fee and commission expense Bank card fee and agency business fee expenses Others Subtotal Net fee and commission income
36 Investment income In RMB’000
Gain on disposal of bond investments held for trading Loss on disposal of bond investments designated as at fair value through profit or loss Gain on disposal of available-for-sale bond investments Gain on disposal of available-for-sale equity investments Gain on disposal of long term equity investments Share of profits of associates under equity method of accounting Dividend income Realised gain on derivative financial instruments (excluding foreign exchange derivative financial instruments) Total
41,810 (91 ) 322,953 804 12,443 22,675 4,554
4,352 (31,408 ) 40,017 175,736 – – 6,955
16,408 421,556
5,332 200,984
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
37 Gains or losses from changes in fair values In RMB’000
Financial instruments held for trading Financial assets designated as at fair value through profit or loss Financial liabilities designated as at fair value through profit or loss Derivative financial instruments (excluding foreign exchange derivative financial instruments) Investment properties Total
2008 1,241 4,729 2,740 72,177 (15,087 ) 65,800
2007 (459 ) 12,534 (10,925 ) 13,758 42,733 57,641
38 Net foreign exchange difference 2008
2007
128,809 333,734 462,543
24,530 232,816 257,346
2008
2007
63,365 50,579 113,944
65,994 98,975 164,969
2008
2007
Staff expenses Salaries, bonuses, allowances and subsidies Social insurance, supplementary pension contributions and staff welfare Housing funds Labour union and training expenses Others Subtotal
2,034,524 494,408 89,934 56,875 9,362 2,685,103
1,599,861 364,568 69,842 54,177 41,882 2,130,330
General and administrative expenses Rental expenses Computer system maintenance fees Telecommunications and postage expenses Water and electricity expenses Publication and stationery expenses Travel expenses Marketing and public relation expenses Motor vehicle expenses Legal expenses Professional fees (Note) Sundry tax expenses CBRC supervisory fee Amortisation of leasehold improvements Others Subtotal
421,725 168,425 95,546 47,769 197,604 90,173 358,019 128,463 44,080 169,425 30,269 51,582 61,179 441,727 2,305,986
358,887 138,120 77,285 40,381 151,377 87,515 241,706 134,107 35,754 100,047 36,014 44,473 53,909 356,662 1,856,237
Depreciation and amortisation Depreciation of fixed assets Amortisation of intangible assets Subtotal Total
211,925 20,852 232,777 5,223,866
206,652 14,275 220,927 4,207,494
In RMB’000
Gains or losses from changes in fair values on foreign exchange derivative financial instruments Others Total
39 Other operating income In RMB’000
Rental income Others Total
40 General and administrative expenses In RMB’000
Note: Included in the professional fees is an amount of RMB 44,886 thousand (2007: RMB 40,333 thousand) of consultancy fees payable to GE Management Technology Consulting (Shanghai) Co., Ltd..
115
116 PRC GAAP Financial Statements
Notes to the Financial Statements
D Notes to Key Items in the Financial Statements
(Continued)
41 Impairment losses on assets In RMB’000
Charge/(reversal) of impairment losses on Precious metals Placement of deposits with other financial institutions Funds loaned to other financial institutions Reverse repurchase agreements Loans and advances Long term equity investments Available-for-sale financial assets Repossessed assets Fixed assets Other assets Total
2008
2007
198 (1,496 ) 8,619 172 6,972,839 83,184 100,253 126,114 6,289 37,990 7,334,162
61 361 8,283 2,999 1,946,243 – 30,000 14,419 – 51,393 2,053,759
2008
2007
1,381,363 (363,719 )
1,216,465 24,171
– (796,813 ) (42,257 ) 178,574
(117,288 ) 42,473 (43,949 ) 1,121,872
42 Income tax expense In RMB’000
Current tax Charge for the year Adjustment in respect of current income tax for prior years Deferred income tax Impact of changes in tax rates Impact of impairment provision for assets (Note D.16) Other movements Total
The reconciliation of income tax expense applicable to profit before tax at the statutory tax rate to income tax expense at the Company’s effective income tax rate is as follows: In RMB’000
Profit before tax Income tax at the statutory rate of 25% (2007: 33%) Adjustment in respect of current income tax for prior years Non-taxable income Non-deductible expenses and other adjustments Income tax expense
2008
2007
792,609
3,771,775
198,152 (363,719 ) (131,617 ) 475,758 178,574
1,244,686 24,171 (152,226 ) 5,241 1,121,872
Annual report 2008 Shenzhen Development Bank
D Notes to Key Items in the Financial Statements
(Continued)
43 Earnings per share The Company’s basic earnings per share amount is calculated as follows: In RMB’000
Net profit attributable to ordinary shareholders of the Company The weighted average number of ordinary shares outstanding (in thousands) Basic earnings per share (Renminbi Yuan)
2008
2007
614,035 3,060,103 0.20
2,649,903 2,721,446 0.97
2008
2007
614,035 3,060,103
2,649,903 2,721,446
17,984 3,078,087 0.20
74,140 2,795,586 0.95
The Company’s diluted earnings per share amount is calculated as follows: In RMB’000
Net profit attributable to ordinary shareholders of the Company The weighted average number of ordinary shares outstanding (in thousands) Dilutive effect – weighted average number of ordinary shares Warrants Adjusted weighted average number of ordinary shares outstanding (in thousands) Diluted earnings per share (Renminbi Yuan)
Note: The number of ordinary shares increased by 716,639 thousand as a result of a scrip dividend in October 2008. Since there was no effect on the amount of shareholders’ equity, the earnings per share for 2007 were recalculated on the basis of the adjusted number of shares.
No changes occurred during the period between the balance sheet date and the date the financial statements are authorised for issue.
44 Cash and cash equivalents In RMB’000
Cash on hand Cash equivalents Within three months before original maturity date Placement of deposits with other financial institutions Funds loaned to other financial institutions Reverse repurchase agreements Unrestricted balance with the Central Bank Subtotal Total
31 December 2008
31 December 2007
981,859
1,062,241
5,489,878 5,846,025 15,661,984 9,144,712 36,142,599 37,124,458
2,372,907 1,337,892 15,346,034 10,436,341 29,493,174 30,555,415
E Segmental Reporting The Company mainly organises and manages its operating businesses geographically, and therefore, the primary reporting format for reporting segment information is geographical segments. Segment assets and liabilities, and segment revenues and profit are calculated according to the accounting policies of the Company. In presenting information on the basis of geographical segment, operating income and expense are based on the location of the branches that generated the revenue and incurred the expense. Segment assets and liabilities are allocated based on the geographical locations of the underlying assets. The details of the geographical segments of the Company are as follows: Southern China: Shenzhen, Guangzhou, Foshan, Zhuhai, Haikou Eastern China: Shanghai, Hangzhou, Ningbo, Wenzhou, Nanjing Northern and north-eastern China: Beijing, Tianjin, Dalian, Jinan, Qingdao South-western China: Chongqing, Kunming, Chengdu Offshore businesses
117
118 PRC GAAP Financial Statements
Notes to the Financial Statements
E Segmental Reporting
(Continued)
2008
In RMB’000 Southern China Eastern China Net interest income Including: External net interest income Internal net interest income/(expense) Net fee and commission income Other income Operating income Business tax and surcharges General and administrative expenses Operating expenses Impairment loss of assets Operating profit Depreciation and amortisation Capital expenditure
Northern and north-eastern South-western China China
Offshore businesses
Eliminations
Total
6,441,460 6,439,463
3,285,472 3,308,557
1,969,345 1,992,005
796,640 796,669
104,971 61,194
– –
12,597,888 12,597,888
1,997 464,314 941,427 7,847,201 (407,564 ) (2,812,246 ) (3,219,810 ) (4,330,943 ) 296,448
(23,085 ) 172,548 37,117 3,495,137 (406,859 ) (1,284,277 ) (1,691,136 ) (2,344,424 ) (540,423 )
(22,660 ) 122,609 57,840 2,149,794 (268,002 ) (864,602 ) (1,132,604 ) (453,660 ) 563,530
(29 ) 27,069 4,357 828,066 (69,240 ) (262,741 ) (331,981 ) (175,689 ) 320,396
43,777 64,848 23,102 192,921 – – – (29,446 ) 163,475
– – – – – – – – –
– 851,388 1,063,843 14,513,119 (1,151,665 ) (5,223,866 ) (6,375,531 ) (7,334,162 ) 803,426
(143,910 )
(34,659 )
(35,361 )
(18,847 )
–
–
(232,777 )
341,475
321,947
94,155
39,502
–
–
797,079
31 December 2008 Segment assets 281,926,989 151,290,327 113,882,801 22,435,574 7,323,869 (104,231,203 ) 472,628,357 Deferred tax assets 1,811,816 Total assets 474,440,173 Segment liabilities 267,542,455 151,820,166 113,298,504 22,116,868 7,150,914 (104,231,203 ) 457,697,704 Deferred tax liabilities 341,679 Total liabilities 458,039,383
2007
In RMB’000 Southern China Eastern China Net interest income Including: External net interest income Internal net interest income Net fee and commission income Other income Operating income Business tax and surcharges General and administrative expenses Operating expenses Impairment loss of assets Operating profit
Northern and north-eastern South-western China China
Offshore businesses
Eliminations
Total
4,810,811 4,810,811 – 277,462 538,516 5,626,789 (282,563 ) (2,280,845 ) (2,563,408 ) (1,772,992 ) 1,290,389
2,693,923 2,693,923 – 116,143 58,816 2,868,882 (300,549 ) (1,021,335 ) (1,321,884 ) (184,862 ) 1,362,136
1,485,325 1,485,325 – 71,000 69,411 1,625,736 (189,233 ) (695,421 ) (884,654 ) (49,857 ) 691,225
525,796 525,796 – 20,336 4,733 550,865 (51,962 ) (209,893 ) (261,855 ) (31,507 ) 257,503
89,994 89,994 – 35,772 9,464 135,230 – – – (14,541 ) 120,689
– – – – – – – – – – –
9,605,849 9,605,849 – 520,713 680,940 10,807,502 (824,307 ) (4,207,494 ) (5,031,801 ) (2,053,759 ) 3,721,942
Depreciation and amortisation
(128,303 )
(38,387 )
(34,618 )
(19,619 )
–
–
(220,927 )
Capital expenditure
236,530
56,019
48,505
31,143
–
–
372,197
31 December 2007 Segment assets 213,890,764 105,849,188 80,366,622 21,728,490 3,621,120 (73,911,212 ) Deferred tax assets Total assets
351,544,972 994,389 352,539,361
Segment liabilities 204,208,241 104,486,345 79,674,242 21,471,851 3,505,287 (73,911,212 ) Deferred tax liabilities Total liabilities
339,434,754 98,544 339,533,298
Annual report 2008 Shenzhen Development Bank
F Commitments and Contingent Liabilities 1 Capital commitments At the balance sheet date, the Company had capital commitments as follows: In RMB’000
Contracted, but not provided for
31 December 2008
31 December 2007
144,000
–
2 Operating lease commitments The Company has entered into commercial leases on certain premises and equipment. At the balance sheet date, the total future minimum lease payments payable under non-cancellable operating leases were as follows: 31 December 2008
31 December 2007
370,634 320,964 281,920 962,438 1,935,956
263,204 216,752 189,963 502,250 1,172,169
31 December 2008
31 December 2007
Financial guarantee contracts Bank acceptances Guarantees issued Letters of credit issued Loan guarantee contracts Subtotal
164,888,094 1,884,883 1,826,290 177,698 168,776,965
121,882,685 2,212,937 1,912,162 963,135 126,970,919
Irrevocable loan commitments Credit limit of credit cards Total
15,343,716 184,120,681
8,804,290 135,775,209
59,080,564
49,277,576
In RMB’000
Within one year, inclusive After one year but not more than two years After two years but not more than three years More than three years Total
3 Credit commitments In RMB’000
Credit risk weighted amounts of credit commitments
Financial guarantee contracts commit the Company to make payments on behalf of customers upon the failure of the customers to perform the terms of the contracts. Commitments to extend credit represent contractual commitments to make loans to customers. Commitments generally have fixed expiry dates. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements.
4 Fiduciary transactions In RMB’000
Entrusted deposits Entrusted loans Entrusted funding Entrusted investments
31 December 2008
31 December 2007
10,867,862 10,867,862
5,551,762 5,551,762
3,427,869 3,427,869
2,007,738 2,007,738
Entrusted deposits represent funds that depositors have instructed the Company to use to make loans to third parties as designated by them. The credit risk remains with the depositors. Entrusted funding and entrusted investments represent the investment and asset management services provided by the Company to third parties in accordance with the agreed investment plans. The third parties provide funding for the related investments. Income from such investment activities is collected on behalf of and paid to the third parties according to the relevant contractual terms.
119
120 PRC GAAP Financial Statements
Notes to the Financial Statements
F Commitments and Contingent Liabilities
(Continued)
5 Contingent liabilities Legal proceedings As at 31 December 2008, the total claimed amount of the litigation cases of which the Company is the defendant was RMB 179 million (31 December 2007: RMB 161 million). These litigation cases are under legal proceedings. In the opinion of management, the Company has made adequate allowance for any probable losses based on the prevailing facts and circumstances. Apart from the above pending litigation cases, the respective liquidators of DeHeng Securities Co., Ltd. and the China Southern Securities Co., Ltd. had requested the Company to repay a total amount of RMB 430 million. The Company had opposed all such repayment requests. At the year end, based on the legal opinion from an independent third-party lawyer, the Company had no immediate obligation to repay the monies. Redemption commitments of government bonds As an underwriting agent of the PRC Government, the Company underwrites certain PRC government bonds and sells the bonds to the general public. The Company is obliged to redeem the bonds at the discretion of the holders at any time prior to maturity. The redemption price for the bonds is based on the nominal value of the bonds plus any interest accrued up to the redemption date. As at 31 December 2008, the Company had underwritten and sold bonds with an accumulated amount of RMB 3.1 billion (31 December 2007: RMB 3.67 billion) to the general public which have not matured or been redeemed. The MOF will not provide funding for the early redemption of these government bonds on a back-to-back basis but is obliged to repay the principal and the respective interest upon maturity. As at 31 December 2008, the unexpired underwriting commitment of the PRC government bonds amounted to RMB 2.35 billion (31 December 2007: RMB 2.65 billion).
G Capital Management The primary objectives of the Company’s capital management are to ensure that the Company complies with regulatory capital requirements, to maximise shareholders’ value and to support the continuous growth in business. The Company regularly reviews its capital structure and makes adjustments to it through asset and liability management, so as to maintain the overall balance of the capital structure and maximisation of capital return. The required information of capital adequacy is filed with the CBRC by the Company on a quarterly basis. The CBRC requires banks that are established in Mainland China to maintain the capital adequacy ratio and core capital ration not below the minimum of 8% and 4%, respectively. The risk-weighted assets are measured according to the nature of individual assets and counterparty, reflecting an estimate of related credit, market and other risks after taking into account of any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposures, with adjustments made to reflect the contingent nature of any potential losses. The Company calculated and reported the core capital adequacy ratio and capital adequacy ratio in accordance with the “Regulation Governing Capital Adequacy Ratio of Commercial Banks” promulgated by the CBRC and the CBRC’s notice relating to the computation of the capital adequacy ratio after the implementation of ASBEs. The core capital includes share capital, capital reserve, surplus reserve, general reserve and unappropriated profit. The supplementary capital includes revaluation surplus, long term subordinated bonds and other supplementary capital. In RMB’000
Net core capital Supplementary capital Net capital Risk weighted assets and market risk capital adjustment Core capital adequacy ratio Capital adequacy ratio
31 December 2008
31 December 2007
14,710,153 9,577,523 23,959,430 279,112,744 5.3% 8.6%
12,692,620 112,317 12,691,876 220,056,277 5.8% 5.8%
Annual report 2008 Shenzhen Development Bank
H Risk Disclosure 1 Credit risk Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. The Company’s credit risk mainly arises from the loans and advances to customers, financial guarantees and loan commitments. The Company has established a Credit Portfolio Management Committee, which approves and determines the Company’s credit risk management strategies, credit risk preferences as well as its various credit risk management policies and standards. The Company has also formulated guidelines on corporate and retail credit policies across the Company and for specific industries. Furthermore, the Company has implemented a strategic customer categorisation management system, and set up a customer entry and exit mechanism to facilitate the sustainable development of its credit underwriting business. The Company implements a credit risk officer system, in which the Chief Credit Officer at the Head Office appoints credit officers to various business lines and branches. The credit officers directly report to the Chief Credit Officer, who is responsible for evaluating the performance of the credit officers and establishing an independent and transparent vertical credit risk management system. The Company has formulated a complete set of operational procedures for credit approval and management. These procedures are being enforced across the Company. Credit management procedures for its corporate and retail loans comprise the processes of credit origination, credit review, credit approval, disbursement, post-disbursement monitoring and collection. In addition, the Company has formulated the “Policies of Credit Underwriting”, which have defined the functions and responsibilities of different credit operational processes, and have enhanced the monitoring of the related compliance for improving the overall effective control of credit risk. The Company has strengthened its early warning monitoring system for the credit business with measures applicable to the portfolio level and to individual customers, resulting to early detection and effective management of credit risks. The Company sub-divides credit asset risks into 10 categories based on the five-tier loan classification system promulgated by the CBRC, namely, Pass One, Pass Two, Pass Three, Pass Four, Pass Five, Special Mention One, Special Mention Two, Substandard, Doubtful and Loss. Furthermore, a separate “Write-off” category has been added to the classification system. The Company applies different management policies to the loans in accordance with their respective loan categories. Risks arising from financial guarantees and loan commitments are similar to those associated with loans and advances. Transactions of financial guarantees and loan commitments are, therefore, subject to the same portfolio management and the same requirements for application and collateral as loans and advances to customers. Maximum exposure to credit risk without taking account of any collateral and other credit enhancements In RMB’000
Due from the Central Bank (excluding cash on hand) Placement of deposits with other financial institutions Funds loaned to other financial institutions Financial assets at fair value through profit or loss Derivative financial assets Reverse repurchase agreements Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Long term equity investments Other assets Total Financial guarantee Irrevocable loan commitments Maximum exposure to credit risk
31 December 2008
31 December 2007
38,786,042 21,500,809 9,236,676 41,441 290,751 34,733,353 281,714,687 48,799,716 15,584,755 13,750,000 417,390 3,350,801 468,206,421 168,776,965 15,343,716 652,327,102
39,664,146 4,013,690 2,642,656 1,477,625 291,816 33,768,925 215,011,565 17,850,892 15,911,486 13,450,000 251,948 2,981,939 347,316,688 126,970,919 8,804,290 483,091,897
121
122 PRC GAAP Financial Statements
Notes to the Financial Statements
H Risk Disclosure
(Continued)
1 Credit risk (Continued) Risk concentration of the maximum exposure to credit risk Credit risk is often greater when counterparties are concentrated in a single industry or geographic location or have comparable economic characteristics. The majority of the loans and financial guarantee contracts of the Company are related to the local customers within Mainland China. However, different areas in Mainland China have their own unique characteristics in terms of economic development. Therefore, each area in Mainland China could present different credit risks. Please refer to Note D.9 for an analysis of concentration of loans and advances by industry and geographical region. Collateral and other credit enhancements The amount and type of collateral required are determined by the Company based on its assessment of the credit risk of the counterparty. The Company has implemented guidelines regarding the acceptability of types of collateral and valuation parameters. The main types of collateral obtained are as follows: • For reverse repurchase transactions: bills, loans or securities • For commercial lending: charges over real estate properties, inventories, shares or trade receivables • For retail lending: mortgages over residential properties Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement and monitors the market value of collateral obtained during its review of the adequacy of the provision for impairment losses. Credit quality The credit quality by class of financial asset (gross amount before deducting any impairment provision) of the Company is analysed as follows:
In RMB’000
Placement of deposits with other financial institutions Funds loaned to other financial institutions Financial assets at fair value through profit or loss Reverse repurchase agreements Accounts receivable Loans and advances Available-for-sale financial assets (excluding equity investments) Held-to-maturity investments Receivables – bond investments Total
31 December 2008 Neither past due nor impaired
Past due but not impaired
Impaired
Total
21,496,984 9,232,183 41,441 34,712,353 1,359,592 278,177,474
– – – – – 912,582
44,520 33,572 – 50,000 – 4,651,310
21,541,504 9,265,755 41,441 34,762,353 1,359,592 283,741,366
48,732,057 15,584,755 13,750,000 423,086,839
– – – 912,582
– – – 4,779,402
48,732,057 15,584,755 13,750,000 428,778,823
In RMB’000
Placement of deposits with other financial institutions Funds loaned to other financial institutions Financial assets at fair value through profit or loss Reverse repurchase agreements Accounts receivable Loans and advances Available-for-sale financial assets (excluding equity investments) Held-to-maturity investments Receivables – bond investments Total
31 December 2007 Neither past due nor impaired
Past due but not impaired
Impaired
Total
4,010,556 2,628,782 1,477,625 33,747,752 778,069 206,160,615
– – – – – 265,602
69,920 323,771 – 51,722 – 14,609,312
4,080,476 2,952,553 1,477,625 33,799,474 778,069 221,035,529
17,673,235 15,911,486 13,450,000 295,838,120
– – – 265,602
73,040 – – 15,127,765
17,746,275 15,911,486 13,450,000 311,231,487
Annual report 2008 Shenzhen Development Bank
H Risk Disclosure
(Continued)
1 Credit risk (Continued) Credit quality (Continued) Neither past due nor impaired loans and advances At the balance sheet date, the aggregate amounts of neither past due nor impaired loans and advances to customers are “pass” and “special mention” loans graded in accordance with the five-tier classification. In RMB’000
31 December 2008
31 December 2007
275,559,031 2,618,443 278,177,474
204,432,482 1,728,133 206,160,615
Pass Special mention Total
Past due but not impaired loans and advances At the balance sheet date, an ageing analysis of the past due but not yet impaired loans and advances is as follows: 31 December 2008
Within 1 month
1 to 2 months
2 to 3 months
Corporate loans and advances
475,139
112,009
56,624
In RMB’000
In RMB’000
Corporate loans and advances
More than 3 months Total 268,810
Fair value of collateral
912,582
231,650
More than 3 months Total
Fair value of collateral
31 December 2007 Within 1 month
1 to 2 months
2 to 3 months
94,872
55,482
12,280
102,968
265,602
173,033
Impaired loans and advances Impaired loans and advances are defined as those loans and advances having objective evidence of impairment as a result of one or more events that occur after initial recognition, resulting in an impact on the estimated future cash flows of loans and advances that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and the situation where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. The fair value of the collateral that the Company holds relating to corporate loans and advances individually determined to be impaired at 31 December 2008 amounted to RMB 859 million (31 December 2007: RMB 1,988 million). The carrying amount of loans and advances that would otherwise be past due or impaired and whose terms have been renegotiated is as follows: In RMB’000
Loans and advances to customers
31 December 2008
31 December 2007
215,638
390,718
123
124 PRC GAAP Financial Statements
Notes to the Financial Statements
H Risk Disclosure
(Continued)
2 Liquidity risk Liquidity risk is the risk that the Company will be unable to meet its payment obligations when they fall due. The risk is attributable to any mismatch in amounts and terms between the assets and liabilities. To limit the risk, management has arranged diversified funding sources, and monitors loan and deposit balances on a daily basis. The Company also maintains a portfolio of highly marketable assets that can be easily liquidated in the event of an unforeseen interruption of cash flows. Furthermore, the Company performs stress testing regularly to assess and identify the actions that can meet the payment obligations under different critical scenarios. As at 31 December 2008, the remaining contractual maturity analysis of the Company’s financial assets and financial liabilities (based on contractual undiscounted cash flows) was as follows: 31 December 2008
In RMB’000
Overdue/ On demand
Within 1 month
1 to 3 months
10,126,571
–
16,172
3 months to 1 year 1 to 5 years Over 5 years
Undated
Total
Non-derivative cash flows
FINANCIAL ASSETS Cash on hand and due from the Central Bank Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Long term equity investments Other financial assets Total financial assets
14
–
– 29,641,330 39,784,087
3,519,455 23,253,047 16,249,397 23,157,756
–
–
– 66,179,655
– – – 41,971 – – – – 280,151 815,359 174,561 131,346 – – 1,143,450 18,997,224 45,723,741 144,324,383 57,233,863 50,539,389 – – 1,251,174 577,858 20,909,548 20,479,700 9,694,987 67,659 – 17,508 92,812 2,400,633 13,164,405 2,245,821 – – – – 515,735 14,319,015 – – – – – – – – 417,390 81,762 2,103 126,460 568 100 7,257 – 14,871,238 43,801,207 63,601,799 191,525,169 105,328,429 62,487,454 30,126,379
41,971 1,401,417 317,962,050 52,980,926 17,921,179 14,834,750 417,390 218,250 511,741,675
FINANCIAL LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss Accounts payable Customer deposits Subordinated bonds payable Other financial liabilities Total financial liabilities
12,283,928 47,033,925 19,854,362
3,394,422
–
–
– 82,566,637
– 483 – 39,325 – – 25,243 482,385 39,269 – 125,935,704 48,911,972 60,430,312 96,550,156 37,119,340 – – 370,537 93,363 9,843,008 620,318 60 947,503 176,041 176,381 138,839,950 95,971,683 82,085,099 100,292,576 47,138,729
– – 2 – 56,937 56,939
– 39,808 – 546,897 – 368,947,486 – 10,306,908 – 1,977,240 – 464,384,976
Derivative cash flows Derivative financial instruments settled on net basis
–
–
–
(4,965 )
81,789
–
–
Derivative financial instruments settled on gross basis Of which: Cash inflow Cash outflow
– – –
7,075,865 (7,052,537 ) 23,328
4,677,483 (4,622,963 ) 54,520
7,299,089 (7,223,253 ) 75,836
73,801 (72,156 ) 1,645
– – –
– 19,126,238 – (18,970,909 ) – 155,329
76,824
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
Annual report 2008 Shenzhen Development Bank
H Risk Disclosure
(Continued)
2 Liquidity risk (Continued) As at 31 December 2007, the remaining contractual maturity analysis of the Company’s financial assets and financial liabilities (based on contractual undiscounted cash flows) was as follows:
31 December 2007
In RMB’000
Overdue/ On demand
Within 1 month
1 to 3 months
3 months to 1 year
11,517,094
–
–
–
–
2,191,516
20,336,743
14,696,117
3,128,556
– – 6,806,547 43,040 – – – 88,579 20,646,776
721,811 52,859 14,208,320 1,946,360 13,818 – – – 37,279,911
100,000 591,999 479,744 282,850 31,291,316 103,559,631 2,991,745 3,310,196 132,068 1,544,100 – 497,975 – – 846,069 2,457 50,537,059 112,917,764
1 to 5 years Over 5 years
Undated
Total
–
29,227,805
40,744,899
504,226
–
–
40,857,158
53,198 – 43,896,193 9,876,833 10,360,242 14,445,950 – 562 79,137,204
57,710 – 53,124,173 1,079,676 6,147,147 – – 45,502 60,454,208
Non-derivative cash flows
FINANCIAL ASSETS Cash on hand and due from the Central Bank Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Long term equity investments Other financial assets Total financial assets
– 1,524,718 – 815,453 – 252,886,180 134,617 19,382,467 – 18,197,375 – 14,943,925 251,948 251,948 366 983,535 29,614,736 390,587,658
FINANCIAL LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss Accounts payable Customer deposits Other financial liabilities Total financial liabilities
27,167,521
17,475,221
5,152,738
1,526,586
–
–
– – 106,168,886 723,493 134,059,900
– 53,173 40,621,695 887,713 59,037,802
690,015 66,653 49,282,780 546,389 55,738,575
516,118 239,319 70,122,182 307,496 72,711,701
43,103 – 20,188,968 36,342 20,268,413
– – 318 – 318
Derivative cash flows Derivative financial instruments settled on net basis
–
–
206
16,409
(6,492 )
–
–
Derivative financial instruments settled on gross basis Of which: Cash inflow Cash outflow
– – –
3,190,724 (3,200,767 ) (10,043 )
2,321,797 (2,315,881 ) 5,916
4,949,715 (4,919,068 ) 30,647
– – –
– – –
– – –
–
51,322,066
– 1,249,236 – 359,145 – 286,384,829 – 2,501,433 – 341,816,709
10,123
10,462,236 (10,435,716 ) 26,520
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
125
126 PRC GAAP Financial Statements
Notes to the Financial Statements
H Risk Disclosure
(Continued)
3 Market risk Market risk is the risk of loss, in respect of the Company’s on or off-balance sheet activities, arising from adverse movements in market rates including foreign exchange rates, interest rate, commodity prices and stock prices. Market risk arises from both the Company’s trading and non-trading businesses. The aim of market risk management of the Company is to mitigate undue losses of income and equity, and simultaneously, to reduce the Company’s exposure to the volatility inherent in financial instruments. The Company considers the market risk arising from commodity or stock prices in respect of its investment portfolio is immaterial. The Company’s Risk Management Committee and the Asset and Liability Management Committee are responsible for setting up market risk management policies, establishing market risk management objectives and determining market risk limits. The Asset and Liability Management Committee is responsible for controlling the volume, structure, interest rate and liquidity of the Company’s business. The Company’s Financial Information and Asset and Liability Management Department discharges the daily market risk monitoring function on behalf of the Asset and Liability Management Committee, including the determination of reasonable levels of market risk exposures, monitoring the daily treasury operation and proposing adjustments to the maturity profile of the assets and liabilities and the interest rate structure. Gap analysis is the key method used by the Company to monitor the market risk of its non-trading business activities. This method measures the impact of interest rate changes on income, with interest-earning assets and interest-bearing liabilities grouped by their respective re-pricing bands for the calculation of the re-pricing gap. By multiplying this position with an assumed interest rate change, an approximate effect on the net interest income resulting from the assumed interest rate change is quantified. The market risk management information system is being developed for further improvement in market risk management measures. Financial derivative transactions entered into by the Company primarily provide effective economic hedges to other financial instruments held by the Company for the mitigation of interest and exchange rate risks. In the opinion of management, as the market risk of the Company’s trading business activities is not material, the Company has not separately disclosed quantitative information about exposure to market risk arising from the trading portfolio.
Annual report 2008 Shenzhen Development Bank
H Risk Disclosure
(Continued)
3 Market risk (Continued) Currency risk The Company's foreign exchange risk exposure mainly comprises exposures from the mismatch of foreign currency assets and liabilities, and off-balance sheet foreign exchange position arisen from derivative transactions. The currency risk of the Company mainly arises from loans and advances, investments and deposits denominated in foreign currencies. The Company has set limits on positions by currency. Positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits. As at 31 December 2008, the Company’s financial assets and financial liabilities by currency are analysed as follows: 31 December 2008
In RMB’000
RMB
USD
HKD
Others
Total
39,228,570 9,225 49,278,442
372,005 – 14,267,058
155,085 – 964,733
12,241 – 960,605
39,767,901 9,225 65,470,838
241,558 238,826 277,718,781 48,798,945 15,084,844 13,750,000 417,189 1,674,924 5,385,685 451,826,989
89,615 1,108,327 3,736,356 771 452,928 – 201 – 154,191 20,181,452
833 12,439 217,667 – – – – – 16,037 1,366,794
101,413
80,066
833
33
182,345
79,726,137
2,568,477
64,533
–
82,359,147
48,440 – 346,651,180 7,964,282 6,498,739 440,888,778
48,771 507,483 10,959,758 – 81,888 14,166,377
9 – 1,923,193 – 14,020 2,001,755
21,729 10,938,211
4,633 6,015,075
9 (634,961 )
645 82,465
27,016 16,400,790
5,961,351
(5,911,075 )
197,768
(47,636 )
200,408
Not applicable
28,366
(438,017 )
35,441 Not applicable
180,573,370
3,085,518
17,499
444,294 184,120,681
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Long term equity investments Fixed assets Others Total assets Including: Impact of fair value of foreign exchange derivative financial instruments
186 332,192 – 1,359,592 41,883 281,714,687 – 48,799,716 46,983 15,584,755 – 13,750,000 – 417,390 – 1,674,924 3,040 5,558,953 1,064,938 474,440,173
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Subordinated bonds payable Others Total liabilities Including: Impact of fair value of foreign exchange derivative financial instruments Net position of assets and liabilities Notional amount of foreign exchange derivative financial instruments Net position of foreign currency (Note 3) Off-balance sheet credit commitment
798 98,018 – 507,483 979,905 360,514,036 – 7,964,282 1,770 6,596,417 982,473 458,039,383
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
3. The net position of foreign currency comprised the related net position of assets and liabilities (excluding the fair value of foreign exchange derivatives and the non-monetary assets and liabilities) and the notional amount of foreign exchange derivatives.
127
128 PRC GAAP Financial Statements
Notes to the Financial Statements
H Risk Disclosure
(Continued)
3 Market risk (Continued) Currency risk (Continued) As at 31 December 2007, the Company’s financial assets and financial liabilities by currency are analysed as follows:
31 December 2007
In RMB’000
RMB
USD
HKD
Others
Total
39,982,987 8,200 36,512,797
455,463 – 2,894,457
277,444 – 572,489
10,493 – 445,528
40,726,387 8,200 40,425,271
1,725,970 – 209,581,235 17,734,798 15,346,134 13,450,000 228,616 1,554,278 4,652,261 340,777,276
30,696 778,069 4,570,397 116,094 542,929 – 23,332 – 116,023 9,527,460
8,660 – 761,477 – 22,423 – – – 32,650 1,675,143
4,115 – 98,456 – – – – – 890 559,482
1,769,441 778,069 215,011,565 17,850,892 15,911,486 13,450,000 251,948 1,554,278 4,801,824 352,539,361
161,794
11
202
4,115
166,122
49,269,603
1,774,301
112,440
–
51,156,344
1,332,219 – 270,811,155 5,126,495 326,539,472
153,975 340,297 7,764,505 97,309 10,130,387
13,918 – 2,061,236 31,520 2,219,114
1,718 – 640,085 2,522 644,325
1,501,830 340,297 281,276,981 5,257,846 339,533,298
139 14,237,804
128,667 (602,927 )
9,080 (543,971 )
1,718 (84,843 )
139,604 13,006,063
(1,006,099 )
460,252
558,098
(3 )
12,248
Not applicable
(37,351 )
23,005
(87,243 ) Not applicable
132,199,399
3,201,181
79,942
294,687
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Long term equity investments Fixed assets Others Total assets Including: Impact of fair value of foreign exchange financial instruments
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Others Total liabilities Including: Impact of fair value of foreign exchange financial instruments Net position of assets and liabilities Notional amount of foreign exchange derivative financial instruments Net position of foreign currency (Note 3) Off-balance sheet credit commitment
135,775,209
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
3. The net position of foreign currency comprised the related net position of assets and liabilities (excluding the fair value of foreign exchange derivatives and the non-monetary assets and liabilities) and the notional amount of foreign exchange derivatives.
Annual report 2008 Shenzhen Development Bank
H Risk Disclosure
(Continued)
3 Market risk (Continued) Currency risk (Continued) The table below indicates the sensitivity analysis of exchange rate changes of the currencies to which the Company had significant exposure on its monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of a reasonably possible movement in the exchange rates against the RMB, with all other variables held constant on profit before tax. A negative amount in the table reflects a potential net reduction in profit before tax, while a positive amount reflects a net potential increase. As the Company has no cash flow hedges and has only a minimal amount of available-for-sale equity instruments denominated in foreign currencies, changes in exchange rates do not have any material potential impact on the equity. CURRENCY USD HKD
CURRENCY USD HKD
31 December 2008 Change in exchange rate in %
Effect on profit before tax
+/-1 +/-1
+/-284 -/+4,380
31 December 2007 Change in exchange rate in %
Effect on profit before tax
+/-8 +/-8
-/+2,988 +/-1,840
129
130 PRC GAAP Financial Statements
Notes to the Financial Statements
H Risk Disclosure
(Continued)
3 Market risk (Continued) Interest rate risk The Company’s interest rate risk mainly arises from the mismatch of contractual maturity or re-pricing dates between interest-earning assets and interest-bearing liabilities. The interest-earning assets and interest-bearing liabilities of the Company are mainly denominated in RMB. The PBOC sets a cap and a floor on interest rates on deposits and loans, respectively. The Company manages its interest rate risk by adjusting the composition of assets and liabilities, monitoring indicators such as the interest rate sensitivity gap on a regular basis and measuring risk exposure in accordance with the re-pricing characteristics of assets and liabilities. The Asset and Liability Management Committee meets regularly to discuss future movements in interest rates and manages interest rate risk exposures by adjusting the composition of the assets and liabilities. As at 31 December 2008, the contractual re-pricing dates or maturity dates, whichever were earlier, of the Company’s financial assets and financial liabilities are analysed as follows: 31 December 2008
In RMB’000
Within 3 months
3 months to 1 year 1 to 5 years
More than 5 years
Non-interestbearing
Total
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Long term equity investments Fixed assets Others Total assets
38,671,784 –
– –
– –
– –
1,096,117 9,225
39,767,901 9,225
42,794,464
22,676,374
–
–
–
65,470,838
41,441 – 65,822 138,707,587 6,144,749 27,529,814 10,196,378 5,547,784 8,499,347 – 13,750,000 – – – – – – 194,568,822 38,590,474
– – 577,995 5,187,617 515,680 – – – – 6,281,292
290,751 240,147 – 208,007 75,600 – 417,390 1,674,924 5,558,953 9,571,114
332,192 1,359,592 281,714,687 48,799,716 15,584,755 13,750,000 417,390 1,674,924 5,558,953 474,440,173
– 1,053,623 136,284,356 5,677,900 946,344 – – – – 225,428,471
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Subordinated bonds payable Others Total liabilities Interest rate risk exposure
78,992,335
3,356,887
–
–
9,925
82,359,147
– 442,000 240,037,645 498,195 – 319,970,175 (94,541,704 )
39,420 65,483 86,149,026 – – 89,610,816 104,958,006
– – 33,050,066 7,466,087 – 40,516,153 (1,925,679 )
– – 2 – – 2 6,281,290
58,598 – 1,277,297 – 6,596,417 7,942,237 Not applicable
98,018 507,483 360,514,036 7,964,282 6,596,417 458,039,383 Not applicable
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
Annual report 2008 Shenzhen Development Bank
H Risk Disclosure
(Continued)
3 Market risk (Continued) Interest rate risk (Continued) As at 31 December 2007, the contractual re-pricing dates or maturity dates, whichever were earlier, of the Company’s financial assets and financial liabilities are analysed as follows:
31 December 2007
In RMB’000
Within 3 months
3 months to 1 year 1 to 5 years
More than 5 years
Non-interestbearing
Total
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Long term equity investments Fixed assets Others Total assets
39,308,438 –
– –
– –
– –
1,417,949 8,200
40,726,387 8,200
36,982,611
2,952,660
490,000
–
–
40,425,271
857,867 509,370 98,461,358 7,063,115 609,625 – – – – 183,792,384
569,758 268,699 109,379,700 4,748,776 4,683,237 – – – – 122,602,830
– – 6,340,160 5,063,178 6,331,275 13,450,000 – – – 31,674,613
50,000 – 830,347 841,206 4,287,349 – – – – 6,008,902
291,816 – – 134,617 – – 251,948 1,554,278 4,801,824 8,460,632
1,769,441 778,069 215,011,565 17,850,892 15,911,486 13,450,000 251,948 1,554,278 4,801,824 352,539,361
49,692,464
1,463,880
–
–
–
51,156,344
690,015 113,974 197,468,485 – 247,964,938 (64,172,554 )
550,390 226,323 65,092,412 – 67,333,005 55,269,825
6,252 – 17,481,005 – 17,487,257 14,187,356
– – 315 – 315 6,008,587
255,173 – 1,234,764 5,257,846 6,747,783 Not applicable
1,501,830 340,297 281,276,981 5,257,846 339,533,298 Not applicable
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Others Total liabilities Interest rate risk exposure
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
The Company principally uses sensitivity analysis to measure and control interest rate risk. In respect of the financial assets and liabilities at fair value through profit or loss, in the opinion of management, the interest rate risk to the Company arising from this portfolio is not significant. For other financial assets and liabilities, the Company mainly uses gap analysis to measure and control the related interest rate risk. As at 31 December 2008 and 31 December 2007, the gap analyses of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) are as follows:
31 December 2008
31 December 2007
Changes in interest rate (basis point)
Changes in interest rate (basis point)
In RMB’000
-100
+100
-100
+100
Effect on the net interest income increase/(decrease)
433,655
(433,655 )
355,998
(355,998 )
Effect on equity increase/(decrease)
649,171
(649,171 )
90,170
(90,170 )
The above gap analyses assume that the interest rate risk profile of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) remains static.
131
132 PRC GAAP Financial Statements
Notes to the Financial Statements
H Risk Disclosure
(Continued)
3 Market risk (Continued) Interest rate risk (Continued) The sensitivity of the net interest income is the effect of a reasonable possible change in interest rates on the net interest income for one year, in respect of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) held at the balance sheet date. The sensitivity of equity is calculated by revaluing the year end portfolio of fixed-rate available-for-sale financial assets, based on a reasonable possible change in interest rates. The above sensitivity analyses are based on the following assumptions: (i) all assets and liabilities that are re-priced/due within three months (inclusive), and between three months and one year (inclusive) are assumed to be re-priced in the mid of the respective bands; and (ii) there are parallel shifts in the yield curve. Regarding to the above assumptions, the effect on the net interest income and equity as a result of the actual increases or decreases in interest rates may differ from that of the above sensitivity analyses.
4 Fair value of financial instruments The following table summarises the carrying values and the fair values of receivables, held-to-maturity debt securities and subordinated bonds for which their fair values have not been presented or disclosed above:
31 December 2008
In RMB’000
Receivables – bond investments Held-to-maturity debt securities Subordinated bonds payable
Carrying value
Fair value
13,750,000 15,584,755 7,964,282
13,926,630 16,093,150 8,574,308
31 December 2007
In RMB’000
Receivables – bond investments Held-to-maturity debt securities
Carrying value
Fair value
13,450,000 15,911,486
13,388,444 15,330,545
Subject to the existence of an active market, such as an authorised securities exchange, the market value is the best reflection of the fair value of financial instruments. As there is no available market value for certain financial assets and liabilities held and issued by the Company, the discounted cash flow method or other valuation methods described below are adopted to determine the fair values of these assets and liabilities: (1) The receivables are non-transferable. The fair values of these receivables are estimated on the bases of pricing models or discounted cash flows. (2) The fair value of held-to-maturity debt securities and subordinated bonds are determined with reference to the available market values. If quoted market prices are not available, fair values are estimated on the bases of pricing models or discounted cash flows. All of the above-mentioned assumptions and methods provide a consistent basis for the calculation of the fair values of the Company’s assets and liabilities. However, other institutions may use different assumptions and methods. Therefore, the fair values disclosed by different financial institutions may not be entirely comparable. Financial instruments, for which their carrying amounts are the reasonable approximation of their fair values because, for example, they are short term in nature or are re-priced to current market rates frequently, are as follows: Assets
Liabilities
Cash and due from the Central Bank Placements of deposits with other financial institutions Funds loaned to other financial institutions Reverse repurchase agreements Loans and advances Other financial assets
Placement of deposits from other financial institutions Funds borrowed from other financial institutions Repurchase agreements Customer deposits Other financial liabilities
Annual report 2008 Shenzhen Development Bank
H Risk Disclosure
(Continued)
4 Fair value of financial instruments (Continued) The following table shows an analysis of financial instruments recorded at fair value.
31 December 2008
Quoted In RMB’000 market price
Valuation techniques – market observable inputs
Valuation techniques – non-market observable inputs
Total
– – 57,659 57,659
41,441 290,751 48,742,057 49,074,249
– – – –
41,441 290,751 48,799,716 49,131,908
– – –
39,420 58,598 98,018
– – –
39,420 58,598 98,018
Quoted In RMB’000 market price
Valuation techniques – market observable inputs
Valuation techniques – non-market observable inputs
Total
– – 134,617 134,617
1,477,625 291,816 17,716,275 19,485,716
– – – –
1,477,625 291,816 17,850,892 19,620,333
– – –
1,246,657 255,173 1,501,830
– – –
1,246,657 255,173 1,501,830
FINANCIAL ASSETS Financial assets at fair value through profit or loss Derivative financial assets Available-for-sale financial assets Total
FINANCIAL LIABILITIES Financial liabilities at fair value through profit or loss Derivative financial liabilities Total
31 December 2007
FINANCIAL ASSETS Financial assets at fair value through profit or loss Derivative financial assets Available-for-sale financial assets Total
FINANCIAL LIABILITIES Financial liabilities at fair value through profit or loss Derivative financial liabilities Total
I
Related Party Relationships and Transactions
Details of the Company’s major shareholder are as follows: NAME Newbridge Asia AIV III, L.P.
Place of registration
Percentage of equity interest held (%)
31 December 2008
31 December 2007
Delaware, USA
16.76
16.70
Newbridge Asia AIV III, L.P. is an investment fund whose register form is a limited partnership and its registered capital is USD724 million. It focuses on strategic investment. It was established on 22 June 2000 and its initial existing period is 10 years. The ultimate controlling parties of Newbridge Asia AIV III, L.P. are Mr David Bonderman, Mr James G. Coulter and Mr Richard C. Blum. The Company’s former subsidiary, Shenzhen Yuan Sheng Industrial Co., Limited, was disposed of during the year.
133
134 PRC GAAP Financial Statements
Notes to the Financial Statements
I
Related Party Relationships and Transactions
(Continued)
The related party transactions between the Company and the key management personnel during the year are listed below: LOANS In RMB’000
2008 712 – (169 ) 543
Balance at beginning of the year Increase during the year Decrease during the year Balance at end of the year Interest income on loans
2007 – 800 (88 ) 712
9
20
2008
2007
At the year end of 2008, the annual interest rates of these loan transactions range from 1.62% to 1.8%. DEPOSITS In RMB’000
Balance at beginning of the year Increase during the year Decrease during the year Balance at end of the year
18,616 116,066 (127,257 ) 7,425
Interest expense on deposits
10,786 89,627 (81,797 ) 18,616
40
29
These deposit transactions were under normal business terms and conditions and were processed under normal procedures. As at 31 December 2008, the Company has authorised a total credit facility of RMB 2.602 billion (31 December 2007: RMB 2.772 billion) for entities relating to the key management personnel of the Company and their close family members, which included an outstanding loan balance amounting to RMB 1.089 billion (31 December 2007: RMB 1.19 billion) and an outstanding facility of the off-balance sheet items amounting to RMB 0.267 billion (31 December 2007: RMB 0.39 billion). Details of the compensation for key management personnel are as follows: In RMB’000
Salaries and other short-term employee benefits Post-employment benefits Other long term employee benefits Termination benefits Deferred bonus accrual (Note) Total
2008
2007
43,071 665 – – 28,884 72,620
70,156 556 – – 6,278 76,990
Note: The amount of deferred bonus is determined based on the indicators of asset quality and profitability and the share price of the Company; and will be settled in cash in accordance with the terms of the arrangement. No payment has been made by the Company since the set up of the deferred bonus schemes.
J Post Balance Sheet Events Up to the date that these financial statements are authorised for issue, there were no other significant post balance sheet events which required disclosure or adjustment to the financial statements.
K Comparative Figures Certain comparative figures have been reclassified to conform with the current year’s presentation.
L Approval of the Financial Statements The financial statements were approved and authorised for issue by the board of directors on 19 March 2009.
Annual report 2008 Shenzhen Development Bank
Appendix: Supplementary Financial Information Net Asset Return and Earnings per Share
2008
Profit for the year Net asset return (In RMB'000) Fully Weighted diluted (%) average (%) Net profit attributable to ordinary shareholders of the Company Net profit attributable to ordinary shareholders of the Company after deduction of non-recurring profit and loss
(In RMB)
Basic
Diluted
614,035
3.74
4.32
0.20
0.20
623,941
3.80
4.39
0.20
0.20
2007
Profit for the year Net asset return (In RMB'000) Fully Weighted diluted (%) average (%) Net profit attributable to ordinary shareholders of the Company Net profit attributable to ordinary shareholders of the Company after deduction of non-recurring profit and loss
Earnings per share
Earnings per share (In RMB)
Basic
Diluted
2,649,903
20.37
33.41
0.97
0.95
2,576,586
19.81
32.49
0.95
0.92
Of which, net profit attributable to ordinary shareholders of the Company after deduction of non-recurring profit and loss: 2008 In RMB
2007 (Restated)
Net profit attributable to ordinary shareholders of the Company
614,035
2,649,903
Add/(deduct) Non-recurring profit and loss items Gain on disposal of fixed assets and settled assets Gain on disposal of investment properties Gain on disposal of long term equity investments Provision for litigation Changes in fair value of investment properties Reversal of provision for placement of deposits with other financial institutions Other non-operating income and expenses Income tax effect Net profit attributable to ordinary shareholders of the Company after deduction of non-recurring profit and loss
(12,527 ) 419 (12,443 ) 29,712 15,087 (1,800 ) (6,368 ) (2,174 ) 623,941
(44,230 ) 6,311 – 23,998 (42,733 ) – (29,602 ) 12,939 2,576,586
The above net asset return and earnings per share are calculated in accordance with the rules stipulated in the Regulation on Information Disclosure of Public Companies No. 9 as revised by the China Securities Regulatory Commission on 2 February 2007. The non-recurring profit and loss is calculated in accordance with the rules stipulated in the Interpretation of Information Disclosure of Public Companies No. 1 – Nonrecurring profit and loss, effective from 1 December 2008.
135
136 IFRS Financial Statements
Independent Auditors’ Report To the shareholders of Shenzhen Development Bank Co., Limited (Established in the People’s Republic of China with limited liability) We have audited the accompanying financial statements of Shenzhen Development Bank Co., Ltd. (the “Company”) set out on pages 137 to 190, which comprise the balance sheet as at 31 December 2008 and the income statement, the statement of changes in equity and the cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Directors’ responsibility for the financial statements The directors of the Company are responsible for the preparation and the fair presentation of these financial statements in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2008 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Certified Public Accountants Hong Kong 19 March 2009
Annual report 2008 Shenzhen Development Bank
Income Statement for the year ended 31 December 2008
Note
2008
Interest income 4 Interest expense 4 Net interest incme 4 Fee and commission income 5 Fee and commission expense 5 Net fee and commission income 5 Investment income 6 Gains or losses from changes in fair values 7 Net foreign exchange difference Other net income 8 Total operating income Staff expenses 9 General and administrative expenses 9 Depreciation and amortisation 9 Business tax and surcharges Profit before impairment losses on assets Impairment losses on assets 10 Operating profit Share of profits of associates Profit before tax Income tax expense 11 Profit for the year
26,465,264 (13,867,376 ) 12,597,888 1,056,647 (205,259 ) 851,388 398,881 65,800 462,543 103,127 14,479,627 (2,685,103 ) (2,244,807 ) (293,956 ) (1,151,665 ) 8,104,096 (7,334,162 ) 769,934 22,675 792,609 (178,574 ) 614,035
In RMB’000
2007
18,043,900 (8,438,051 ) 9,605,849 667,751 (147,038 ) 520,713 200,984 57,641 257,346 214,802 10,857,335 (2,130,330 ) (1,802,328 ) (274,836 ) (824,307 ) 5,825,534 (2,053,759 ) 3,771,775 – 3,771,775 (1,121,872 ) 2,649,903
Earnings per share Basic earnings per share (Renminbi Yuan)
12
0.20
0.97
Diluted earnings per share (Renminbi Yuan)
12
0.20
0.95
The accounting policies and explanatory notes on pages 142 through 190 form an integral part of the financial statements.
137
138 IFRS Financial Statements
Balance Sheet at 31 December 2008
Note
31 December 2008
31 December 2007
Cash on hand and due from the Central Bank 13 Precious metals Placement of deposits with other financial institutions 14 Funds loaned to other financial institutions 15 Financial assets at fair value through profit or loss 16 Derivative financial assets 17 Reverse repurchase agreements 18 Accounts receivable 19 Loans and advances 20 Available-for-sale financial assets 21 Held-to-maturity investments 22 Receivables – bond investments 23 Investments in associates 24 Investment properties 25 Property and equipment 26 Intangible assets Deferred tax assets 27 Other assets 28 Total assets
39,767,901 9,225 21,500,809 9,236,676 41,441 290,751 34,733,353 1,359,592 281,714,687 48,797,086 15,509,155 13,750,000 279,672 411,690 1,915,446 113,917 1,811,816 3,196,956 474,440,173
40,726,387 8,200 4,013,690 2,642,656 1,477,625 291,816 33,768,925 778,069 215,011,565 18,027,517 15,826,998 13,450,000 – 441,098 1,710,094 67,725 994,389 3,302,607 352,539,361
In RMB’000
ASSETS
LIABILITIES Placement of deposits from other financial institutions 29 Funds borrowed from other financial institutions Financial liabilities at fair value through profit or loss 16 Derivative financial liabilities 17 Repurchase agreements 18 Customer deposits 30 Employee benefits payable 31 Corporate income tax payable Accounts payable 32 Subordinated bonds payable 33 Deferred tax liabilities 27 Other liabilities 34 Total liabilities
36,063,032 7,380,000 39,420 58,598 38,916,115 360,514,036 1,247,420 688,812 507,483 7,964,282 341,679 4,318,506 458,039,383
32,388,762 2,300,000 1,246,657 255,173 16,467,582 281,276,981 925,411 412,970 340,297 – 98,544 3,820,921 339,533,298
SHAREHOLDERS’ EQUITY Share capital 35 Share premium Reserves 36 Unappropriated profit 37 Total shareholders’ equity Total shareholders’ equity and liabilities The accounting policies and explanatory notes on pages 142 through 190 form an integral part of the financial statements.
3,105,434 6,973,270 5,370,653 951,433 16,400,790 474,440,173
2,293,407 5,263,534 3,386,065 2,063,057 13,006,063 352,539,361
Annual report 2008 Shenzhen Development Bank
Statement of Changes in Equity for the year ended 31 December 2008
Of which: Revaluation Of which: surplus on Cumulative owner changes in occupied fair value of properties available-for- transferred to Of which: Share Share sale financial investment general Unappropriated capital premium Reserves assets properties reserve profit In RMB’000 (Note 36) (Note 37) Balance as at 1 January 2008
Total
2,293,407
5,263,534
3,386,065
(60,120 )
11,000
2,715,704
2,063,057
13,006,063
–
–
1,273,554
1,273,554
–
–
–
1,273,554
–
–
3,244
3,244
–
–
–
3,244
–
–
49,882
49,882
–
–
–
49,882
3,816
–
–
3,816
–
–
–
(10,126 )
(1,013 )
–
–
(264,778 )
2,803 –
– –
– 614,035
2,803 – – 13,803
– – 867,592 3,583,296
614,035 – (1,725,659 ) 951,433
CHANGES IN EQUITY FOR 2008 Available-for-sale financial assets Valuation gain taken into equity Amortisation of unrealised gain of the held-to-maturity investments transferred from available-for-sale financial assets Transferred to the income statement upon disposal
Investment properties Fair value adjustments taken into equity – – 3,816 – Share of the changes in owners’ equity of an associate – – (10,126 ) – Tax on items taken directly into or transferred from equity – – (264,778 ) (263,765 ) Net income recognised directly in equity – – 1,055,592 1,062,915 Profit for the year – – – – Total recognised income and expense for the year – – 1,055,592 1,062,915 Exercise of share warrants 95,388 1,709,736 – – Profit appropriation 716,639 – 928,996 – Balance as at 31 December 2008 3,105,434 6,973,270 5,370,653 1,002,795
The accounting policies and explanatory notes on pages 142 through 190 form an integral part of the financial statements.
1,055,592 614,035 1,669,627 1,805,124 (80,024 ) 16,400,790
139
140 IFRS Financial Statements
Statement of Changes in Equity (Continued) for the year ended 31 December 2008
Of which: Revaluation Of which: surplus on Cumulative owner changes in occupied fair value of properties available-for- transferred to Of which: Share Share sale financial investment general Unappropriated capital premium Reserves assets properties reserve profit In RMB’000 (Note 36) (Note 37) Balance as at 1 January 2007
Total
1,945,822
1,571,730
2,211,742
76,787
760
1,679,704
867,746
6,597,040
–
–
(105,991 )
(105,991 )
–
–
–
–
–
3,732
3,732
–
–
–
3,732
–
–
(60,716 )
(60,716 )
–
–
–
(60,716 )
12,489
–
–
12,489
(2,249 )
–
–
23,819
10,240 –
– –
– 2,649,903
(126,667 ) 2,649,903
10,240 – – – 11,000
– – – 1,036,000 2,715,704
2,649,903 – – (1,454,592 ) 2,063,057
2,523,236 3,905,247 (6,794 ) (12,666 ) 13,006,063
CHANGES IN EQUITY FOR 2007 Available-for-sale financial assets Valuation gain taken into equity Amortisation of unrealised gain of the held-to-maturity investments transferred from available-for-sale financial assets Transferred to the income statement upon disposal
Investment properties Fair value adjustments taken into equity – – 12,489 – Tax on items taken directly into or transferred from equity – – 23,819 26,068 Net income recognised directly in equity – – (126,667 ) (136,907 ) Profit for the year – – – – Total recognised income and expense for the year – – (126,667 ) (136,907 ) Exercise of share warrants 206,649 3,698,598 – – Expenses of share reform plan – (6,794 ) – – Profit appropriation 140,936 – 1,300,990 – Balance as at 31 December 2007 2,293,407 5,263,534 3,386,065 (60,120 )
The accounting policies and explanatory notes on pages 142 through 190 form an integral part of the financial statements.
(105,991 )
Annual report 2008 Shenzhen Development Bank
Cash Flows Statement for the year ended 31 December 2008
Note
2008
Cash flows from operating activities 38 Income tax paid Net cash flows generated from operating activities
25,491,200 (1,148,589 ) 24,342,611
18,155,886 (1,104,310 ) 17,051,576
Cash flows from investing activities Purchases of property and equipment Purchases of intangible assets Proceeds from disposal of items of property and equipment Proceeds from disposal of investment properties Interest received from investment securities Dividend received from investment securities Purchases of bond investments Proceeds from disposal of bond investments Proceeds from disposal of a subsidiary Proceeds from disposal of equity investments Net cash flows used in investing activities
(798,627 ) (39,376 ) 17,158 25,819 1,508,070 1,878 (133,691,351 ) 104,670,827 61,000 30,279 (28,214,323 )
(316,764 ) (55,434 ) 109,300 18,940 673,687 6,955 (123,539,875 ) 111,192,097 – 179,317 (11,731,777 )
Cash flows from financing activities Proceeds from exercise of warrants Dividends paid Payment of expenses relating to share reform and exercise of warrants Cash receipts from bond issue Cash payments for bond issue Net cash flows generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year
2,602,335 (101,712 ) (22,003 ) 8,000,000 (37,865 ) 10,440,755 6,569,043 30,555,415 37,124,458
3,136,366 (20,858 ) (13,120 ) – – 3,102,388 8,422,187 22,133,228 30,555,415
in RMB’000
2007
Analysis of balances of cash and cash equivalents Cash on hand Cash equivalents Within three months before original maturity date Placement of deposits with other financial institutions Funds loaned to other financial institutions Reverse repurchase agreements Unrestricted balance with the Central Bank
981,859
1,062,241
5,489,878 5,846,025 15,661,984 9,144,712 37,124,458
2,372,907 1,337,892 15,346,034 10,436,341 30,555,415
Supplementary information Interest received Interest paid
25,090,736 (12,630,076 )
16,652,111 (7,648,161 )
The accounting policies and explanatory notes on pages 142 through 190 form an integral part of the financial statements.
141
142
Notes to the Financial Statements 1 General Information Shenzhen Development Bank Co., Ltd. (the “Company”) was established in the People’s Republic of China (the “PRC”) as a result of the restructuring of six agricultural credit co-operatives into a joint stock commercial bank with limited liability. The Company was established on 22 December 1987 after the initial public offering of its RMB ordinary shares on 10 May 1987. The Company was listed on the Shenzhen Stock Exchange on 3 April 1991 and the stock code is 000001. The institution number of the Company on the 00000028 approval document issued by the China Banking Regulatory Commission is B0014H144030001. The business licence number of the Company issued by the Shenzhen Municipal Administration of Industry and Commerce is 440301103098545. The Company is principally engaged in authorised commercial and retail banking activities in the PRC. The registered office of the Company is located at No. 5047, Shennan Road East, Luohu District, Shenzhen, Guangdong Province, PRC. Headquartered in Shenzhen, the Company operates its business in the PRC.
2 Accounting Policies Basis of preparation The financial statements have been prepared on a historical cost basis, except for derivative financial instruments, financial assets and financial liabilities held at fair value through profit or loss, available-for-sale financial assets, investment properties and share-based payments, that have been measured at fair value, as further explained in the respective accounting policies below. The Company maintains its books and prepares its statutory financial statements in accordance with “Accounting Standards for Business Enterprises—Basic Standard” and 38 specific standards, Implementation Guidance, Interpretations and other relevant regulations (hereafter collectively referred to as “ASBEs”) issued by the Ministry of Finance (the “MOF”) of the PRC in February 2006. As the accounting policies adopted in the preparation of the statutory financial statements are basically the same as those adopted in these financial statements, there is no significant difference in the results of operations and financial performance. Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) and its interpretations promulgated by the International Accounting Standards Board (the “IASB”). Basis of consolidation Consolidated financial statements comprise the financial statements of the Company and its subsidiaries. The financial statements of subsidiaries, for the purpose of preparation of the consolidated financial statements, are prepared for the same reporting period as the Company, using consistent accounting policies. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Where there is a loss of control in a subsidiary, the consolidated income statement includes the result of that subsidiary for the part of the reporting period during which the Company has control. All intra-group balances, transactions, incomes and expenses and profits and losses resulting from intra-group transactions are eliminated in full.
Significant accounting judgements and estimates In the process of applying the Company’s accounting policies, management has made assumptions of the effects of uncertain future events on the financial information. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year/period are discussed below. Apart from those assumptions and estimations, judgements are also made and are set out below. Designation of held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and a fixed maturity are classified as held-to-maturity investments when the Company has the positive intention and ability to hold the investments to maturity. Accordingly, in evaluating whether a financial asset shall be classified as held-to-maturity investment, significant management judgement is required. If the Company fails to correctly assess its intention and ability to hold the investments to maturity and the Company sells or reclassifies more than an insignificant amount of held-to-maturity investments before maturity, the Company shall classify the whole held-to-maturity investment portfolio as available-for-sale. Impairment losses of loans and advances The Company determines periodically whether there is any objective evidence that an impairment loss on loans and advances has been incurred. If any such evidence exists, the Company assesses the amount of impairment losses. The amount of impairment losses is measured as the difference between the carrying amount and the present value of estimated future cash flows. Assessing the amount of impairment losses requires significant judgement on whether objective evidence for impairment exists and also significant estimates when determining the present value of the expected future cash flows.
Annual report 2008 Shenzhen Development Bank
2 Accounting Policies
(Continued)
Significant accounting judgements and estimates (Continued) Income tax Determining income tax provisions requires the Company to estimate the future tax treatment of certain transactions. The Company carefully evaluates tax implications of transactions in accordance with prevailing tax regulations and makes tax provisions accordingly. In addition, deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilised. This requires significant estimation on the tax treatments of certain transactions and also significant assessment on the probability that adequate future taxable profits will be available for the deferred income tax assets to be recovered. Fair value of financial instruments If the market for a financial instrument is not active, the Company establishes fair value by using a valuation technique. Valuation techniques include using recent arm’s length market transactions between knowledgeable willing parties, if available, reference to the current fair value of another instrument that is substantially the same, and discounted cash flow analysis. To the extent practicable, valuation technique makes maximum use of market inputs. However, where market inputs are not available, management needs to make estimates on areas such as credit risk (both own and counterparty’s), volatility and correlation. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Impairment of available–for-sale and held-to-maturity investments In determining whether there is any objective evidence that impairment losses on available-for-sale and held-to-maturity investments have occurred, the Company assesses periodically whether there has been a significant or prolonged decline in the fair value of the investment below its cost or carrying amount, or whether other objective evidence of impairment exists based on the investee’s financial conditions and business prospects, including industry environment, change of technology, operating and financing cash flows, etc. This requires significant level of judgement of the management of the Company, which would affect the amount of impairment losses.
Impact of new and revised International Financial Reporting Standards The Company has adopted the following new interpretations and amendments to IFRSs for the first time for the current year’s financial statements. The adoption of these new interpretations and amendments has had no significant financial effect on these financial statements. IAS 39 & IFRS 7 Amendments to IAS 39 Financial Instruments: Recognition and Measurement and Amendments IFRS 7 Financial Instruments: Disclosures – Reclassification of Financial Assets IFRIC – Int 11 IFRS 2 – Group and Treasury Share Transactions IFRIC – Int 12 Service Concession Arrangements IFRIC – Int 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction The Company has also early adopted IFRIC Interpretation 13 – Customer Loyalty Programmes as of 1 January 2008. The principal effects of adopting these new interpretations and amendments are as follows: Amendments to IAS 39 and IFRS 7 The amendments to IAS 39 permit an entity to reclassify a non-derivative financial asset classified as held for trading, other than a financial asset designated by an entity as at fair value through profit or loss upon initial recognition, out of the fair value through profit or loss category if the financial asset is no longer held for the purpose of selling or repurchasing in the near term, if specified criteria are met. A debt instrument that would have met the definition of loans and receivables (if it had not been required to be classified as held for trading at initial recognition) may be classified out of the fair value through profit or loss category or (if it had not been designated as available for sale) may be classified out of the available-for-sale category to the loans and receivables category if the entity has the intention and the ability to hold it for the foreseeable future or until maturity. In rare circumstances, financial assets that are not eligible for reclassification as loans and receivables may be transferred from the held-fortrading category to the available-for-sale category or to the held to maturity category (in the case of a debt instrument), if the financial asset is no longer held for the purpose of selling or repurchasing in the near term. The financial asset shall be reclassified at its fair value on the date of reclassification and the fair value of the financial asset on the date of reclassification becomes its new cost or amortised cost, as applicable. The amendments to IFRS 7 require extensive disclosures of any financial asset reclassified in the situations described above. The application of the amendments may be implemented retrospectively but not before 1 July 2008. Any reclassification of a financial asset made in the periods beginning on or after 1 November 2008 shall take effect only from the date when the reclassification is made. As the Company has not reclassified any of its financial instruments, the amendments have had no impact on the financial position or results of operations of the Company.
143
144 IFRS Financial Statements
Notes to the Financial Statements
2 Accounting Policies
(Continued)
Significant accounting judgements and estimates (Continued) IFRIC – Interpretation 11 IFRIC Interpretation 11 requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity settled scheme, even if the entity buys the instrument from another party, or the shareholders provide the equity instruments needed. As the Company currently has no such transactions, the interpretation has had no impact on the financial position and results of operations of the Company. IFRIC – Interpretation 13 IFRIC Interpretation 13 requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the award credits and deferred. This is then recognised as revenue over the period that the award credits are redeemed. The Company maintains a loyalty point programme within its bank card business and has historically recorded an expense based on the costs incurred in providing the awards. The Company has amended its accounting policy accordingly which did not result in any significant impact on these financial statements. IFRIC Interpretation 13 has no specific provisions on transition. Therefore, the Company has followed IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors” and considered that the adoption of the new policy has no material financial effect on prior years. IFRIC – Interpretation 14 IFRIC Interpretation 14 addresses how to assess the limit under IAS 19 “Employee Benefits”, on the amount of a refund or a reduction in future contributions in relation to a defined benefit scheme that can be recognised as an asset, including situations when a minimum funding requirement exists. As the Company’s defined benefit schemes have been in deficit and are not subject to any minimum funding requirements, the adoption of this interpretation has had no impact on the financial position or results of operations of the Company.
Summary of significant accounting policies Investments in associates An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Company has a long-term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. The Company’s investments in associates are accounted for under the equity method of accounting. Under the equity method, an investment in an associate is carried in the balance sheet at cost plus post-acquisition changes in the Company’s share of the net assets of the associate, less any impairment losses. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. After application of the equity method, the Company determines whether it is necessary to recognise any additional impairment loss with respect to the Company’s net investment in the associate. The income statement reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Company recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Profits and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. The reporting dates of the associates and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and when the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (a) Interest income is recognised as it accrues (using the effective interest method by applying the rate that exactly discounts estimated future cash receipts through the expected life of a financial instrument to the net carrying amount of the financial asset). Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is thereafter recognised using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. (b) Fee and commission income is recognised when the services have been rendered and the proceeds can be reasonably estimated. (c) Dividend income is recognised when the shareholders’ right to receive payment has been established. Precious metal The Company’s precious metals represent gold. Precious metals are initially measured at cost. At the balance sheet date, precious metals are measured at the lower of cost and net realisable value. If the cost of precious metals is higher than the net realisable value, a provision for the decline in value of precious metals is recognised in the income statement.
Annual report 2008 Shenzhen Development Bank
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Financial assets The Company classifies its financial assets into four categories: financial assets at fair value through profit or loss; held-to-maturity investments; loans and receivables; and available-for-sale financial assets. Management determines the classification of a financial asset at its initial recognition and evaluates this designation at each reporting date. When a financial asset is recognised initially, the Company measures it at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. (a) Financial assets at fair value through profit or loss There are two sub-categories of financial assets at fair value through profit or loss: (i) Financial assets held for trading A financial asset is classified as held for trading if it is: • acquired principally for the purpose of sale in the near term; • part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit-taking; or • a derivative (except for a derivative that is designated and an effective hedging instrument). (ii) Financial assets designated at fair value through profit or loss by management upon initial recognition A financial asset, other than one held for trading, may be designated as financial asset at fair value through profit or loss upon initial recognition, if it meets the criteria set out below, and is so designated by management: • eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring financial assets or financial liabilities or recognising the gains and losses on them on a different basis; • applies to a group of financial assets, financial liabilities or both that are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and where information about that group of financial instruments is provided internally on that basis to key management personnel; or • relates to financial instruments containing one or more embedded derivatives that significantly modify the cash flows resulting from those financial instruments; or it is clear with little or no analysis when a similar hybrid instrument is first considered that the embedded derivatives should be separated. After the initial recognition, these financial assets are measured at their fair values, without any deduction for transaction costs that the Company may incur on sale or other disposal. Changes in fair value are recognised in “Gains or losses from changes in fair values” and interest earned is accrued in interest income according to the terms of the contract. The Company assesses whether embedded derivatives are required to be separated from host contracts when the Company first becomes a party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. (b) Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and a fixed maturity that the Company’s management has the positive intention and ability to hold to maturity. These investments are carried at amortised cost using the effective interest method, less provision for impairment in value. The Company shall reclassify any remaining held-to-maturity investments as availablefor-sale and shall not classify any financial assets as held-to-maturity if it has, during the current financial year or during the two preceding financial years, sold or reclassified more than an insignificant amount of held-to-maturity investments before maturity other than sales or reclassifications that: (i) are so close to maturity or the financial asset’s call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value; (ii) occur after the Company has collected substantially all of the financial asset’s original principal through scheduled payments or prepayments; or (iii) are attributable to an isolated event that is beyond the Company’s control and is non-recurring and could not have been reasonably anticipated by the Company.
145
146 IFRS Financial Statements
Notes to the Financial Statements
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Financial assets (Continued) (c) Loan and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and the Company has no intention of trading the assets immediately or in the near term. Loans and receivables are carried at amortised cost using the effective interest method, less provision for impairment in value. Loans and receivables mainly include loans and advances to customers, receivables and discounted bills. Discounted bills are granted by the Company to its customers based on the bank acceptance held which has not matured. Discounted bills are carried at fair value less unrealised interest income. The interest income of the discounted bills is recognised on an accrual basis. (d) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. After the initial recognition, financial assets which are classified as available-for-sale are stated at fair value. Premiums and discounts on available-for-sale financial assets are amortised using the effective interest method and taken to the interest income. Changes in fair value of available-for-sale financial assets are reported as a separate component of equity until the financial asset is derecognised or the financial asset is determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously reported as “cumulative changes in fair value – available-for-sale financial assets” within equity is included in the income statement for the year. A financial asset is derecognised when: • the rights to receive cash flows from the asset have expired; • the Company retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or • the Company has transferred its rights to receive cash flows from the asset and either (i) has transferred substantially all the risks and rewards of ownership of the financial asset; or (ii) has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, but has transferred control of the asset. Fair value measurement For investments and derivatives quoted in an active market, fair value is determined by reference to quoted market prices. Bid prices are used for assets and offer prices are used for liabilities. The estimated fair value of deposits with no stated maturity, which include non-interest-bearing deposits, is the amount payable on demand. The fair value of forward exchange contracts is calculated by reference to forward exchange rates with similar maturities. For unquoted financial instruments, fair value is normally based on the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics. The fair value of unquoted derivatives is determined either by discounted cash flows or internal pricing models.
Annual report 2008 Shenzhen Development Bank
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Impairment of financial assets The Company assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets (other than those at fair value through profit or loss) is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or a group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. (a) Financial assets carried at amortised cost If there is objective evidence that an impairment loss on loans and receivables or held-to-maturity investments carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an impairment provision account and the amount of the loss is recognised in the income statement. The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment. Future cash flows of a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the impact of current conditions that did not affect the period on which the historical loss experience is based and to eliminate the impact of historical conditions that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Company. If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be attributed objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. When a loan and receivable is uncollectible, it is written off against the related allowance for impairment losses. Such loans and receivables are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of the amounts previously written off decrease the amount of the provision for impairment losses in the income statement. (b) Financial assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of impairment loss is measured as the difference between the carrying amount of that financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed. (c) Available-for-sale financial assets If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal repayment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. A provision for impairment is made for available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below its cost or where objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgement. Reversals in respect of equity instruments classified as available-for-sale are not recognised in the income statement. Reversals of impairment losses on debt instruments classified as available-for-sale are reversed through the income statement, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised in the income statement.
147
148 IFRS Financial Statements
Notes to the Financial Statements
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Financial liabilities The Company classifies its financial liabilities into two categories: financial liabilities at fair value through profit or loss and financial liabilities carried at amortised cost. Management determines the classification of a financial liability at its initial recognition. When a financial liability is recognised initially, the Company shall measure it at its fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the issue of the financial liability. (a) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are financial liabilities which are either classified as held for trading or, based on the criteria in the accounting policies of “Financial assets” (a) (ii) above, designated by the Company as fair value through profit or loss upon initial recognition. Gains and losses from changes in fair value are recognised in the income statement. A financial liability is classified as held for trading if it is: • incurred principally for the purpose of repurchasing in the near term; • part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short term profit-taking; or • a derivative (except for a derivative that is a designated and an effective hedging instrument). After initial recognition, these financial liabilities are measured at their fair values, without any deduction for transaction costs it may incur on sale or other disposal. Changes in fair value are recognised in “Gains or losses from changes in fair values” and interest incurred is accrued in interest expense according to the terms of the contract. (b) Financial liabilities carried at amortised cost After initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement. Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Certain derivatives embedded in other financial instruments are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the hybrid instrument is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with the changes in fair value recognised in the income statement. Certain derivative transactions, while providing effective economic hedges under the Company’s risk management positions, do not qualify for hedge accounting and are therefore treated as derivatives held for trading with fair value gains or losses recognised in the income statement. Trade date accounting Except for loans and receivables, all regular way purchases and sales of financial assets are recognised on the trade date, that is, the date on which the Company commits to purchase or sell the asset. A regular way purchase and sale is the purchase or sale of financial assets that requires delivery of assets within the time frame generally established by regulation or convention in the marketplace. Offsetting Financial assets and liabilities are offset and the net amount is reported in the balance sheet only when the Company currently has a legally enforceable right to offset the recognised amounts; and the Company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Reverse repurchase agreements and repurchase agreements Assets sold under agreements to repurchase at a specific future date are not derecognised from the balance sheet. The corresponding proceeds are recognised on the balance sheet as “Repurchase agreements”. The difference between the sale price and the repurchase price is treated as interest expense and is accrued over the life of the agreement using the effective interest method. Conversely, assets purchased under agreements to resell at a specific future date are not recognised on the balance sheet. The corresponding cost is recognised on the balance sheet as a “Reverse repurchase agreements”. The difference between the purchase price and the resale price is treated as interest income and is accrued over the life of the agreement using the effective interest method.
Annual report 2008 Shenzhen Development Bank
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Leases Leases that transfer substantially all the rewards and risks of ownership of assets to the Company, other than legal title, are accounted for as finance leases. Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Company is the lessor, rentals receivable under operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Company is the lessee, rentals payable under the operating leases net of any incentives received from the lessor are charged to the income statement on the straight-line basis over the lease terms. Construction in progress Construction in progress represents costs incurred in the construction of office premises including furniture and fixtures. Costs comprise direct costs incurred during the period of construction. Interest charged on related borrowings for the construction is capitalised and such capitalisation of interest ceases when the assets under construction are completed and are ready for their intended use. No capitalisation of interest is made if the cost incurred during the construction is from the Company’s own fund. Construction in progress is not depreciated. Construction in progress is reclassified to the appropriate category of property and equipment when completed and ready for use. Property and equipment All property and equipment are stated at cost less any accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure incurred after the items of property and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment, the expenditure is capitalised as an additional cost of that asset. Depreciation is calculated on the straight-line basis to write off the cost of each item of property and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows: Properties and buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Leasehold improvement
3.3% 16.2% 19.8% or 33.0% 9.9% or 19.8% 10.0% or 20.0% Over the lease terms
Residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year/period the asset is derecognised. Intangible assets Intangible assets are identifiable non-monetary assets without physical substance owned or controlled by the Company. The Company’s intangible assets comprise the value of computer software. Intangible assets are measured initially at cost. The Company analyses and assesses the useful life of an intangible asset on its acquisition. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate economic benefits for the Company. When the asset is available for use, an intangible asset with a finite useful life is amortised over its useful life. The amortisation method selected reflects the pattern in which the asset’s economic benefits are expected to be realised. If that pattern cannot be determined reliably, the straight-line method is used. An intangible asset with an indefinite useful life is not amortised. The useful life and amortisation method for intangible assets with finite useful lives are reviewed at each balance sheet date. If the expected useful life of the asset or the amortisation method differs significantly from previous assessments, the amortisation period or amortisation method is changed accordingly as a change in accounting estimate.
149
150 IFRS Financial Statements
Notes to the Financial Statements
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Impairment of non-financial assets The Company assesses at each balance sheet date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of its fair value less costs to sell and its value in use and is determined on an individual basis, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered to be impaired and is written down to its recoverable amount. In assessing value in use of an asset, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognised in the income statement under those expense categories consistent with the function of the impaired assets. An assessment is made at each balance sheet date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of any depreciation/amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement. After such a reversal, the depreciation/amortisation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Investment properties Investment properties are interests in land or buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes, or for sale in the ordinary course of business. The Company adopts the fair value model for the measurement of investment properties which are not depreciated or amortised. At each period end, the carrying value of the investment properties is adjusted based on the fair value, and any difference between the carrying amount and the fair value is accounted for in the income statement. Repossessed assets Repossessed assets are measured at the lower of the carrying amount of the loans and advances and interest receivables being settled, and fair value of the related repossessed assets less costs to sell. Impairment losses for any initial or subsequent write-down of the repossessed assets to fair value less costs to sell are recognised in the income statement. Foreign currency translation The financial statements are presented in RMB, being the functional and presentation currency of the Company’s operations. Foreign currency transactions are translated into the functional currency using the exchange rates ruling at the dates of transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the applicable exchange rates ruling at the balance sheet date. Exchange differences arising on the settlement of monetary items or on translating monetary items at year/period end rates are recognised in the income statement. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates ruling at the dates of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates ruling at the date when the fair value was determined. Fiduciary activities Where the Company acts in a fiduciary capacity such as nominee, trustee or agent, assets arising thereon together with the related undertakings to return such assets to customers are excluded from the financial statements. Entrusted loans granted by the Company on behalf of third-party lenders are recorded as off-balance sheet items. The Company acts as an agent and grants such entrusted loans to borrowers under the direction of the third-party lenders who fund these loans. The Company has been contracted by the third-party lenders to manage the administration and collection of these loans on their behalf. The third-party lenders determine both the underwriting criteria for and the terms of all entrusted loans including their purposes, amounts, interest rates, and repayment schedules. The Company charges a commission related to the management of the entrusted loans. The commission is recognised pro rata over the period in which the service is provided. The risk of loan loss is borne by the third-party lenders.
Annual report 2008 Shenzhen Development Bank
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Financial guarantee contracts The Company gives financial guarantees consisting of letters of credit, letters of guarantees, and acceptances. These financial guarantee contracts provided for specified payments to be made to reimburse the holder for a loss it incurs when a guaranteed party defaults under the original or modified terms of a debt instrument, loan or other obligation. Financial guarantee contracts are initially recognised at fair value, in “Other liabilities”, being the premium received. The guarantee fee is amortised over the period of the contract and is recognised as fee and commission income. Subsequent to initial recognition, the Company’s liabilities under such contracts are each measured at the higher of the initial fair value less cumulative amortisation, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is taken to the income statement. Related parties A party is considered to be related to the Company if: (i) the party, directly or indirectly through one or more intermediaries, (a) controls, is controlled by, or is under common control with, the Company; (b) has an interest in the Company that gives it significant influence over the Company; or (c) has joint control over the Company; (ii) the party is an associate of the Company; (iii) the party is joint venture in which the Company is a venturer; (iv) the party is a member of the key management personnel of the Company or its parent; (v) the party is a close member of the family of any individual referred to in (i) or (iv); (vi) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or (vii) the party is a post-employment benefit plan for the benefit of the employees of the Company, or of any entity that is a related party of the Company. Income tax Income tax comprises current tax and movements in deferred tax balances. Current tax is the amount of income taxes payable in respect of the taxable profit for a period. Taxable profit is the profit for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable. Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the tax authorities. Deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, using tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax assets also arise from unused tax losses and unused tax credits. A deferred tax liability is recognised for all taxable temporary differences, except: (i) where the deferred tax liability arises from the initial recognition of goodwill; or the initial recognition of an asset or liability in a transaction which contains both of the following characteristics: the transaction is not a business combination; and at the time of the transaction, it affects neither accounting profit nor taxable profit (or deductible loss); (ii) in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in jointly controlled enterprises, where the timing of the reversal of the temporary difference can be controlled; and it is probable that the temporary difference will not reverse in the foreseeable future. For deductible temporary differences, the carryforward of unused deductible losses and tax credits, the Company recognises the corresponding deferred tax asset to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, the deductible losses and tax credits can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that: 1) the transaction is not a business combination; 2) at the time of the transaction, it affects neither accounting profit nor taxable profit (or deductible loss). For deductible temporary differences arising from investments in subsidiaries, associates, and interests in jointly controlled enterprises, the corresponding deferred tax asset is recognised, to the extent that, it is probable that: the temporary differences will reverse in the foreseeable future; and taxable profits will be available in the future, against which the temporary differences can be utilised.
151
152 IFRS Financial Statements
Notes to the Financial Statements
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Income tax (Continued) At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, according to the requirements of tax laws. At the balance sheet date, the Company reviews the carrying amount of a deferred tax asset. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that sufficient taxable profits will be available in future periods to allow the benefit of the deferred tax asset to be utilised. Any such reduction in the amount is reversed to the extent that it becomes probable that sufficient taxable profits will be available. Current and deferred tax of the Company is recognised as income or an expense and included in the income statement for the current period, except to the extent that the tax arises from a business combination; or a transaction or event which is recognised directly in owner’s equity. Employee benefits (a) Short term employee benefits Salaries and bonuses, social security contributions and other short term employee benefits are accrued in the period in which services are rendered by the employees of the Company. (b) Defined contribution plans According to the statutory requirements in Mainland China, the Company is required to make contributions to the pension and insurance schemes that are separately administered by the local government authorities. Contributions to these plans are recognised in the income statement as incurred. (c) Supplementary retirement benefits Certain employees of the Company in Mainland China can enjoy supplementary retirement benefits after retirement. These benefits are unfunded. The cost of providing benefits is determined using the projected unit credit actuarial valuation method. The present value of such benefits is recorded under “Employee benefit payable” in the balance sheet. Actuarial gains and losses are recognised in the income statement in the period in which they occur. (d) Share-based payment transactions The Company grants equity instruments, or incurs liabilities for amounts that are determined based on the price of equity instruments, in return for services rendered by employees or other parties. The cost of cash-settled transactions is measured initially at fair value at the grant date using an appropriate pricing model taking into account the terms and conditions upon which the instruments were granted. The fair value is expensed over the period until vesting with recognition of a corresponding liability. The liability is remeasured at each balance sheet date up to and including the settlement date, with changes in fair value recognised in the income statement. Cash and cash equivalents Cash and cash equivalents represent cash on hand, general deposits with the Central Bank, placement of deposits with other financial institutions and funds loaned to other financial institutions with original maturity of three months or less, and short term highly liquid investments (maturity within three months from the date of acquisition) which are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value. Provisions Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate. Contingent liabilities A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the Company. It can also be a present obligation arising from past events but is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision.
Annual report 2008 Shenzhen Development Bank
2 Accounting Policies
(Continued)
Summary of significant accounting policies (Continued) Dividends Dividends are recognised as a liability and deducted from equity when they are approved by the Company’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Company. Dividends for the year that are approved after the balance sheet date are disclosed as an event after the balance sheet date.
Impact of issued but not yet effective International Financial Reporting Standards The Company has not applied the following new and revised IFRSs and IFRIC Interpretations that have been issued but are not yet effective, in these financial statements. IFRS 1 and IAS 27 Amendments to IFRS1 First-time Adoption of IFRSs and IAS 27 Consolidated and Separate Financial Statements – Amendments Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate 1 IFRS 2 Amendments Amendments to IFRS 2 Share-based Payment – Vesting Conditions and Cancellations 1 IFRS 3 (Revised) Business Combinations 2 IFRS 8 Operating Segments 1 IAS 1 (Revised) Presentation of Financial Statements 1 IAS 23 (Revised) Borrowing Costs 1 IAS 27 (Revised) Consolidated and Separate Financial Statements 2 IAS 32 and IAS 1 Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Amendments Puttable Financial Instruments and Obligations Arising on Liquidation 1 IAS 39 Amendment Amendment to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items 2 IFRIC – Int 15 Agreements for the Construction of Real Estate 1 IFRIC – Int 16 Hedges of a Net Investment in a Foreign Operation 3 IFRIC – Int 17 Distribution of Non-cash Assets to Owners 1 Apart from the above, the International Accounting Standards Board has also issued Improvements to IFRSs* which sets out amendments to a number of IFRSs primarily with a view to removing inconsistencies and clarifying wording. Except for the amendment to IFRS 5 which is effective for the annual periods on or after 1 July 2009, the amendments are effective for annual periods beginning on or after 1 January 2009 although there are separate transitional provisions for each standard. 1
Effective for annual periods beginning on or after 1 January 2009 Effective for annual periods beginning on or after 1 July 2009 Effective for annual periods beginning on or after 1 October 2008 * Improvements to IFRSs contain amendments to IFRS 5, IFRS 7, IAS 1, IAS 8, IAS 10, IAS 16, IAS 18, IAS 19, IAS 20, IAS 23, IAS 27, IAS 28, IAS 29, IAS 31, IAS 34, IAS 36, IAS 38, IAS 39, IAS 40 and IAS 41.
2 3
The Company is in the process of making an assessment of the impact of these new and revised IFRSs upon initial application. So far, it has concluded that while the adoption of IFRS 8 and IAS 1 (Revised) may result in new or amended disclosures and the adoption of IFRS 3 (Revised) and IAS 27 (Revised) may result in changes in accounting policies, these new and revised IFRSs are unlikely to have a significant impact on the Company’s results of operations and financial position.
3 Segmental Reporting The Company mainly organises and manages its operating businesses geographically, and therefore, the primary format for reporting segment information is geographical segments. Segment assets and liabilities, and segment revenues and profit are calculated according to the accounting policies of the Company. In presenting information on the basis of geographical segment, operating income and expense are based on the location of the branches that generated the revenue and incurred the expense. Segment assets and liabilities are allocated based on the geographical locations of the underlying assets. The details of the geographical segments of the Company are as follows: Southern China: Shenzhen, Guangzhou, Foshan, Zhuhai, Haikou Eastern China: Shanghai, Hangzhou, Ningbo, Wenzhou, Nanjing Northern and north-eastern China: Beijing, Tianjin, Dalian, Jinan, Qingdao South-western China: Chongqing, Kunming, Chengdu Offshore businesses
153
154 IFRS Financial Statements
Notes to the Financial Statements
3 Segmental Reporting
(Continued)
2008
In RMB’000 Southern China Eastern China Net interest income Including: external net interest income internal net interest income/(expenses) Net fee and commission income Other income Total operating income Business tax and surcharges General and administrative expenses Impairment losses on assets Operating expenses Operating profit Depreciation and amortisation Capital expenditure
Northern and north-eastern South-western China China
Offshore businesses
Eliminations
Total
6,441,460 6,439,463
3,285,472 3,308,557
1,969,345 1,992,005
796,640 796,669
104,971 61,194
– –
12,597,888 12,597,888
1,997 464,314 904,200 7,809,974 (407,564 ) (2,812,246 ) (4,330,943 ) (7,550,753 ) 259,221
(23,085 ) 172,548 36,612 3,494,632 (406,859 ) (1,284,277 ) (2,344,424 ) (4,035,560 ) (540,928 )
(22,660 ) 122,609 61,234 2,153,188 (268,002 ) (864,602 ) (453,660 ) (1,586,264 ) 566,924
(29 ) 27,069 5,158 828,867 (69,240 ) (262,741 ) (175,689 ) (507,670 ) 321,197
43,777 64,848 23,147 192,966 – – (29,446 ) (29,446 ) 163,520
– – – – – – – – –
– 851,388 1,030,351 14,479,627 (1,151,665 ) (5,223,866 ) (7,334,162 ) (13,709,693 ) 769,934
(168,811 )
(48,820 )
(50,965 )
(25,360 )
–
–
(293,956 )
341,475
321,947
94,155
39,502
–
–
797,079
31 December 2008 Segment assets 281,926,989 151,290,327 113,882,801 22,435,574 7,323,869 (104,231,203 ) 472,628,357 Deferred tax assets 1,811,816 Total assets 474,440,173 Segment liabilities 267,542,455 151,820,166 113,298,504 22,116,868 7,150,914 (104,231,203 ) 457,697,704 Deferred tax liabilities 341,679 Total liabilities 458,039,383
2007
In RMB’000 Southern China Eastern China Net interest income Including: external net interest income internal net interest income Net fee and commission income Other income Total operating income Business tax and surcharges General and administrative expenses Impairment losses on assets Operating expenses Operating profit
Northern and north-eastern South-western China China
Offshore businesses
Eliminations
Total
4,810,811 4,810,811 – 277,462 572,903 5,661,176 (282,563 ) (2,280,845 ) (1,772,992 ) (4,336,400 ) 1,324,776
2,693,923 2,693,923 – 116,143 66,052 2,876,118 (300,549 ) (1,021,335 ) (184,862 ) (1,506,746 ) 1,369,372
1,485,325 1,485,325 – 71,000 76,526 1,632,851 (189,233 ) (695,421 ) (49,857 ) (934,511 ) 698,340
525,796 525,796 – 20,336 5,828 551,960 (51,962 ) (209,893 ) (31,507 ) (293,362 ) 258,598
89,994 89,994 – 35,772 9,464 135,230 – – (14,541 ) (14,541 ) 120,689
– – – – – – – – – – –
9,605,849 9,605,849 – 520,713 730,773 10,857,335 (824,307 ) (4,207,494 ) (2,053,759 ) (7,085,560 ) 3,771,775
Depreciation and amortisation
(146,890 )
(53,155 )
(49,180 )
(25,611 )
–
–
(274,836)
Capital expenditure
236,530
56,019
48,505
31,143
–
–
372,197
31 December 2007 Segment assets 213,890,764 105,849,188 80,366,622 21,728,490 3,621,120 (73,911,212 ) Deferred tax assets Total assets
351,544,972 994,389 352,539,361
Segment liabilities 204,208,241 104,486,345 79,674,242 21,471,851 3,505,287 (73,911,212 ) Deferred tax liabilities Total liabilities
339,434,754 98,544 339,533,298
Annual report 2008 Shenzhen Development Bank
4 Net Interest Income In RMB’000
Interest income Interest income on loans and advances (Note) Interest income on amounts due from financial institutions Interest income on investment securities (excluding financial assets at fair value through profit or loss) Subtotal Interest income on financial assets at fair value through profit or loss Total Interest expense Interest expense on amounts due to financial institutions Interest expense on customer deposits Interest expense on subordinated bonds Subtotal Interest expense on financial liabilities at fair value through profit or loss Total Net interest income
2008
2007
19,406,389 4,670,673
14,222,092 2,520,703
2,330,843 26,407,905 57,359 26,465,264
1,261,540 18,004,335 39,565 18,043,900
4,977,674 8,556,601 325,488 13,859,763 7,613 13,867,376 12,597,888
3,390,478 5,014,596 – 8,405,074 32,977 8,438,051 9,605,849
Note: Included within interest income is RMB 384 million (2007: RMB 519 million) in respect of interest related to unwinding of discounts of impairment provisions for financial assets (see Note 20f).
5 Net Fee and Commission Income In RMB’000
2008
2007
Fee and commission income Settlement fee income International settlement fee income Agency business fee income Entrusted loan fee income Bank card fee income Others Subtotal
215,993 131,020 69,372 14,683 221,086 404,493 1,056,647
161,744 103,565 62,113 8,305 131,102 200,922 667,751
Fee and commission expenses Bank card fee expenses Others Subtotal Net fee and commission income
160,538 44,721 205,259 851,388
106,579 40,459 147,038 520,713
In RMB’000
2008
2007
Gain on disposal of bond investments held for trading Loss on disposal of bond investments designated at fair value through profit or loss Gain on disposal of available-for-sale bond investments Gain on disposal of available-for-sale equity investments Dividend income Realised gain on derivative financial instruments Total
41,810 (91 ) 322,953 13,247 4,554 16,408 398,881
6 Investment Income 4,352 (31,408 ) 40,017 175,736 6,955 5,332 200,984
155
156 IFRS Financial Statements
Notes to the Financial Statements
7 Gains or Losses from Changes in Fair Values In RMB’000
2008
Financial instruments held for trading Financial assets designated at fair value through profit or loss Financial liabilities designated at fair value through profit or loss Derivative financial instruments Investment properties Total
1,241 4,729 2,740 72,177 (15,087 ) 65,800
2007 (459 ) 12,534 (10,925 ) 13,758 42,733 57,641
8 Other Net Income In RMB’000
2008
Gain on disposal of property and equipment, net Loss on disposal of investment properties, net Rental income Gain on disposal of repossessed assets, net Provision against litigation claims Others Total
261 (419 ) 63,365 12,266 (29,712 ) 57,366 103,127
2007 21,011 (6,311 ) 65,994 23,218 (23,998 ) 134,888 214,802
9 Operating Expenses In RMB’000
2008
2007
Staff expenses Salaries, bonuses, allowances and subsidies Including: Deferred bonus accrual (Note 31) Social insurance, supplementary pension contributions and staff welfare Housing funds Labour union and training expenses Others Subtotal
2,034,524 89,148 494,408 89,934 56,875 9,362 2,685,103
1,599,861 33,800 364,568 69,842 54,177 41,882 2,130,330
General and administrative expenses Rental expenses Computer system maintenance fees Telecommunication and postage expenses Water and electricity expenses Publication and stationery expenses Travel expenses Marketing and public relations expenses Motor vehicle expenses Legal expenses Professional fees (Note) Sundry tax expenses CBRC supervisory fee Others Subtotal
421,725 168,425 95,546 47,769 197,604 90,173 358,019 128,463 44,080 169,425 30,269 51,582 441,727 2,244,807
358,887 138,120 77,285 40,381 151,377 87,515 241,706 134,107 35,754 100,047 36,014 44,473 356,662 1,802,328
Depreciation and amortisation Depreciation of property and equipment Amortisation of intangible assets Subtotal Total operating expenses
273,104 20,852 293,956 5,223,866
260,561 14,275 274,836 4,207,494
Including Auditors’ remuneration – audit service fees
5,635
4,700
Note: Included in the professional fees are amounts of RMB 44,886 thousand (2007: RMB 40,333 thousand) of consultancy fees payable to GE Management Technology Consulting (Shanghai) Co., Ltd.
Annual report 2008 Shenzhen Development Bank
10 Impairment Loss of Assets
2008
Unwinding of Balance at Charge/ Recovery of discounts of beginning (re-versal) Amounts loans written impairment Other In RMB’000 of the year for the year written off off previously provisions movements Provision for decline in value of precious metals 61 198 – Impairment provision for placement of deposits with other financial institutions (Note 14) 66,786 (1,496 ) (25,400 ) Impairment provision for funds loaned to other financial institutions (Note 15) 309,897 8,619 (284,987 ) Impairment provision for reverse repurchase agreements (Note 18) 30,549 172 (1,721 ) Impairment provision for loans and advances (Note 20) 6,023,964 6,972,839 (10,606,712 ) Impairment provision for available-for-sale financial assets carried at cost (Note 21) 470,745 63,184 – Investments in associates (Note 24) – 20,000 – Provision for decline in value of repossessed assets (Note 28) 198,143 126,114 – Impairment provision for property and equipment (Note 26) – 6,289 – Impairment provision for other assets 238,448 37,990 (61,447 ) Total 7,338,593 7,233,909 (10,980,267 ) Impairment losses on available-for-sale financial assets carried at fair value 100,253 Total impairment losses 7,334,162
–
–
–
259
–
–
805
40,695
–
–
(4,450 )
29,079
–
–
–
29,000
29,944
(384,238 )
(9,118 )
2,026,679
– –
– –
(446,302 ) –
87,627 20,000
–
–
(4,777 )
319,480
– – 29,944
– – (384,238 )
– 6,289 (2,354 ) 212,637 (466,196 ) 2,771,745
2007
Unwinding of Balance at Recovery of discounts of beginning Charge for Amounts loans written impairment Other In RMB’000 of the year the year written off off previously provisions movements Provision for decline in value of precious metals – Impairment provision for placement of deposits with other financial institutions (Note 14) 67,425 Impairment provision for funds loaned to other financial institutions (Note 15) 324,985 Impairment provision for reverse repurchase agreements (Note 18) 27,550 Impairment provision for loans and advances (Note 20) 6,937,141 Impairment provision for available-for-sale financial assets carried at cost (Note 21) 470,745 Provision for decline in value of repossessed assets (Note 28) 189,538 Impairment provision for other assets 188,891 Total 8,206,275 Impairment losses on available-for-sale financial assets carried at fair value Total impairment losses
Balance at end of the year
Balance at end of the year
61
–
–
–
–
61
361
(1,000 )
–
–
–
66,786
8,283
(17,498 )
–
–
(5,873 )
309,897
2,999
–
–
–
–
30,549
1,946,243
(2,301,981 )
34,061
(518,592 )
(72,908 )
6,023,964
–
–
–
–
–
470,745
14,419 51,393 2,023,759
– – (2,320,479 )
– – 34,061
– – (518,592 )
(5,814 ) (1,836 ) (86,431 )
198,143 238,448 7,338,593
30,000 2,053,759
157
158 IFRS Financial Statements
Notes to the Financial Statements
11 Income Tax Expense In RMB’000
2008
2007
Current tax Charge for the year Adjustment in respect of current income tax for prior years
1,381,363 (363,719 )
1,216,465 24,171
Deferred income tax Impact of changes in tax rates Impact of impairment provision for assets (Note 27) Other movements Total
– (796,813 ) (42,257 ) 178,574
(117,288 ) 42,473 (43,949 ) 1,121,872
The reconciliation of income tax expense applicable to profit before tax at the statutory tax rate to income tax expense at the Company’s effective income tax rate is as follows: In RMB’000
2008
2007
Profit before tax
792,609
3,771,775
Income tax at the statutory rate of 25% (2007: 33%) Adjustment in respect of current tax for prior years Non-taxable income Non-deductible expenses and other adjustments Income tax expense
198,152 (363,719 ) (131,617 ) 475,758 178,574
1,244,686 24,171 (152,226 ) 5,241 1,121,872
12 Earnings per Share The Company’s basic earnings per share amount is calculated as follows: In RMB’000
2008
2007
Net profit attributable to ordinary shareholders of the Company The weighted average number of ordinary shares outstanding (in thousands) Basic earnings per share (Renminbi Yuan)
614,035 3,060,103 0.20
2,649,903 2,721,446 0.97
In RMB’000
2008
2007
Net profit attributable to ordinary shareholders of the Company The weighted average number of ordinary shares outstanding (in thousands)
614,035 3,060,103
2,649,903 2,721,446
The Company’s diluted earnings per share amount is calculated as follows:
Dilutive effect – weighted average number of ordinary shares Warrants Adjusted weighted average number of ordinary shares outstanding (in thousands) Diluted earnings per share (Renminbi Yuan)
17,984 3,078,087 0.20
74,140 2,795,586 0.95
Note: The number of ordinary shares increased by 716,639 thousand as a result of a scrip dividend in October 2008. Since there was no effect on the amount of shareholders’ equity, the earnings per share for 2007 were recalculated on the basis of the adjusted number of shares.
No changes occurred after the balance sheet date but before the financial statements are authorised for issue.
Annual report 2008 Shenzhen Development Bank
13 Cash on Hand and due from the Central Bank In RMB’000
31 December 2008
31 December 2007
Cash on hand Statutory reserve with the Central Bank – RMB Statutory reserve with the Central Bank – foreign currency Unrestricted balance with the Central Bank Other deposits with the Central Bank – fiscal deposits Total
981,859 29,321,249 309,783 9,144,712 10,298 39,767,901
1,062,241 28,894,261 327,038 10,436,341 6,506 40,726,387
Based on the related RMB and foreign currency deposits, the Company places respective statutory reserves with the Central Bank in accordance with the requirements from the People’s Bank of China (the “PBOC”). These reserve deposits are not available for use in the Company’s daily operations. Fiscal deposits represent the amounts received from government-related bodies that are required to be deposited with the Central Bank according to the relevant regulations.
14 Placement of Deposits with other Financial Institutions Analysed by location and counterparty In RMB’000
31 December 2008
Domestic banks Other domestic financial institutions Overseas banks Subtotal Less: Impairment provision (Note 10) Total
18,313,172 45,462 3,182,870 21,541,504 (40,695 ) 21,500,809
31 December 2007 2,273,251 68,150 1,739,075 4,080,476 (66,786 ) 4,013,690
As at 31 December 2008, included in this total amount of placements of deposits with other financial institutions is an amount of RMB 44,520 thousand (31 December 2007: RMB 69,920 thousand) impaired assets brought forward from prior years.
15 Funds Loaned to other Financial Institutions Analysed by location and counterparty In RMB’000
31 December 2008
Domestic banks Domestic financial companies Domestic trust investment companies Overseas banks Subtotal Less: Impairment provision (Note 10) Total
4,101,050 158,550 25,022 4,981,133 9,265,755 (29,079 ) 9,236,676
31 December 2007 687,940 48,550 80,511 2,135,552 2,952,553 (309,897 ) 2,642,656
As at 31 December 2008, included in this total amount of loans funded to other financial institutions is an amount of RMB 33,572 thousand (31 December 2007: RMB 323,771 thousand) impaired assets brought forward from prior years.
159
160 IFRS Financial Statements
Notes to the Financial Statements
16 Financial Assets / Financial Liabilities at Fair Value through Profit or Loss Financial assets at fair value through profit or loss In RMB’000
31 December 2008
31 December 2007
Bonds held for trading Financial assets designated at fair value through profit or loss Total
36,610 4,831 41,441
276,802 1,200,823 1,477,625
In RMB’000
31 December 2008
31 December 2007
Bond investments analysed by issuer Governments and the Central Bank Policy banks Other banks and non-bank financial institutions Total
– 36,610 4,831 41,441
816,669 616,136 44,820 1,477,625
In the opinion of management, there are no significant restrictions on realising the financial assets at fair value through profit or loss.
Financial liabilities at fair value through profit or loss In RMB’000
31 December 2008
31 December 2007
Financial liabilities designated at fair value through profit or loss
39,420
1,246,657
As at 31 December 2008, the Company designated financial liabilities of RMB 39,420 thousand (31 December 2007: RMB 1,246,657 thousand) as at fair value through profit or loss upon their initial recognition. The amount of change in their total fair value that was attributable to changes in the credit risk was not significant as the credit spread of the Company remained stable during the year. The difference between the carrying amount and the amount that the Company would be contractually required to pay at maturity to the holders of these financial liabilities is RMB 567 thousand (31 December 2007: RMB 31,506 thousand).
Annual report 2008 Shenzhen Development Bank
17 Derivative Financial Instruments A derivative is a financial instrument, the value of which is derived from the value of another “underlying” financial instrument, an index or some other variables. Typically, an “underlying” financial instrument is a share, commodity or bond price, an index value or an exchange or interest rate. The Company uses derivative financial instruments such as forward contracts, swaps and options. The notional amount of a derivative represents the amount of an underlying asset upon which the value of the derivative is based. It indicates the volume of business transacted by the Company but does not reflect the risk. The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing parties in an arm’s length transaction. At each balance sheet date, the Company has positions in the following types of derivatives:
31 December 2008 Notional amounts with remaining lives of
Fair value
Up to 3 months
3 months to 1 year
1 to 5 years
Total
Assets
11,720,148
7,181,310
73,121
18,974,579
182,345
(27,016 )
–
130,000
1,140,000
1,270,000
86,632
(6,733 )
Equity derivative instruments Equity option contracts Equity swap contracts
511,437 –
1,508,952 46,767
– –
2,020,389 46,767
21,312 –
(21,312 ) (3,075 )
Other derivative instruments Total
19,219 12,250,804
407,060 9,274,089
– 1,213,121
426,279 22,738,014
462 290,751
(462 ) (58,598 )
In RMB’000
Foreign currency derivative instruments Forward foreign exchange contracts Interest rate derivative instruments Interest rate swap contracts
Liabilities
31 December 2007 Notional amounts with remaining lives of
Fair value
Up to 3 months
3 months to 1 year
1 to 5 years
Total
Assets
5,847,222
5,077,180
–
10,924,402
166,122
(139,604 )
–
–
170,000
170,000
–
(1,553 )
Equity derivative instruments Equity option contracts Equity swap contracts
805,824 –
224,966 482,036
1,531,691 –
2,562,481 482,036
71,417 16,410
(76,149 ) –
Other derivative instruments Total
– 6,653,046
1,482,337 7,266,519
– 1,701,691
1,482,337 15,621,256
37,867 291,816
(37,867 ) (255,173 )
In RMB’000
Foreign currency derivative instruments Forward foreign exchange contracts Interest rate derivative instruments Interest rate swap contracts
As at 31 December 2008 and 31 December 2007, no derivatives were designated as hedging instruments.
Liabilities
161
162 IFRS Financial Statements
Notes to the Financial Statements
18 Reverse Repurchase Agreements and Repurchase Agreements Analysed by counterparty In RMB’000
31 December 2008
Reverse repurchase agreements analysed by counterparty Banks Non-bank financial institutions Subtotal Less: Impairment provision (Note 10) Total
31,854,311 2,908,042 34,762,353 (29,000 ) 34,733,353
22,499,511 11,299,963 33,799,474 (30,549 ) 33,768,925
Repurchase agreements analysed by counterparty Banks Non-bank financial institutions Total
36,006,698 2,909,417 38,916,115
11,099,633 5,367,949 16,467,582
31 December 2007
As at 31 December 2008, included in this total amount of reverse repurchase agreements is an amount of RMB 50 million (31 December 2007: RMB 51,722 thousand) impaired assets brought forward from prior years.
Analysed by collateral In RMB’000
31 December 2008
Reverse repurchase agreements analysed by collateral Securities Bills Loans Subtotal Less: Impairment provision (Note 10) Total
1,020,000 33,572,353 170,000 34,762,353 (29,000 ) 34,733,353
551,722 22,470,502 10,777,250 33,799,474 (30,549 ) 33,768,925
Repurchase agreements analysed by collateral Securities Bills Total
10,360,000 28,556,115 38,916,115
14,110,800 2,356,782 16,467,582
31 December 2007
Fair value of collateral Under certain reverse repurchase agreements, the Company has held collateral that is permitted to be sold or re-pledged in the absence of default by the owners of the collateral. At the balance sheet date, the fair values of the collateral held on such terms are as follows:
31 December 2008
Amount of reverse repurchase Fair value agreements of collateral
In RMB’000
Bills Loans Total
33,572,353 170,000 33,742,353
31 December 2007
33,572,353 170,000 33,742,353
Amount of reverse repurchase agreements
Fair value of collateral
11,425,106 10,777,250 22,202,356
11,425,106 10,777,250 22,202,356
The above fair value of collateral included bills amounting to RMB 15,578,493 thousand (31 December 2007: 1,393,049) that were re-pledged at the year end. The Company has an obligation to return such collateral.
19 Accounts Receivable In RMB’000
31 December 2008
31 December 2007
Receivables with respect to making payments on behalf of customers Receivables under factoring Total
1,119,445 240,147 1,359,592
778,069 – 778,069
Annual report 2008 Shenzhen Development Bank
20 Loans and Advances a Analysed by corporation and individual In RMB’000
31 December 2008
31 December 2007
Loans and advances to corporations Loans Discounted bills Subtotal
167,617,360 42,217,821 209,835,181
149,712,815 7,780,001 157,492,816
Loans and advances to individuals Credit cards Residential mortgages Others Subtotal Total loans and advances Less: Loan impairment provisions (Note 20f) Loans and advances, net
3,722,178 65,861,574 4,322,433 73,906,185 283,741,366 (2,026,679 ) 281,714,687
2,010,827 59,297,346 2,234,540 63,542,713 221,035,529 (6,023,964 ) 215,011,565
As at 31 December 2008, included in the discounted bills is an amount of RMB 12,691,340 thousand (31 December 2007: Nil) that was pledged for repurchase agreements. In addition, as at 31 December 2008, the Company has transferred out (without recourse) discounted bills amounting to RMB 30.5 billion (31 December 2007: RMB 28.3 billion) that have not yet matured at the year end.
b Analysed by industry In RMB’000
31 December 2008
Agriculture, husbandry and fisheries Extraction (Heavy industry) Manufacturing (Light industry) Energy Transportation, storage and communication Commercial Real estate Service, technology, culture and sanitary industries Construction Others Total loans and advances Less: Loan impairment provisions (Note 20f) Loans and advances, net
598,700 2,990,127 69,633,354 12,437,428 13,138,335 44,889,464 15,882,930 38,325,644 10,770,355 75,075,029 283,741,366 (2,026,679 ) 281,714,687
31 December 2007 506,927 2,812,800 55,249,167 7,832,400 12,497,393 26,281,499 14,411,307 29,969,369 7,340,077 64,134,590 221,035,529 (6,023,964 ) 215,011,565
c Analysed by type of collateral held or other credit enhancements In RMB’000
31 December 2008
Unsecured Guaranteed Secured by collateral of which: secured by mortgages secured by monetary assets Subtotal Discounted bills Total loans and advances Less: Loan impairment provisions (Note 20f) Loans and advances, net
47,041,232 59,769,814 134,712,499 111,667,469 23,045,030 241,523,545 42,217,821 283,741,366 (2,026,679 ) 281,714,687
31 December 2007 31,864,556 62,372,647 119,018,325 89,703,166 29,315,159 213,255,528 7,780,001 221,035,529 (6,023,964 ) 215,011,565
163
164 IFRS Financial Statements
Notes to the Financial Statements
20 Loans and Advances
(Continued)
d Ageing analysis of past due loans
31 December 2008
In RMB’000
Overdue by 1 to 90 days, inclusive
Overdue by 90 days to 1 year, inclusive
Overdue by 1 to 3 years, inclusive
Overdue by more than 3 years
Total
480,859 217,842 2,554,398 2,315,592 238,806 3,253,099
23,932 221,673 494,824 466,465 28,359 740,429
– 6,204 586,104 406,337 179,767 592,308
– 261,646 640,253 520,253 120,000 901,899
504,791 707,365 4,275,579 3,708,647 566,932 5,487,735
Overdue by 1 to 90 days, inclusive
Overdue by 90 days to 1 year, inclusive
Overdue by 1 to 3 years, inclusive
Overdue by more than 3 years
Total
239,346 120,429 2,265,619 1,977,097 288,522 2,625,394
46,310 126,920 836,882 559,370 277,512 1,010,112
100,395 2,527,372 1,449,149 1,029,084 420,065 4,076,916
25,132 3,996,214 2,724,078 1,881,857 842,221 6,745,424
411,183 6,770,935 7,275,728 5,447,408 1,828,320 14,457,846
Unsecured Guaranteed Secured by collateral of which: secured by mortgages secured by monetary assets Total
31 December 2007
In RMB’000
Unsecured Guaranteed Secured by collateral of which: secured by mortgages secured by monetary assets Total
Overdue loans refer to the loans with either principal or interest being overdue by one day or more.
e Analysed by geographical region In RMB’000
31 December 2008
Southern China Eastern China Northern and north-eastern China South-western China Offshore businesses Total loans and advances Less: Loan impairment provisions (Note 20f) Loans and advances, net
86,815,602 100,457,432 75,600,230 19,700,651 1,167,451 283,741,366 (2,026,679 ) 281,714,687
f
31 December 2007 78,054,481 78,061,876 49,966,780 14,360,528 591,864 221,035,529 (6,023,964 ) 215,011,565
Movements of the impairment provisions for loans and advances 2008
In RMB’000
Indiviual
Collective
2007 Total
Individual
Collective
Balance at beginning of the year 5,073,555 950,409 6,023,964 Charge for the year 5,667,836 1,305,003 6,972,839 Amounts written off (9,896,652 ) (710,060 ) (10,606,712 ) Reversal for the year Recovery of loans written off previously 29,944 – 29,944 Unwinding of discounts of provisions for impaired loans and advances (384,238 ) – (384,238 ) Other changes for the year (9,118 ) – (9,118 ) Balance at end of the year (Note 10) 481,327 1,545,352 2,026,679
6,452,271 1,380,948 (2,202,225 )
484,870 565,295 (99,756 )
34,061
–
(518,592 ) (72,908 ) 5,073,555
– – 950,409
Total 6,937,141 1,946,243 (2,301,981 ) 34,061 (518,592 ) (72,908 ) 6,023,964
Annual report 2008 Shenzhen Development Bank
21 Available-for-sale Financial Assets In RMB’000
31 December 2008
31 December 2007
Bond investments analysed by issuer Governments and the Central Bank 29,556,827 Policy banks 18,789,453 Other banks and non-bank financial institutions 112,335 Corporations 133,094 Subtotal 48,591,709 Equity investments (Note 21a) Tradable shares 67,659 Non-tradable shares (Note) 225,345 Less: Impairment provisions (Note 10) (87,627 ) Non-tradable shares, net 137,718 Subtotal 205,377 Total available-for-sale financial assets 48,797,086
10,657,828 6,621,821 272,851 88,452 17,640,952 134,617 722,693 (470,745 ) 251,948 386,565 18,027,517
Note: These available-for-sale unlisted equity investments which do not have any quoted market prices and whose fair values cannot be reliably measured are stated at cost.
As at 31 December 2008, included in the bond investments is an amount of RMB 1,984,666 thousand (31 December 2007: Nil) that was pledged for repurchase agreements.
a Equity investments 31 December 2008
31 December 2007
Tradable shares Shenzhen Hongkai (Group) Co., Ltd. 2,790 Shenzhen Fountain Corporation – Hafei Aviation Industry Co.,Ltd. 5,631 Harbin Pharmaceutical Group Co.,Ltd. 48,467 Yihua Real Estate Co., Ltd. (Note 4) 10,000 Visa Inc. 771 Subtotal 67,659
12,770 2,559 39,089 80,199 – – 134,617
Non-tradable shares Shenzhen Yuan Sheng Industrial Co., Ltd. – China UnionPay Co., Ltd 50,000 Gintian Industry (Group) Co., Ltd. 9,662 Hainan Pearl River Holdings Co., Ltd. 9,650 Hainan Wuzhou Travel Co., Ltd. 5,220 Meizhou Polyester (Group) Co. 1,100 Shenzhen Zoto Investment Co., Ltd. (Note 1) 2,500 Hainan Junhe Travel Co., Ltd. 2,800 Guangdong Sanxing Enterprises (Group) Co., Ltd. 500 Hainan Baiyunshan Co., Ltd. 1,000 Hainan Saige Co., Ltd. 1,000 Hainan Zhuxin Investment Co., Ltd. (Note 2) 500 Hainan Zhonghailian Real Estate Co., Ltd. 1,000 Shenzhen Jiafeng Textile Industrial Co., Ltd. 16,725 SWIFT 230 Yong An Property Insurance Co., Ltd. 67,000 Wuhan Steel Electricity Co., Ltd. 32,175 Macat Optics & Electronics Co., Ltd. – Founder Securities Co., Ltd. (Note 3) 4,283 Chengdu Unionfriend Network Co., Ltd. 20,000 Less: Impairment provisions (Note 10) (87,627 ) Subtotal 137,718 Equity investments, net 205,377
507,348 50,000 9,662 9,650 5,220 1,100 2,500 2,800 500 1,000 1,000 500 1,000 16,725 230 67,000 32,175 10,000 4,283 – (470,745 ) 251,948 386,565
In RMB’000
Notes: 1. Shenzhen Zoto Investment Co., Ltd. was originally named as Shenzhen Central South China Industrial Co..
2. Hainan Zhuxin Investment Co., Ltd. was originally named as Hainan First Investment Co., Ltd..
3. The original investee was Sun Securities Co., Ltd. At 12 May 2008, Founder Securities Co., Ltd. was approved to acquire Sun Securities Co., Ltd..
4. Yihua Real Estate Co., Ltd. was originally named as Macat Optics & Electronics Co., Ltd..
165
166 IFRS Financial Statements
Notes to the Financial Statements
22 Held-to-maturity Investments In RMB’000
31 December 2008
31 December 2007
Bond investments analysed by issuer Governments and the Central Bank Policy banks Other banks and non-bank financial institutions Corporations Total
8,637,220 5,786,616 649,751 435,568 15,509,155
9,423,912 5,738,760 319,472 344,854 15,826,998
As at 31 December 2008, included in the bond investments are amounts of RMB 205,485 thousand (31 December 2007: RMB 1,124,046 thousand), RMB 3,612,979 thousand (31 December 2007: Nil), and RMB 5,405,600 thousand (31 December 2007: RMB 14,555,660 thousand) that were pledged for loan guarantee contracts, agreements of time deposit from PBOC and repurchase agreements, respectively. There are no changes in the assessment of the Company’s intention and ability to hold the investments to maturity.
23 Receivables-bond Investments In RMB’000
31 December 2008
31 December 2007
PBOC bills Subordinated bonds issued by financial institutions Total
13,450,000 300,000 13,750,000
13,450,000 – 13,450,000
These bond investments are financial assets with fixed or determinable payments that are not quoted in an active market. As at 31 December 2008, included in the bond investments is an amount of RMB 3,000,000 thousand (31 December 2007: Nil) that was pledged for repurchase agreements.
Annual report 2008 Shenzhen Development Bank
24 Investments in Associates In RMB’000
31 December 2008
31 December 2007
Associates Chengdu Gongtou Assets Management Co., Ltd. Shandong Xinkaiyuan Real Estate Co., Ltd. Less: Impairment provisions (Note 10) Net investment balance
269,065 30,607 299,672 (20,000 ) 279,672
– – – – –
The movements in the associates during the year are as follows: Jan–Dec 2008
Movements in equity
In RMB’000
Percentage of registered Initial capital (%) investment
Chengdu Gongtou Assets Management Co., Ltd. (Note 1) 33.20 Shandong Xinkaiyuan Real Estate Co.,Ltd. (Note 2) 15.42
Share of Accumulated profit for Dividend share of the year distribution profit
Change in other equity
Impairment provision Charge for Accumulated the year balance
Balance at end of the year
259,836
22,675
(3,320 )
19,355
(10,126 )
(20,000 )
(20,000 )
249,065
30,607 290,443
– 22,675
– (3,320 )
– 19,355
– (10,126 )
– (20,000 )
– (20,000 )
30,607 279,672
Notes: 1. At 30 January 2008, the Company obtained 33.2% of the shareholding of Chengdu Gongtou Assets Management Co., Ltd. as repossessed assets.
2. At 18 August 2008, the Company obtained 15.42% of the shareholding of Shandong Xinkaiyuan Real Estate Co., Ltd. as repossessed assets. The Company has appointed a representative in the board of the investee.
The key financial information of the associates is as follows: Place of Nature of Registered In RMB’000 registration business capital Chengdu Gongtou Assets Management Co., Ltd. Shandong Xinkaiyuan Real Estate Co., Ltd.
Chengdu
Asset management
518,700
33.20
33.20
Jinan
Real estate
50,000
15.42
15.42
From 30 January 2008 to 31 December 2008
31 December 2008 In RMB’000
Chengdu Gongtou Assets Management Co., Ltd.
Total assets
Total liabilities
Operating income
Net profit (Note)
1,458,061
632,679
72,994
68,300
From 30 January 2008 to 31 December 2008
31 December 2008 In RMB’000
Shandong Xinkaiyuan Real Estate Co., Ltd.
Percentage of Percentage of equity held by voting right held by the Company (%) the Company (%)
Total assets
Total liabilities
Operating income
Net profit
288,105
78,102
–
–
Note: The amount represents the net profit attributable to the parent company on the face of the consolidated income statement of Chengdu Gongtou Assets Management Co., Ltd.
167
168 IFRS Financial Statements
Notes to the Financial Statements
25 Investment Properties In RMB’000
31 December 2008
Balance at beginning of the year Disposals during the year Fair value changes recognised in the income statement Transferred to owner-occupied properties during the year Balance at end of the year
441,098 (2,058 ) (15,087 ) (12,263 ) 411,690
31 December 2007 460,656 (25,251 ) 42,733 (37,040 ) 441,098
The Company’s investment properties are mainly properties and buildings, which are rented to third parties in the form of operating leasing. The investment properties are situated in locations where there are active property markets and the fair value of the investment properties can be reliably determinable on a continuing basis. Accordingly, management decided to adopt the fair value model for subsequent measurement of the investment properties, which are valued by independent professionally qualified valuers on, at least, an annual basis. The valuation as at 31 December 2008 was performed by Shenzhen Guozi Land and Real Estate Valuation Co., Ltd. In connection with this, the valuation was carried out by qualified persons who are members of the Shenzhen Institute of Real Estate Appraisers. Certain investment properties were transferred to owner-occupied properties mainly because the rental agreements of these properties expired during the year. The gross rental income earned from the investment properties during the year amounted to RMB 38,982 thousand (2007: RMB 45,377 thousand). The total direct operating expense (including repairs and maintenance expenses) for the investment properties, with or without rental income generated during the year, was RMB 2,589 thousand (2007: RMB 3,284 thousand).
Annual report 2008 Shenzhen Development Bank
26 Property and Equipment 2008
In RMB’000
Balance at beginning of the year Addition
Transfer from construction in progress Subtraction
At cost Properties and buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Leasehold improvement Total
1,536,206 95,235 700,932 307,632 318,845 527,275 3,486,125
Accumulated depreciation Properties and buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Leasehold improvement Total Less: Impairment provision (Note 10) Net book value
413,076 51,594 – (9,299 ) 73,338 7,278 – (25,170 ) 471,129 97,726 – (120,125 ) 203,740 36,116 – (16,621 ) 243,289 19,211 – (303 ) 371,459 61,179 – (51 ) 1,776,031 273,104 – (171,569 ) – 1,710,094
35,262 15,612 194,663 88,250 6,677 76,094 416,558
In RMB’000
– 957 7,132 16,383 10,759 70,788 106,019
(32,966 ) (29,010 ) (126,691 ) (19,033 ) (653 ) (1,048 ) (209,401 )
Balance at end of the year 1,538,502 82,794 776,036 393,232 335,628 673,109 3,799,301 455,371 55,446 448,730 223,235 262,197 432,587 1,877,566 (6,289 ) 1,915,446
2007 Balance at beginning of the year Addition
Transfer from construction in progress Subtraction
Balance at end of the year
At cost Properties and buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Leasehold improvement Total
1,518,063 218,195 601,519 269,035 301,766 484,551 3,393,129
(35,565 ) (129,495 ) (35,972 ) (20,685 ) (10,549 ) (43,827 ) (276,093 )
1,536,206 95,235 700,932 307,632 318,845 527,275 3,486,125
Accumulated depreciation Properties and buildings Transportation vehicles Computers Electronic appliances Owner-occupied property improvement Leasehold improvement Total Net book value
373,005 51,728 – (11,657 ) 171,586 17,321 – (115,569 ) 413,418 83,560 – (25,849 ) 182,440 32,609 – (11,309 ) 225,340 21,434 – (3,485 ) 333,400 53,909 – (15,850 ) 1,699,189 260,561 – (183,719 ) 1,693,940
413,076 73,338 471,129 203,740 243,289 371,459 1,776,031 1,710,094
53,708 6,535 134,271 49,125 2,489 46,838 292,966
– – 1,114 10,157 25,139 39,713 76,123
As at 31 December 2008, the original cost and net book value of properties and buildings amounting to RMB 143,053 thousand (31 December 2007: RMB 130,831 thousand) and RMB 88,723 thousand (31 December 2007: RMB 87,453 thousand), respectively are of no registration certificates of property right, but are in use by the Company.
169
170 IFRS Financial Statements
Notes to the Financial Statements
27 Deferred Tax Assets/Liabilities
2008 Balance at beginning of the year
Recognised in the income statement (Note 11)
Recognised directly in equity
Balance at end of the year
Deferred tax assets Impairment provisions Others Subtotal
945,647 48,742 994,389
796,813 33,476 830,289
– (12,862 ) (12,862 )
1,742,460 69,356 1,811,816
Deferred tax liabilities Tax losses deducted against taxable profits of different tax rate Changes in fair values Subtotal Total
(54,135 ) (44,409 ) (98,544 ) 895,845
54,135 (45,354 ) 8,781 839,070
– (251,916 ) (251,916 ) (264,778 )
– (341,679 ) (341,679 ) 1,470,137
In RMB’000
2007 Recognised in the income statement (Note 11)
Recognised directly in equity
Balance at end of the year
In RMB’000
Balance at beginning of the year
Deferred tax assets Impairment provisions Others Subtotal
988,120 27,810 1,015,930
(42,473 ) 9,532 (32,941 )
– 11,400 11,400
945,647 48,742 994,389
(211,652 ) (40,747 ) (10,269 ) (262,668 ) 753,262
157,517 (16,081 ) 10,269 151,705 118,764
– 12,419 – 12,419 23,819
(54,135 ) (44,409 ) – (98,544 ) 895,845
Deferred tax liabilities Tax losses deducted against taxable profits of different tax rate Changes in fair values Others Subtotal Total
Annual report 2008 Shenzhen Development Bank
28 Other Assets a Analysed by nature In RMB’000
31 December 2008
31 December 2007
Interest receivable on investment securities Interest receivable on loans and interbank placements and loans Long term prepayments Prepayments Prepaid legal expenses Repossessed assets (Note 28b) Construction in progress Receivable of exercise of warrants Others Total
1,076,175 745,409 114,936 167,323 31,673 617,823 257,040 – 186,577 3,196,956
708,291 577,892 120,942 93,963 62,664 807,175 10,809 789,961 130,910 3,302,607
In RMB’000
31 December 2008
31 December 2007
Land, properties and buildings Others Total Less: Provision for decline in value (Note 10) Net value of repossessed assets
915,282 22,021 937,303 (319,480 ) 617,823
b Repossessed assets 983,027 22,291 1,005,318 (198,143 ) 807,175
During the year, the Company took possession of collateral held as security with a carrying amount of RMB 52,152 thousand (2007: RMB 37,319 thousand). The collateral mainly comprises buildings. During the year, the Company disposed of repossessed assets with their gross carrying value amounting to RMB 120,167 thousand (2007: RMB 175,270 thousand). The Company plans to dispose of the repossessed assets through auctions, bidding or transfers in future.
29 Placement of Deposits from other Financial Institutions In RMB’000
31 December 2008
31 December 2007
Domestic banks Domestic non-bank financial institutions Total
21,891,481 14,171,551 36,063,032
16,789,193 15,599,569 32,388,762
In RMB’000
31 December 2008
31 December 2007
Current deposits Corporate customers Personal customers Sub-total
86,279,463 19,234,242 105,513,705
80,950,179 16,518,537 97,468,716
Fixed deposits Corporate customers Personal customers Sub-total Guarantee deposits Fiscal deposits Time deposits from PBOC Inward and outward remittances Total
100,842,409 38,836,902 139,679,311 104,393,453 6,772,448 3,000,000 1,155,119 360,514,036
76,783,023 24,371,478 101,154,501 74,801,665 6,717,154 – 1,134,945 281,276,981
30 Customer Deposits
171
172 IFRS Financial Statements
Notes to the Financial Statements
31 Employee Benefits Payable In RMB’000
Salaries, bonuses, allowances and subsidies including: Deferred bonus accrual (Note) Social insurance, supplementary pension contributions and staff welfare Housing funds Labour union and training expenses Others Total
2008 Balance at beginning of the year
Increase during the year
Payment made during the year
Balance at end of the year
706,104 42,800
2,034,524 89,148
(1,740,211 ) –
1,000,417 131,948
219,307 – – – 925,411
494,408 89,934 56,875 9,362 2,685,103
(466,712 ) (89,934 ) (56,875 ) (9,362 ) (2,363,094 )
247,003 – – – 1,247,420
In RMB’000
Salaries, bonuses, allowances and subsidies including: Deferred bonus accrual (Note) Social insurance, supplementary pension contributions and staff welfare Housing funds Labour union and training expenses Others Total
2007 Balance at beginning of the year
Increase during the year
Payment made during the year
Balance at end of the year
453,633 9,000
1,599,861 33,800
(1,347,390 ) –
706,104 42,800
160,995 – – – 614,628
364,568 69,842 54,177 41,882 2,130,330
(306,256 ) (69,842 ) (54,177 ) (41,882 ) (1,819,547 )
219,307 – – – 925,411
Note: The amount of deferred bonus is determined based on the indicators of asset quality and profitability and the share price of the Company; and will be settled in cash in accordance with the terms of the arrangement. No payment has been made by the Company since the set up of the deferred bonus schemes.
32 Accounts Payable In RMB’000
31 December 2008
31 December 2007
Payables with respect to amounts owed to other financial institutions
507,483
340,297
In RMB’000
31 December 2008
31 December 2007
Subordinated bonds payable
7,964,282
–
33 Subordinated Bonds Payable
As approved by the CBRC and PBOC, the Company issued three sets of subordinated bonds with a total amount of RMB 8 billion in the interbank bond market on 21 March 2008 and 28 October 2008. These subordinated bonds comprise two sets of fixed-rate bonds with nominal values of RMB 6 billion and RMB 1.5 billion respectively; and one set of floating-rate bonds with a nominal value of RMB 0.5 billion. The duration of the bonds is of 10 years with a call option at the end of the fifth year. The coupon rates for the first five years are 6.10% and 5.30% for the two sets of fixed-rate bonds; and SHIBOR3M+1.40% for the floating-rate bonds. If the Company does not exercise the call option at the end of the fifth year, both the fixed and floating coupon rates will increase by 3%.
Annual report 2008 Shenzhen Development Bank
34 Other Liabilities In RMB’000
31 December 2008
31 December 2007
Interest payable Bank drafts Financial guarantee contracts Tax payable – other than income tax Amounts pending for settlement and clearing Amounts payable for bond redemption as intermediaries Provision for litigation Inactive deposit account balances Accrued expenses Amounts payable for acquisition of bonds Dividends payable Subscription monies of open-ended funds Others Total
2,963,224 195,295 53,324 509,037 57,917 29,456 25,809 44,414 108,002 – 14,172 16,798 301,058 4,318,506
1,728,071 712,635 32,595 406,786 91,552 25,425 77,447 62,367 90,511 250,000 14,022 106,481 223,029 3,820,921
35 Share Capital As at 31 December 2008, the Company’s registered, issued and fully paid shares was 3,105,434 thousand, with RMB 1 each. The nature and the structure of the share capital are as follows: In RMB’000
Restricted tradable shares State-owned corporation shares Domestic non-stated-owned corporation shares Domestic individual shares Foreign corporation shares Total restricted tradable shares Unrestricted tradable shares RMB ordinary shares Total unrestricted tradable shares Total shares
31 December 2007 %
Movement for the year
31 December 2008
%
4,626
0.20
(4,626 )
–
0.00
183,314 543 348,103 536,586
8.00 0.02 15.18 23.40
(179,459 ) (465 ) (31,208 ) (215,758 )
3,855 78 316,895 320,828
0.13 0.00 10.20 10.33
1,756,821 1,756,821 2,293,407
76.60 76.60 100.00
1,027,785 1,027,785 812,027
2,784,606 2,784,606 3,105,434
89.67 89.67 100.00
In accordance with the Measures for the Administration of the Share-trading Reform of Listed Companies, the original non-tradable shareholders of the Company promised no transfer or trading of the non-tradable shares held within 12 months since the day when the trading right is acquired. After the expiration of the above commitment term, the former non-tradable shares trading through the stock exchange shall not be over 5% of the total shares within 12 months, and not over 10% within 24 months. The increase in share capital during the year was because of the distribution of stock dividends and the exercise of warrants. Pursuant to the resolution of the first 2007 extraordinary shareholders’ meeting held on 8 June 2007, the Company has issued 104,337,917 12-month Bermuda warrants (hereinafter referred to as “SFC 2”) to the shareholders registered in the shareholders’ register on the registration date of warrant issue. Each shareholder obtains 0.5 warrants for every 10 shares. Each warrant can be used to purchase one share of the Company, at an exercise price of RMB 19 Yuan for each share. According to the relevant rules of the warrant issue, the warrants held by the holders of restricted tradable shares, and directors, supervisors and senior management of the Company are not tradable whereas the other warrants are tradable. Up to the last trading date for SFC 2 on 27 June 2008, there were 95,388,057 SFC 2 exercised in total, increasing the share capital of the Company by RMB 95,388,057 Yuan. Pursuant to the resolution of the first 2008 extraordinary shareholders’ meeting held on 15 October 2008, the Company appropriated dividends of 3 shares for every 10 shares, based on 2,388,795,202 outstanding shares prior to the share dividend. After the appropriation of share dividend, the total number of shares increased by 716,638,560 to 3,105,433,762 as at 31 October 2008.
173
174 IFRS Financial Statements
Notes to the Financial Statements
36 Reserves In RMB’000
31 December 2008
Statutory surplus reserve General reserve Share of the changes in owners’ equity of an associate Cumulative changes in fair value of available-for-sale financial assets Revaluation surplus on owner-occupied properties transferred to investment properties Total
780,885 3,583,296 (10,126 ) 1,002,795 13,803 5,370,653
31 December 2007 719,481 2,715,704 – (60,120 ) 11,000 3,386,065
In accordance with the Company Law, the Company is required to appropriate 10% of its profit after tax to its statutory surplus reserve until the reserve balance reaches 50% of its registered capital. Subject to the approval of shareholders, the statutory surplus reserve may be used to offset accumulated losses, if any, and may also be converted into capital, provided that the balance of the statutory surplus reserve after such capitalisation is not less than 25% of the registered capital. The Company may also appropriate its profit after tax to the discretionary surplus reserve upon approval of the shareholders in general meetings. As at 31 December 2007 and 31 December 2008, the amount of the surplus reserve represented the statutory surplus reserve. Pursuant to the relevant regulations issued by the MOF, the Company is required to maintain a general reserve within equity, through the appropriation of net profit, which should not be less than 1% of the year end balance of its risk assets. The reserve is to be appropriated over a period of not more than five years, beginning in July 2005. As at 31 December 2008, the Company has met the above reserve requirement.
37 Unappropriated Profit Pursuant to a board resolution on 19 March 2008, based on the audited profit for the year as reported in the statutory financial statements for the year ended 31 December 2007, in addition to the profit appropriations for the first half of 2007, the Company appropriated its net profit amounting to RMB 152,592 thousand and RMB 136,000 thousand to the statutory surplus reserve and the general reserve, respectively for the second half of 2007. The above appropriations were approved at the Company’s annual general meeting held on 12 June 2008. Pursuant to a board resolution on 20 August 2008, an appropriation of RMB 214,384 thousand based 10% of net profit as reported in the Company’s statutory financial statements for the first half of 2008 was made to the statutory surplus reserve; an appropriation of RMB 608,624 thousand was made to the general reserve; and dividends of 3 shares and RMB 0.335 Yuan for every 10 shares were appropriated from the unappropriated profit, amounting to RMB 796,663 thousand in total. The above appropriations were approved at the Company’s shareholders’ meeting held on 15 October 2008. Pursuant to a board resolution on 19 March 2009, based on the audited profit for the year as reported in the statutory financial statements for the year ended 31 December 2008, the Company reversed the statutory surplus reserve amounting to RMB 152,980 thousand in the second half of the year considering the respective appropriation in the first half of 2008, with the result that an appropriation of RMB 61,404 thousand was made to the statutory surplus reserve for 2008 based on 10% of the profit for the year; and an appropriation of RMB 258,968 thousand was made to the general reserve for the second half of 2008. The above proposed appropriations are pending approval from shareholders at the forthcoming annual general meeting.
Annual report 2008 Shenzhen Development Bank
38 Note to the Cash Flows Statement In RMB’000
2008
2007
Profit before tax Adjustments to reconcile profit before tax to cash flows arising from operating activities
792,609
3,771,775
Non-cash items included in profit before tax and other adjustments Depreciation of property and equipment Impairment provision on loans Interest income on impaired loans Impairment provisions on other assets Provision against litigation claims Amortisation of long term prepayments Amortisation of intangible assets Net unrealised gain of financial assets/liabilities at fair value through profit or loss Gain on disposal of property and equipment Interest income on debt investments Dividend income from investment securities Gain on disposal of investment securities Loss on disposal of investment properties Changes in fair value of investment properties Interest expense on subordinated bonds Share of profits and losses of an associate under equity method of accounting
273,104 6,972,839 (384,238 ) 361,323 29,712 16,929 20,852 (80,887 ) (261 ) (2,330,843 ) (4,554 ) (336,200 ) 419 15,087 325,488 (22,675 )
260,561 1,946,243 (518,592 ) 107,516 23,998 17,495 14,275 (14,908 ) (21,011 ) (1,261,540 ) (6,955 ) (215,753 ) 6,311 (42,733 ) – –
Net decrease/(increase) in operating assets Deposits reserves with the Central Bank Placement of deposits with other financial institutions Funds loaned to other financial institutions Reverse repurchase agreements Financial assets at fair value through profit or loss Loans and advances Long term prepayments Other assets
(413,525 ) (14,369,457 ) (2,090,056 ) (648,650 ) 1,420,953 (74,220,352 ) (11,568 ) (185,288 )
(14,324,470 ) (1,257,854 ) (806,571 ) (11,279,835 ) (1,343,977 ) (42,083,861 ) (29,763 ) (151,348 )
Net increase/(decrease) in operating liabilities Placement of deposits from other financial institutions Interbank borrowings Repurchase agreements Financial liabilities at fair value through profit or loss Customer deposits Inward and outward remittances Other liabilities Cash flows from operating activities
3,674,270 5,080,000 22,448,533 (1,306,628 ) 79,216,880 20,175 1,227,209 25,491,200
15,319,518 2,300,000 15,726,572 989,964 49,002,123 68,530 1,960,176 18,155,886
175
176 IFRS Financial Statements
Notes to the Financial Statements
39 Commitments and Contingent Liabilities Capital commitments At the balance sheet date, the Company had capital commitments as follows: In RMB’000
31 December 2008
31 December 2007
Contracted, but not provided for
144,000
–
Operating Lease commitments Operating lease commitments – Company as lessee The Company has entered into commercial lease on premises and equipment. At the balance sheet date, the total future minimum lease payments payable under non-cancellable operating leases were as follows: In RMB’000
31 December 2008
31 December 2007
Within one year, inclusive After one year but not more than five years More than five years Total
370,634 1,021,447 543,875 1,935,956
263,204 627,439 281,526 1,172,169
Operating lease commitments – Company as lessor The Company has entered into commercial property leases on its investment portfolio. All investment properties are leased out under operating leases. Future minimum rentals receivable under non-cancellable operating leases at the balance sheet date were as follows: In RMB’000
31 December 2008
31 December 2007
Within one year, inclusive After one year but not more than five years More than five years Total
33,886 45,254 252 79,392
34,724 29,342 588 64,654
In RMB’000
31 December 2008
31 December 2007
Financial guarantee contracts Bank acceptances Guarantees issued Letters of credit issued Loan guarantee contracts Sub-total
164,888,094 1,884,883 1,826,290 177,698 168,776,965
121,882,685 2,212,937 1,912,162 963,135 126,970,919
Irrevocable loan commitments Credit limit of credit cards Total
15,343,716 184,120,681
8,804,290 135,775,209
Credit risk weighted amounts of credit commitments
59,080,564
49,277,576
Credit commitments
Financial guarantee contracts commit the Company to make payments on behalf of customers upon the failure of the customers to perform the terms of the contracts. Commitments to extend credit represent contractual commitments to make loans to customers. Commitments generally have fixed expiry dates. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements.
Annual report 2008 Shenzhen Development Bank
39 Commitments and Contingent Liabilities
(Continued)
Fiduciary transactions In RMB’000
31 December 2008
31 December 2007
Entrusted deposits Entrusted loans
10,867,862 10,867,862
5,551,762 5,551,762
Entrusted funding Entrusted investments
3,427,869 3,427,869
2,007,738 2,007,738
Entrusted deposits represent funds that depositors have instructed the Company to use to make loans to third parties as designated by them. The credit risk remains with the depositors. Entrusted funding and entrusted investments represent the investment and asset management services provided by the Company for third parties in accordance with the agreed investment plans. The third parties provide funding for the related investments. Income from such investment activities is collected on behalf of and paid to the third parties according to the relevant contractual terms.
Contingent liabilities Legal proceedings As at 31 December 2008, the total claimed amount of the litigation cases of which the Company is the defendant was RMB 179 million (31 December 2007: RMB 161 million). These litigation cases are under legal proceedings. In the opinion of management, the Company has made adequate allowance for any probable losses based on the prevailing facts and circumstances. Apart from the above pending litigation cases, the respective liquidators of DeHeng Securities Co., Ltd. and the China Southern Securities Co., Ltd. had requested the Company to repay a total amount of RMB 430 million. The Company had opposed all such repayment requests. At the year end, based on the legal opinion from an independent third-party lawyer, the Company had no immediate obligation to repay the monies. Redemption commitments of government bonds As an underwriting agent of the PRC Government, the Company underwrites certain PRC government bonds and sells the bonds to the general public. The Company is obliged to redeem the bonds at the discretion of the holders at any time prior to maturity. The redemption price for the bonds is based on the nominal value of the bonds plus any interest accrued up to the redemption date. As at 31 December 2008, the Company had underwritten and sold bonds with an accumulated amount of RMB 3.1 billion (31 December 2007: RMB 3.67 billion) to the general public which have not matured or been redeemed. The MOF will not provide funding for the early redemption of these government bonds on a back-to-back basis but is obliged to repay the principal and the respective interest upon maturity. As at 31 December 2008, the unexpired underwriting commitment of the PRC government bonds amounted to RMB 2.35 billion (31 December 2007: RMB 2.65 billion).
40 Capital Management The primary objectives of the Company’s capital management are to ensure that the Company complies with regulatory capital requirements, to maximise shareholders’ value and to support the continuous growth in business. The Company regularly reviews its capital structure and makes adjustments to it through asset and liability management, so as to maintain the overall balance of the capital structure and maximisation of capital return. The required information of capital adequacy is filed with the CBRC by the Company on a quarterly basis. The CBRC requires banks that are established in Mainland China to maintain the capital adequacy ratio and core capital ration not below the minimum of 8% and 4%, respectively. The risk-weighted assets are measured according to the nature of individual assets and counterparty, reflecting an estimate of related credit, market and other risks after taking into account of any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposures, with adjustments made to reflect the contingent nature of any potential losses. The Company calculated and reported the core capital adequacy ratio and capital adequacy ratio in accordance with the “Regulation Governing Capital Adequacy Ratio of Commercial Banks” promulgated by the CBRC and the CBRC’s notice relating to the computation of the capital adequacy ratio after the implementation of ASBEs.
177
178 IFRS Financial Statements
Notes to the Financial Statements
40 Capital Management
(Continued)
The core capital includes share capital, capital reserve, surplus reserve, general reserve and unappropriated profit. The supplementary capital includes revaluation surplus, long term subordinated bonds and other supplementary capital. In RMB’000
31 December 2008
31 December 2007
Net core capital Supplementary capital Net capital Risk weighted assets and market risk capital adjustment Core capital adequacy ratio Capital adequacy ratio
14,710,153 9,577,523 23,959,430 279,112,744 5.3% 8.6%
12,692,620 112,317 12,691,876 220,056,277 5.8% 5.8%
41 Maturity Analysis of Assets and Liabilities A maturity analysis of the assets and liabilities of the Company as at 31 December 2008 was as follows: 31 December 2008
In RMB’000
Overdue/ On demand
Within 1 month
Within 3 months
10,126,571 9,225
– –
– –
3 months to 1 year 1 to 5 years Over 5 years
Undated
Total
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Investments in associates Property and equipment Others Total assets
– –
– –
– 29,641,330 39,767,901 – – 9,225
3,519,315 23,226,652 16,048,497 22,676,374
–
–
– 28,202 68,279 147,433 – 277,498 779,875 170,873 1,100,587 18,084,808 42,767,591 137,094,540 – 1,219,607 458,485 19,866,795 – – 71,510 1,879,307 – – – – – – – – – – – – 81,765 797,038 237,479 795,307 14,837,463 43,633,805 60,431,716 182,630,629
– 65,470,838
88,278 – – 332,192 131,346 – – 1,359,592 41,978,384 40,688,777 – 281,714,687 18,354,295 8,692,528 205,376 48,797,086 11,641,589 1,916,749 – 15,509,155 13,750,000 – – 13,750,000 – – 279,672 279,672 – – 1,915,446 1,915,446 1,932,804 7,257 1,682,729 5,534,379 87,876,696 51,305,311 33,724,553 474,440,173
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Subordinated bonds payable Others Total liabilities Liquidity net value
12,277,306 46,961,045 19,773,124
3,347,672
–
–
– 82,359,147
– 4,873 13,760 74,541 4,844 – – 98,018 – 25,005 446,395 36,083 – – – 507,483 148,834,502 44,211,379 48,269,061 86,149,026 33,050,066 2 – 360,514,036 – – – – 7,964,282 – – 7,964,282 652,830 1,773,034 1,869,207 1,295,128 949,281 56,937 – 6,596,417 161,764,638 92,975,336 70,371,547 90,902,450 41,968,473 56,939 – 458,039,383 (146,927,175 ) (49,341,531 ) (9,939,831 ) 91,728,179 45,908,223 51,248,372 33,724,553 16,400,790
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
Annual report 2008 Shenzhen Development Bank
41 Maturity Analysis of Assets and Liabilities
(Continued)
A maturity analysis of the assets and liabilities of the Company as at 31 December 2007 was as follows:
31 December 2007
In RMB’000
Overdue/ On demand
Within 1 month
Within 3 months
3 months to 1 year
1 to 5 years Over 5 years
Undated
Total
29,227,805 –
40,726,387 8,200
–
40,425,271
ASSETS Cash on hand and due from the Central Bank 11,498,582 – – – – – Precious metals 8,200 – – – – – Amounts due from other financial institutions (Note 1) 2,191,196 20,283,485 14,507,930 2,952,660 490,000 – Financial assets at fair value through profit or loss and derivative financial assets – 720,993 149,154 748,642 100,652 50,000 Accounts receivable – 50,300 459,070 268,699 – – Loans and advances 6,806,547 13,070,871 29,193,395 97,641,259 31,199,641 37,099,852 Available-for-sale financial assets 43,040 1,928,133 2,904,950 3,001,922 8,851,488 911,419 Held-to-maturity investments – – 109,424 1,075,462 8,803,074 5,839,038 Receivables – bond investments – – – – 13,450,000 – Property and equipment Others 140,815 1,118,653 810,358 36,629 221,218 45,502 Total assets 20,688,380 37,172,435 48,134,281 105,725,273 63,116,073 43,945,811
– 1,769,441 – 778,069 – 215,011,565 386,565 18,027,517 – 15,826,998 – 13,450,000 1,710,094 1,710,094 2,432,644 4,805,819 33,757,108 352,539,361
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Others Total liabilities Liquidity net value
27,144,470
17,450,302
5,097,692
1,463,880
–
–
– 13,808 – 50,300 106,115,991 40,340,274 770,532 3,393,978 134,030,993 61,248,662 (113,342,613 ) (24,076,227 )
733,606 63,674 48,667,576 652,184 55,214,732 (7,080,451 )
646,395 226,323 68,583,447 228,819 71,148,864 34,576,409
108,021 – 17,569,378 212,333 17,889,732 45,226,341
– – 315 – 315 43,945,496
–
51,156,344
– 1,501,830 – 340,297 – 281,276,981 – 5,257,846 – 339,533,298 33,757,108 13,006,063
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
179
180 IFRS Financial Statements
Notes to the Financial Statements
42 Risk Disclosure Credit risk Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. The Company’s credit risk mainly arises from the loans and advances to customers, financial guarantees and loan commitments. The Company has established a Credit Portfolio Management Committee, which approves and determines the Company’s credit risk management strategies, credit risk preferences as well as its various credit risk management policies and standards. The Company has also formulated guidelines on corporate and retail credit policies across the Company and for specific industries. Furthermore, the Company has implemented a strategic customer categorisation management system, and set up a customer entry and exit mechanism to facilitate the sustainable development of its credit underwriting business. The Company implements a credit risk officer system, in which the Chief Credit Officer at the Head Office appoints credit officers to various business lines and branches. The credit officers directly report to the Chief Credit Officer, who is responsible for evaluating the performance of the credit officers and establishing an independent and transparent vertical credit risk management system. The Company has formulated a complete set of operational procedures for credit approval and management. These procedures are being enforced across the Company. Credit management procedures for its corporate and retail loans comprise the processes of credit origination, credit review, credit approval, disbursement, post-disbursement monitoring and collection. In addition, the Company has formulated the “Policies of Credit Underwriting”, which have defined the functions and responsibilities of different credit operational processes, and have enhanced the monitoring of the related compliance for improving the overall effective control of credit risk. The Company has strengthened its early warning monitoring system for the credit business with measures applicable to the portfolio level and to individual customers, resulting to early detection and effective management of credit risks. The Company sub-divides credit asset risks into 10 categories based on the five-tier loan classification system promulgated by the CBRC, namely, Pass One, Pass Two, Pass Three, Pass Four, Pass Five, Special Mention One, Special Mention Two, Substandard, Doubtful and Loss. Furthermore, a separate “Write-off” category has been added to the classification system. The Company applies different management policies to the loans in accordance with their respective loan categories. Risks arising from financial guarantees and loan commitments are similar to those associated with loans and advances. Transactions of financial guarantees and loan commitments are, therefore, subject to the same portfolio management and the same requirements for application and collateral as loans and advances to customers. Maximum exposure to credit risk without taking account of any collateral and other credit enhancements In RMB’000
31 December 2008
31 December 2007
Due from the Central Bank (excluding cash on hand) Placement of deposits with other financial institutions Funds loaned to other financial institutions Financial assets at fair value through profit or loss Derivative financial assets Reverse repurchase agreements Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Investments in associates Other assets Total Financial guarantee Irrevocable loan commitments Maximum exposure to credit risk
38,786,042 21,500,809 9,236,676 41,441 290,751 34,733,353 281,714,687 48,797,086 15,509,155 13,750,000 279,672 3,566,749 468,206,421 168,776,965 15,343,716 652,327,102
39,664,146 4,013,690 2,642,656 1,477,625 291,816 33,768,925 215,011,565 18,027,517 15,826,998 13,450,000 – 3,141,750 347,316,688 126,970,919 8,804,290 483,091,897
Annual report 2008 Shenzhen Development Bank
42 Risk Disclosure
(Continued)
Credit risk (Continued) Risk concentration of the maximum exposure to credit risk Credit risk is often greater when counterparties are concentrated in a single industry or geographic location or have comparable economic characteristics. The majority of the loans and financial guarantee contracts of the Company are related to the local customers within Mainland China. However, different areas in Mainland China have their own unique characteristics in terms of economic development. Therefore, each area in Mainland China could present different credit risks. Please refer to Note 20 for an analysis of concentration of loans and advances by industry and geographical region. Collateral and other credit enhancements The amount and type of collateral required are determined by the Company based on its assessment of the credit risk of the counterparty. The Company has implemented guidelines regarding the acceptability of types of collateral and valuation parameters. The main types of collateral obtained are as follows: • For reverse repurchase transactions: bills, loans or securities • For commercial lending: charges over real estate properties, inventories, shares or trade receivables • For retail lending: mortgages over residential properties Management monitors the market value of collateral, requests additional collateral in accordance with the underlying agreement and monitors the market value of collateral obtained during its review of the adequacy of the provision for impairment losses. Credit quality The credit quality by class of financial asset (gross amount before deducting any impairment provision) of the Company is analysed as follows:
In RMB’000
Placement of deposits with other financial institutions Funds loaned to other financial institutions Financial assets at fair value through profit or loss Reverse repurchase agreements Accounts receivable Loans and advances Available-for-sale financial assets (excluding equity investments) Held-to-maturity investments Receivables – bond investments Total
31 December 2008 Neither past due nor impaired
Past due but not impaired
Impaired
Total
21,496,984 9,232,183 41,441 34,712,353 1,359,592 278,177,474
– – – – – 912,582
44,520 33,572 – 50,000 – 4,651,310
21,541,504 9,265,755 41,441 34,762,353 1,359,592 283,741,366
48,591,709 15,509,155 13,750,000 422,870,891
– – – 912,582
– – – 4,779,402
48,591,709 15,509,155 13,750,000 428,562,875
In RMB’000
Placement of deposits with other financial institutions Funds loaned to other financial institutions Financial assets at fair value through profit or loss Reverse repurchase agreements Accounts receivable Loans and advances Available-for-sale financial assets (excluding equity investments) Held-to-maturity investments Receivables – bond investments Total
31 December 2007
Neither past due nor impaired
Past due but not impaired
Impaired
Total
4,010,556 2,628,782 1,477,625 33,747,752 778,069 206,160,615
– – – – – 265,602
69,920 323,771 – 51,722 – 14,609,312
4,080,476 2,952,553 1,477,625 33,799,474 778,069 221,035,529
17,597,912 15,826,998 13,450,000 295,678,309
– – – 265,602
73,040 – – 15,127,765
17,670,952 15,826,998 13,450,000 311,071,676
181
182 IFRS Financial Statements
Notes to the Financial Statements
42 Risk Disclosure
(Continued)
Credit risk (Continued) Credit quality (Continued) Neither past due nor impaired loans and advances At the balance sheet date, the aggregate amounts of neither past due nor impaired loans and advances to customers are “pass” and “special mention” loans graded in accordance with the five-tier classification. In RMB’000
31 December 2008
31 December 2007
Pass Special mention Total
275,559,031 2,618,443 278,177,474
204,432,482 1,728,133 206,160,615
Past due but not impaired loans and advances At the balance sheet date, and ageing analysis of the past due but not yet impaired loans and advances is as follows: 31 December 2008
In RMB’000
Within 1 month
1 to 2 months
2 to 3 months
Over 3 months
Corporate loans and advances
475,139
112,009
56,624
268,810
In RMB’000
Corporate loans and advances
The fair value Total of the collateral 912,582
231,650
31 December 2007
Within 1 month
1 to 2 months
2 to 3 months
Over 3 months
Total
The fair value of the collateral
94,872
55,482
12,280
102,968
265,602
173,033
Impaired loans and advances Impaired loans and advances are defined as those loans and advances having objective evidence of impairment as a result of one or more events that occur after initial recognition, resulting in an impact on the estimated future cash flows of loans and advances that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and the situation where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. The fair value of the collateral that the Company holds relating to corporate loans and advances individually determined to be impaired at 31 December 2008 amounted to RMB 859 million (31 December 2007: RMB 1,988 million). The carrying amount of loans and advances that would otherwise be past due or impaired and whose terms have been renegotiated is as follows: In RMB’000
31 December 2008
31 December 2007
Loans and advances to customers
215,638
390,718
Liquidity risk Liquidity risk is the risk that the Company will be unable to meet its payment obligations when they fall due. The risk is attributable to any mismatch in amounts and terms between assets and liabilities. To limit the risk, management has arranged diversified funding sources, and monitors loans and deposit balances on a daily basis. The Company also maintains a portfolio of highly marketable assets that can be easily liquidated in the event of an unforeseen interruption of cash flows. Furthermore, the Company performs stress testing regularly to assess and identify the actions that can meet the payment obligations under different critical scenarios.
Annual report 2008 Shenzhen Development Bank
42 Risk Disclosure
(Continued)
Liquidity risk (Continued) At the balance sheet date, the remaining contractual maturity analysis of the Company’s financial liabilities (based on contractual undiscounted cash flows) was as follows: 31 December 2008
In RMB’000
Amounts due to other financial institutions (Note 1) Financial liabilities at fair value through profit or loss and derivative financial liabilities Derivative financial instruments Contractual amounts payable Contractual amounts receivable Accounts payable Customer deposits Subordinated bonds payable Other financial liabilities Total undiscounted financial liabilities
Overdue/ On demand
Within 1 month
1 to 3 months
12,283,928 47,033,925 19,854,362
3 months to 1 year 1 to 5 years Over 5 years
Undated
Total
3,394,422
–
–
– 82,566,637
39,325
–
–
–
– 2,500,170 1,107,226 484,693 4,844 – (2,495,298 ) (1,093,466 ) (449,571 ) – – 25,243 482,385 39,269 – 125,935,704 48,911,972 60,430,312 96,550,156 37,119,340 – – 370,537 93,363 9,843,008 620,318 60 947,503 176,041 176,381 138,839,950 95,976,555 82,098,859 100,327,698 47,143,573
– – – 2 – 56,937 56,939
–
483
–
39,808
– 4,096,933 – (4,038,335 ) – 546,897 – 368,947,486 – 10,306,908 – 1,977,240 – 464,443,574
Note: 1. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
In RMB’000
31 December 2007 Overdue/ On demand
Within 1 month
1 to 3 months
3 months to 1 year
Amounts due to other financial institutions (Note 1) 27,167,521 17,475,221 5,152,738 1,526,586 Financial liabilities at fair value through profit or loss and derivative financial liabilitie – – 690,015 516,118 Derivative financial instruments Contractual amounts payable – 2,626,943 1,273,982 2,545,114 Contractual amounts receivable – (2,613,136 ) (1,230,390 ) (2,413,286 ) Accounts payable – 53,173 66,653 239,319 Customer deposits 106,168,886 40,621,695 49,282,780 70,122,182 Other financial liabilities 723,493 887,713 546,389 307,496 Total undiscounted financial liabilities 134,059,900 59,051,609 55,782,167 72,843,529
1 to 5 years Over 5 years
Undated
Total
–
–
–
51,322,066
43,103
–
–
1,249,236
65,946 – – 20,188,968 36,342 20,334,359
– – – 318 – 318
– 6,511,985 – (6,256,812 ) – 359,145 – 286,384,829 – 2,501,433 – 342,071,882
Note: 1. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
Market risk Market risk is the risk of loss, in respect of the Company’s on or off-balance sheet activities, arising from adverse movements in market rates including foreign exchange rates, interest rate, commodity prices and stock prices. Market risk arises from both the Company’s trading and non-trading businesses. The aim of market risk management of the Company is to mitigate undue losses of income and equity, and simultaneously, to reduce the Company’s exposure to the volatility inherent in financial instruments. The Company considers the market risk arising from commodity or stock prices in respect of its investment portfolio is immaterial. The Company’s Risk Management Committee and the Asset and Liability Management Committee are responsible for setting up market risk management policies, establishing market risk management objectives and determining market risk limits. The Asset and Liability Management Committee is responsible for controlling the volume, structure, interest rate and liquidity of the Company’s business. The Company’s Financial Information and Asset and Liability Management Department discharges the daily market risk monitoring function on behalf of the Asset and Liability Management Committee, including the determination of reasonable levels of market risk exposures, monitoring the daily treasury operation and proposing adjustments to the maturity profile of the assets and liabilities and the interest rate structure. Gap analysis is the key method used by the Company to monitor the market risk of its non-trading business activities. This method measures the impact of interest rate changes on income, with interest-earning assets and interest-bearing liabilities grouped by their respective re-pricing bands for the calculation of the re-pricing gap. By multiplying this position with an assumed interest rate change, an approximate effect on the net interest income resulting from the assumed interest rate change is quantified.
183
184 IFRS Financial Statements
Notes to the Financial Statements
42 Risk Disclosure
(Continued)
Market risk (Continued) The market risk management information system is being developed for further improvement in market risk management measures. Financial derivative transactions entered into by the Company primarily provide effective economic hedges to other financial instruments held by the Company for the mitigation of interest and exchange rate risks. In the opinion of management, as the market risk of the Company’s trading business activities is not material, the Company has not separately disclosed quantitative information about exposure to market risk arising from the trading portfolio. Currency risk The Company's foreign exchange risk exposure mainly comprises exposures from the mismatch of foreign currency assets and liabilities, and off-balance sheet foreign exchange position arisen from derivative transactions. The currency risk of the Company mainly arises from loans and advances, investments and deposits denominated in foreign currencies. The Company has set limits on positions by currency. Positions are monitored on a daily basis and hedging strategies are used to ensure positions are maintained within established limits. As at 31 December 2008, the Company’s financial assets and financial liabilities by currency are analysed as follows: 31 December 2008
In RMB’000
RMB
USD
HKD
Others
Total
39,228,570 9,225 49,278,442
372,005 – 14,267,058
155,085 – 964,733
12,241 – 960,605 6
39,767,901 9,225 65,470,838
241,558 238,826 277,718,781 48,796,114 15,009,244 13,750,000 279,672 1,915,446 5,361,111 451,826,989
89,615 1,108,327 3,736,356 972 452,928 – – – 154,191 20,181,452
833 12,439 217,667 – – – – – 16,037 1,366,794
101,413
80,066
833
33
182,345
79,726,137
2,568,477
64,533
–
82,359,147
48,440 – 346,651,180 7,964,282 6,498,739 440,888,778
48,771 507,483 10,959,758 – 81,888 14,166,377
9 – 1,923,193 – 14,020 2,001,755
21,729 10,938,211
4,633 6,015,075
9 (634,961 )
645 82,465
27,016 16,400,790
5,961,351
(5,911,075 )
197,768
(47,636 )
200,408
Not applicable
28,366
(438,017 )
35,441 Not applicable
180,573,370
3,085,518
17,499
444,294 184,120,681
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Investments in associates Property and equipment Others Total assets Including: Impact of fair value of foreign exchange derivative financial instruments
186 332,192 – 1,359,592 41,883 281,714,687 – 48,797,086 46,983 15,509,155 – 13,750,000 – 279,672 – 1,915,446 3,040 5,534,379 1,064,938 474,440,173
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Subordinated bonds payable Others Total liabilities Including: Impact of fair value of foreign exchange derivative financial instruments Net position of assets and liabilities Notional amount of foreign exchange derivative financial instruments Net position of foreign currency (Note 3) Off-balance sheet credit commitment
798 98,018 – 507,483 979,905 360,514,036 – 7,964,282 1,770 6,596,417 982,473 458,039,383
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
3. The net position of foreign currency comprised the related net position of assets and liabilities (excluding the fair value of foreign exchange derivatives and the non-monetary assets and liabilities) and the notional amount of foreign exchange derivatives.
Annual report 2008 Shenzhen Development Bank
42 Risk Disclosure
(Continued)
Market risk (Continued) Currency risk (Continued) As at 31 December 2007, the Company’s financial assets and financial liabilities by currency are analysed as follows:
31 December 2007
In RMB’000
RMB
USD
HKD
Others
Total
39,982,987 8,200 36,512,797
455,463 – 2,894,457
277,444 – 572,489
10,493 – 445,528
40,726,387 8,200 40,425,271
1,725,970 – 209,581,235 17,888,091 15,261,646 13,450,000 1,710,094 4,656,256 340,777,276
30,696 778,069 4,570,397 139,426 542,929 – – 116,023 9,527,460
8,660 – 761,477 – 22,423 – – 32,650 1,675,143
4,115 – 98,456 – – – – 890 559,482
1,769,441 778,069 215,011,565 18,027,517 15,826,998 13,450,000 1,710,094 4,805,819 352,539,361
161,794
11
202
4,115
166,122
49,269,603
1,774,301
112,440
–
51,156,344
1,332,219 – 270,811,155 5,126,495 326,539,472
153,975 340,297 7,764,505 97,309 10,130,387
13,918 – 2,061,236 31,520 2,219,114
1,718 – 640,085 2,522 644,325
1,501,830 340,297 281,276,981 5,257,846 339,533,298
139 14,237,804
128,667 (602,927 )
9,080 (543,971 )
1,718 (84,843 )
139,604 13,006,063
(1,006,099 )
460,252
558,098
(3 )
12,248
Not applicable
(37,351 )
23,005
(87,243 ) Not applicable
132,199,399
3,201,181
79,942
294,687
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Property and equipment Others Total assets Including: Impact of fair value of foreign exchange financial instruments
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Others Total liabilities Including: Impact of fair value of foreign exchange financial instruments Net position of assets and liabilities Notional amount of foreign exchange derivative financial instruments Net position of foreign currency (Note 3) Off-balance sheet credit commitment
135,775,209
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial nstitutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
3. The net position of foreign currency comprised the related net position of assets and liabilities (excluding the fair value of foreign exchange derivatives and the non-monetary assets and liabilities) and the notional amount of foreign exchange derivatives.
The table below indicates the sensitivity analysis of exchange rate changes of the currencies to which the Company had significant exposure on its monetary assets and liabilities and its forecast cash flows. The analysis calculates the effect of a reasonably possible movement in the exchange rates against the RMB, with all other variables held constant on profit before tax. A negative amount in the table reflects a potential net reduction in profit before tax, while a positive amount reflects a net potential increase. As the Company has no cash flow hedges and has only a minimal amount of available-for-sale equity instruments denominated in foreign currencies, changes in exchange rates do not have any material potential impact on the equity. CURRENCY USD HKD
31 December 2008 Change in exchange rate in %
Effect on profit before tax
+/-1 +/-1
+/-284 –/+4,380
185
186 IFRS Financial Statements
Notes to the Financial Statements
42 Risk Disclosure
(Continued)
Market risk (Continued) Currency risk (Continued) CURRENCY
31 December 2007
Change in exchange rate in %
Effect on profit before tax
+/-8 +/-8
–/+2,988 +/-1,840
USD HKD
Interest rate risk The Company’s interest rate risk mainly arises from the mismatch of contractual maturity or re-pricing dates between interest-earning assets and interest-bearing liabilities. The interest-earning assets and interest-bearing liabilities of the Company are mainly denominated in RMB. The PBOC sets a cap and a floor on interest rates on deposits and loans, respectively. The Company manages its interest rate risk by adjusting the composition of assets and liabilities, monitoring indicators such as the interest rate sensitivity gap on a regular basis and measuring risk exposure in accordance with the re-pricing characteristics of assets and liabilities. The Asset and Liability Management Committee meets regularly to discuss future movements in interest rates and manages interest rate risk exposures by adjusting the composition of the assets and liabilities. As at 31 December 2008, the contractual re-pricing dates or maturity dates, whichever were earlier, of the Company’s financial assets and financial liabilities are analysed as follows: 31 December 2008
In RMB’000
Within 3 months
3 months to 1 year 1 to 5 years
More than 5 years
Non-interest bearing
Total
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Investments in associates Property and equipment Others Total assets
38,671,784 –
– –
– –
– –
1,096,117 9,225
39,767,901 9,225
42,794,464
22,676,374
–
–
–
65,470,838
– 1,053,623 136,284,356 5,677,900 946,344 – – – – 225,428,471
41,441 65,822 138,707,587 27,529,814 5,547,784 – – – – 194,568,822
– – 6,144,749 10,196,378 8,499,347 13,750,000 – – – 38,590,474
– – 577,995 5,187,617 515,680 – – – – 6,281,292
290,751 240,147 – 205,377 – – 279,672 1,915,446 5,534,379 9,571,114
332,192 1,359,592 281,714,687 48,797,086 15,509,155 13,750,000 279,672 1,915,446 5,534,379 474,440,173
78,992,335
3,356,887
–
–
9,925
82,359,147
– 442,000 240,037,645 498,195 – 319,970,175 (94,541,704 )
39,420 65,483 86,149,026 – – 89,610,816 104,958,006
– – 33,050,066 7,466,087 – 40,516,153 (1,925,679 )
– – 2 – – 2 6,281,290
58,598 – 1,277,297 – 6,596,417 7,942,237 Not applicable
98,018 507,483 360,514,036 7,964,282 6,596,417 458,039,383 Not applicable
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Subordinated bonds payable Others Total liabilities Interest rate risk exposure
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
Annual report 2008 Shenzhen Development Bank
42 Risk Disclosure
(Continued)
Market risk (Continued) Interest rate risk (Continued) As at 31 December 2007, the contractual re-pricing dates or maturity dates, whichever were earlier, of the Company’s financial assets and financial liabilities are analysed as follows:
31 December 2007
In RMB’000
Within 3 months
3 months to 1 year 1 to 5 years
More than 5 years
Non-interestbearing
Total
ASSETS Cash on hand and due from the Central Bank Precious metals Amounts due from other financial institutions (Note 1) Financial assets at fair value through profit or loss and derivative financial assets Accounts receivable Loans and advances Available-for-sale financial assets Held-to-maturity investments Receivables – bond investments Property and equipment Others Total assets
39,308,438 –
– –
– –
– –
1,417,949 8,200
40,726,387 8,200
36,982,611
2,952,660
490,000
–
–
40,425,271
857,867 509,370 98,461,358 7,063,115 600,387 – – – 183,783,146
569,758 268,699 109,379,700 4,738,453 4,659,390 – – – 122,568,660
– – 6,340,160 4,998,178 6,279,872 13,450,000 – – 31,558,210
50,000 – 830,347 841,206 4,287,349 – – – 6,008,902
291,816 – – 386,565 – – 1,710,094 4,805,819 8,620,443
1,769,441 778,069 215,011,565 18,027,517 15,826,998 13,450,000 1,710,094 4,805,819 352,539,361
49,692,464
1,463,880
–
–
–
51,156,344
690,015 113,974 197,468,485 – 247,964,938 (64,181,792 )
550,390 226,323 65,092,412 – 67,333,005 55,235,655
6,252 – 17,481,005 – 17,487,257 14,070,953
– – 315 – 315 6,008,587
255,173 – 1,234,764 5,257,846 6,747,783 Not applicable
1,501,830 340,297 281,276,981 5,257,846 339,533,298 Not applicable
LIABILITIES Amounts due to other financial institutions (Note 2) Financial liabilities at fair value through profit or loss and derivative financial liabilities Accounts payable Customer deposits Others Total liabilities Interest rate risk exposure
Notes: 1. Amounts due from other financial institutions included financial assets of placement of deposits with other financial institutions, funds loaned to other financial institutions and reverse repurchase agreements.
2. Amounts due to other financial institutions included financial liabilities of placement of deposits from other financial institutions, funds borrowed from other financial institutions and repurchase agreements.
The Company principally uses sensitivity analysis to measure and control interest rate risk. In respect of the financial assets and liabilities at fair value through profit or loss, in the opinion of management, the interest rate risk to the Company arising from this portfolio is not significant. For other financial assets and liabilities, the Company mainly uses gap analysis to measure and control the related interest rate risk. As at 31 December 2008 and 31 December 2007, the gap analyses of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) are as follows:
31 December 2008
31 December 2007
Changes in interest rate (basis point)
Changes in interest rate (basis point)
In RMB’000
–100
+100
–100
+100
Effect on the net interest income increase/(decrease)
433,655
(433,655 )
355,998
(355,998 )
Effect on equity increase/(decrease)
649,171
(649,171 )
90,170
(90,170 )
The above gap analyses assume that the interest rate risk profile of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) remains static.
187
188 IFRS Financial Statements
Notes to the Financial Statements
42 Risk Disclosure
(Continued)
Market risk (Continued) Interest rate risk (Continued) The sensitivity of the net interest income is the effect of a reasonable possible change in interest rates on the net interest income for one year, in respect of the financial assets and liabilities (excluding financial assets and liabilities at fair value through profit or loss) held at the balance sheet date. The sensitivity of equity is calculated by revaluing the year end portfolio of fixed-rate available-for-sale financial assets, based on a reasonable possible change in interest rates. The above sensitivity analyses are based on the following assumptions: (i) all assets and liabilities that are re-priced/due within three months (inclusive), and between three months and one year (inclusive) are assumed to be re-priced in the mid of the respective bands; and (ii) there are parallel shifts in the yield curve. Regarding to the above assumptions, the effect on the net interest income and equity as a result of the actual increases or decreases in interest rates may differ from that of the above sensitivity analyses.
Fair value of financial instruments The following table summarises the carrying values and the fair values of receivables, held-to-maturity debt securities and subordinated bonds for which their fair values have not been presented or disclosed above: 31 December 2008
In RMB’000
Carrying value
Fair value
Receivables – bond investments Held-to-maturity debt securities Subordinated bonds payable
13,750,000 15,509,155 7,964,282
13,926,630 16,017,550 8,574,308
31 December 2007
In RMB’000
Carrying value
Fair value
Receivables – bond investments Held-to-maturity debt securities
13,450,000 15,826,998
13,388,444 15,246,058
Subject to the existence of an active market, such as an authorised securities exchange, the market value is the best reflection of the fair value of financial instruments. As there is no available market value for certain financial assets and liabilities held and issued by the Company, the discounted cash flow method or other valuation methods described below are adopted to determine the fair values of these assets and liabilities: (1) The receivables are non-transferable. The fair values of these receivables are estimated on the bases of pricing models or discounted cash flows. (2) The fair value of held-to-maturity debt securities and subordinated bonds are determined with reference to the available market values. If quoted market prices are not available, fair values are estimated on the bases of pricing models or discounted cash flows. All of the above-mentioned assumptions and methods provide a consistent basis for the calculation of the fair values of the Company’s assets and liabilities. However, other institutions may use different assumptions and methods. Therefore, the fair values disclosed by different financial institutions may not be entirely comparable. Financial instruments, for which their carrying amounts are the reasonable approximation of their fair values because, for example, they are short term in nature or are re-priced to current market rates frequently, are as follows: Assets
Liabilities
Cash and due from the Central Bank Placements of deposits with other financial institutions Funds loaned to other financial institutions Reverse repurchase agreements Loans and advances Other financial assets
Placement of deposits from other financial institutions Funds borrowed from other financial institutions Repurchase agreements Customer deposits Other financial liabilities
Annual report 2008 Shenzhen Development Bank
42 Risk Disclosure
(Continued)
Fair value of financial instruments (Continued) The following table shows an analysis of financial instruments recorded at fair value.
31 December 2008
Quoted In RMB’000 market price
Valuation techniques – market observable inputs
Valuation techniques – non-market observable inputs
Total
– – 57,659 57,659
41,441 290,751 48,601,709 48,933,901
– – – –
41,441 290,751 48,659,368 48,991,560
– – –
39,420 58,598 98,018
– – –
39,420 58,598 98,018
Quoted In RMB’000 market price
Valuation techniques – market observable inputs
Valuation techniques – non-market observable inputs
Total
– – 134,617 134,617
1,477,625 291,816 17,640,952 19,410,393
– – – –
1,477,625 291,816 17,775,569 19,545,010
– – –
1,246,657 255,173 1,501,830
– – –
1,246,657 255,173 1,501,830
FINANCIAL ASSETS Financial assets at fair value through profit or loss Derivative financial assets Available-for-sale financial assets Total
FINANCIAL LIABILITIES Financial liabilities at fair value through profit or loss Derivative financial liabilities Total
31 December 2007
FINANCIAL ASSETS Financial assets at fair value through profit or loss Derivative financial assets Available-for-sale financial assets Total
FINANCIAL LIABILITIES Financial liabilities at fair value through profit or loss Derivative financial liabilities Total
43 Related Party Relationships and Transactions Details of the Company’s major shareholder are as follows: NAME Newbridge Asia AIV III, L.P.
Place of registration
Percentage of equity interest held (%)
31 December 2008
31 December 2007
Delaware, USA
16.76
16.70
Newbridge Asia AIV III, L.P. is an investment fund whose register form is a limited partnership and its registered capital is USD724 million. It focuses on strategic investment. It was established on 22 June 2000 and its initial existing period is 10 years. The ultimate controlling parties of Newbridge Asia AIV III, L.P. are Mr. David Bonderman, Mr. James G. Coulter and Mr. Richard C. Blum. The Company’s former subsidiary, Shenzhen Yuan Sheng Industrial Co., Limited, was disposed of during the year.
189
190 IFRS Financial Statements
Notes to the Financial Statements
43 Related Party Relationships and Transactions
(Continued)
The related party transactions between the Company and the key management personnel during the year are listed below: LOANS In RMB’000
2008
Balance at beginning of the year Increase during the year Decrease during the year Balance at end of the year
712 – (169 ) 543
Interest income on loans
9
20
In RMB’000
2008
2007
Balance at beginning of the year Increase during the year Decrease during the year Balance at end of the year
18,616 116,066 (127,257 ) 7,425
Interest expenses on deposits
40
2007 – 800 (88 ) 712
At the year end of 2008, the annual interest rates of these loan transactions ranged from 1.62% to 1.8%. DEPOSITS 10,786 89,627 (81,797 ) 18,616 29
These deposit transactions were under normal business terms and conditions and were processed under normal procedures. As at 31 December 2008, the Company has authorised a total credit facility of RMB 2.602 billion (31 December 2007: RMB 2.772 billion) for entities relating to the key management personnel of the Company and their close family members, which included an outstanding loan balance amounting to RMB 1.089 billion (31 December 2007: RMB 1.19 billion) and an outstanding facility of the off-balance sheet items amounting to RMB 0.267 billion (31 December 2007: RMB 0.39 billion). Details of the compensation for key management personnel are as follows: In RMB’000
31 December 2008
31 December 2007
Salaries and other short-term employee benefits Post-employment benefits Other long-term employee benefits Termination benefits Deferred bonus accrual (Note) Total
43,071 665 – – 28,884 72,620
70,156 556 – – 6,278 76,990
Note: The amount of deferred bonus is determined based on the indicators of asset quality and profitability and the share price of the Company; and will be settled in cash in accordance with the terms of the arrangement. No payment has been made by the Company since the set up of the deferred bonus schemes.
44 Post Balance Sheet Events Up to the date that these financial statements are authorised for issue, there were no other significant post balance sheet events which required disclosure or adjustment to the financial statements.
45 Comparative Figures Certain comparative figures have been reclassified to conform with the current year’s presentation.
46 Approval of the Financial Statements The financial statements were approved and authorised for issue by the board of directors on 19 March 2009.
Annual report 2008 Shenzhen Development Bank
Internal Control Self-Appraisal Report According to the requirement of the Law of the People's Republic of China on Commercial Banks, the Guidelines for Internal control of Commercial Banks, and the Shenzhen Stock Exchange Guidelines upon Internal Controls of Listed Companies, the Bank has formulated a set of risk management rules, procedures and mechanism with the consideration of risk prevention and prudent operation. The sufficient, effective and independent internal control system has been built up, which enable the Bank continued to develop healthily in all business areas and effectively prevented financial risk.
A Overview In 2008, management, under the guidance of the BOD and its special committees, further improved internal controls. Management believes that there are no material weaknesses in the Bank’s internal controls. Nonetheless, the Bank will continue to improve its internal controls in areas such as accounting, branch operations and information technology.
B Material Internal Control Activities 1 Related Party Transactions The Bank established and implemented Shenzhen Development Bank Related Party Transaction Policy, in which the review authorities and procedures are stipulated. The significant RPT must be reported to AC and BOD for approval; CCO or CEO has the authority to approve the RPT under certain amount but need to report the transaction approved to AC and BoD regularly. In 2008 RPT the total number of deals, the maximum amount for a single deal, standards and processes of approving, reviewing and filing RPTs of SDB all strictly followed the Policy and also were in compliance with regulatory stipulations.
2 Guarantee Guarantee business is an ordinary banking business approved by PBOC and CBRC. The Bank has paid much attention to risk management of the business by strictly following related operational processes and approval procedures. Risks in the guarantee business are under control. In 2008, except for opening guarantee letters, the Bank did not have any significant guarantee transactions that were not approved by the Board of Directors.
3 Use of raised capital In 2008, the Bank issued call warrants in accordance with the Proposal for Call Warrants Issuance of Shenzhen Development Bank Co., Ltd, which were approved at the 2007 1st Extraordinary Shareholders’ Meeting & Relevant Shareholders’ Meeting and by the China Securities Regulatory Commission. As of 27 December 2008, a total amount of RMB 1.812 billion was raised, which has been used to supplement capital after deducting related expenses. Ernst & Young has provided the corresponding capital verification report (E&Y (2008) Yan #60438538_H04). In 2008, the Bank issued secondary debentures in accordance with the Proposal for secondary debentures of Shenzhen Development Bank Co., Ltd., which were approved at the 2007 2nd Extraordinary Shareholders’ Meeting. A total amount of RMB 8 billion was raised, which has been used to supplement affiliated capital after deducting related expenses.
4 Significant investments In this reporting period the Bank did not conduct any material investment projects.
5 Information Release The Bank formulated and implemented Administrative Rules for the Release of Information for Shenzhen Development Bank, in which the scope and content of significant information is clearly defined. The chairman was designated as the first responsible person for information releases and the BOD Office was the directly responsible person. Principles, areas of responsibilities, procedures and other related matters have been clarified. In 2008 the Bank released all public information in a timely manner strictly following the rules, and ensured the information was released in a timely, accurate, legal, authentic and integrated manner.
6 Restructuring HO Depts. & Streamlining Decision Making Process and Responsibilities SDB started the “Project Excellence” which is the internal renovation program of HO in July 2008 and carried out in November. The projects include the improvement of the organization structure and responsibility of HO, the HO official documentation management, the development of new products, the approval management, advertising management, budget management and the optimization of other material management system. The plans help the bank enhance the efficiency of HO management.
7 Operation Management Reform and Control on Operation In order to prevent operational risk, improve operation efficiency and quality, and enhance the service quality, SBD practiced renovation on operation management in 2008. For the operation management, the Bank establishes “H.O–Branch–Sub-branch” vertical management structure, meanwhile, the bank integrated the back-office function of accounting clearance, retail, treasury and inter-bank business, and established integrated platform for business operating. The Bank launched “Operation Process Re-engineering” program to streamline, diagnose, and analyze operation process, and made the reform plan, in an effort to improve risk prevention mechanism. The Bank has
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192 Internal Control Self-Appraisal Report
earnestly and actively promoted the program and implemented it at some branches as pilot. Significant interim achievement has been accomplished. For the management manuals stipulation, the Bank has refined the current policies, and established the new operation system framework including staff management, elements management, accounts management, IT system management, authorization management, and monitoring management to meet the requirement of operation management and business development. In the IT construction, the Bank set up new standards of operation control on the systems, and stressed the teller card management The Bank centralized authorization management on teller’s access to system, tightened the authorization of transaction control, and strengthened the improvement and optimization of IT system to enhance the IT support for operation. In the operational risk monitoring aspect, the Bank renovated the monitoring, conducted KRIs monitoring and analysis, built up a system for dynamic monitoring, carried out operational risk sweep, and incorporated the dynamic monitoring into review, guiding, and post-supervision. The Bank established operational risk monitoring system with three levels of H.O–Branch–Sub-branch to monitor, identify and control the operational risk. In the meanwhile, the Bank established Operation and Control of New Product (Business) Committee to standardize the process and strengthen the internal control on new business operation. While practicing operation management reform, the Bank has been working on intensifying operational risk control and achieved considerable accomplishment. In 2008, the bank successfully prevented 11 cases which could have caused a potential loss of RMB 53.51 million.
8 Controls on Finance and Accounting Information Vertical management structures have been established in the finance and accounting areas: a financial officer was assigned to each branch and an accounting manager was assigned to each outlet. The Bank standardized the reimbursement procedure by implementing a series of management guidance to enhance the internal control and improve the leaning management efficiency. Meanwhile, the Bank implemented Capital Expenditure Management Manuals to ensure the authenticity, reasonableness and completeness of the expenditure. In 2008, the Bank made all efforts on detailed management and intensified all kinds of accounting practice, resulting in the costs being reduced effectively and the total G&A expenses within year-budget. The Bank improved and refined the system construction to reduce the manual work and improve work efficiency, launched the management accounting system to complete the summary of capital expenditure budget in 2008, The bank has developed and tested SAP2 managerial accounting system and assets/liabilities management system to improve the financial information quality and financial analysis ability, enhance the control and supervising ability so that it can meet the requirement of the accuracy of financial management.
9 Controls on Credit Risk Vertical credit risk management structure was built up. With reference to international best practices, SDB improved the overall risk management system. The bank established Credit Portfolio Management Committee to study and decide on important credit management policies. Based on the principle of “Separating credit administrations from credit review”, independent credit approval centers were established in both the head office and the branches to enhance portfolio management and monitoring of important loans. Business control lines were set up to target important loans such as government-related loans, medium and long-term loans, real estate loans and so on; the Bank strengthened credit assignment on Related Legal Entities. Portfolio indicators for the important loans were monitored on a monthly basis to control the total origination volumes. A post-loan monitoring mechanism was established. Meanwhile, in an effort to achieve the year-target for asset quality, the Bank conducted serious performance evaluation on business units and personnel at key posts with respect to asset quality. Professional NPL team was set up in 2005 to integrate resources, conduct intensive workouts and boost the pace of recoveries.
10 Controls on Treasury business Procedures were set up to improve the monitoring and control of liquidity risk. In 2008, with the Bank facing the challenge the global finance crisis, SDB control strictly various risks and develop low risk business. The bank improved the monitoring of net cash flow, liquidity indicators, the liquidity gap and cash reserves. In addition, management conducted stress tests of liquidity, in an effort to prevent liquidity risk. The Bank refined its Asset Liability Management System in order to improve the quality of its dynamic and scenario analytics and other management tools. With respect to market risk and portfolio management, the Bank has developed a regular monitoring process. The Bank emphasized the balance between risk and the speed of new product development. For RMB trading, the Bank controls the average duration and over-night credit limits. For the foreign exchange and broker businesses, the Bank reduced the over-night liquidity risk exposure.
11 Controls on IT According to our IT management policies, the Bank made its IT strategic plan in 2008, upgraded IT service management, performed a CMMI information security rating, reviewed policies and procedures, etc, all with the focus of improving operational effectiveness. i Revise the net structure overall and update the principal network to make sure our network the rationale, safety, stability, reliability and expansibility with mix-links, high bind-width on logic structure, physical structure, safety structure and visit structure.
Annual report 2008 Shenzhen Development Bank
ii Complete the set-up of magnetic tape storehouse to realize the back-up method as one to more to reduce the cost of back-up and drop the strength of operation and difficulty of management. iii Established or refined: the data back up mechanism, regular maintenance schedules, record keeping for equipment and system failures, and procedures for the disposal of hardware. Also provided standards for the maintenance of electronic equipment to ensure their sound operation. iv
Plan and design on storage network and volume to improve the level and efficiency of storage management.
v
Enhanced mainframe operations and network administration to ensure the safe and smooth operations.
vi Refined the emergency plan for our information systems in order to ensure the data safety to open the platform application system, stress the centralization and conforming of open platform application, improve the level and efficiency of storage management. The plan prepared data and technology for ODS system and the date management, client information inquiring system and so on.
12 Internal audit and compliance management Internal Audit A vertical management structure has been put in place and the Internal Audit Department directly reports to AC, which complies with Internal Audit Guidance for Banking Institutions. IA dept. completed all audit projects required by AC in 2008, and the audit findings and issues have been reported to AC and BOS. The IA Dept is responsible for follow-up rectification on audit findings and issues in a timely manner. In 2008, some of the audit projects included: assessment/audit of the IC quality of the Bank, compliance risks, RPT management across the bank, full/follow-up audit projects on 7 branches & sub-branches; 24 special audit projects in the areas of Retail Banking, Finance & Accounting, Corporate Banking, Trade Finance, and IT; Departure audit on 123 staff; spot audits with coverage 100% including seals & authenticity code management, authorization cards (counter staff cards), blank vouchers, cash box, reconciliation, job rotation, and environmental security. IA Dept. also conducted survey on ethics and responsibility. Meanwhile, following the supervising instructions from CBRC, audit issues from external audit firm and IA Dept, in December 2008, the supervising team of IA Dept did on-field inspection branches with coverage of 100% on the rectify of issues found before. All typical issues identified in audits have been circulated to branches to facilitate them to identify and rectify the similar issues, avoiding the repeating of the similar problems. To satisfy auditing demand, the Bank recruited professionals with financial skills and banking industry. By the end of 2008, there were 82 employees in IA. In addition, to enhance the monitoring to branches and out-lets by flying audit. SDB set up the guest audit team composed of the backbone of accounting department of branches and outlets, which focused on the audit of seals & authenticity code management, authorization cards (counter staff cards), blank vouchers, cash box, reconciliation, job rotation, and environmental security and so on. Compliance Management In 2008, the Bank improved the compliance management structure, established compliance committee on the key business-lines such as company line, retailing line, inter-bank line and IT line, to undertake compliance work. and enrich the compliance team of branches and outlets. By the end of 2008, there were 71 employees in compliance department, increasing 29% compared to that of 2007. For management on compliance risk, SDB carried out the “woodpecker” plan to make prevent, control and suggestion, which require that we should set up effective operation procedure with launching all staff’s participation. Meanwhile, the bank should develop overall procedure to follow up every suggestion, eliminate various potential risks in order to raise the management level on internal control. SDB has conducted Anti-Money-Laundry special investigations, improved the reporting quality, and completed the AML systems development in order to improve the quality and effectiveness of AML reporting and optimize the AML system. Meanwhile, we develop the “negative system” to support the counter-terrorism financing and improve the ability to counter terrorism financing. For the construction of compliance culture, series of compliance posters have been circulated to publicize the compliance concept from Basel Committee, CBRC and the bank’s corporate compliance culture, to create a sound compliance atmosphere and send out a new compliance image.
C The whistle-blowing policies and procedures In the Bank’s policies “Whistle-blowing Management Manuals” and the “Implementation of Whistle-blowing Management”, it further improved the mechanisms for “whistle-blowing”, which helps the Bank identify information of any violation in ethics and take actions to ensure the safety of assets and the reputation of the Bank. In 2008 the Bank was not publicly punished by CBRC or Shenzhen Stock Exchange. In a summary, the Bank has placed significant emphasis on the building of internal control systems as business scale grows. The internal control system covered step of business process and operation, and the management and control of all departments/branches of the Bank. Although there are some areas need to be further improved, both the BOD and the management team has awareness of these issues and has scheduled improvement measures, In overall, the internal control system of the Bank is sufficient, sound and effective, and the internal control mechanism is sound. No material internal control deficiencies exist.
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Assessment Report on Internal Control E&Y Hua Ming (2009) Special No. 60438538 H02 The board of directors of Shenzhen Development, We audited the Self-appraisal Report on Internal Control of Shenzhen Development Bank prepared by the senior management of Shenzhen Development Bank (“your Bank”) under your delegation, with respect to establishment and implementation of internal control related to financial statement at 31 December 2008 of your Bank as stated in the Report. Your Bank made self-appraisal on the availability of establishment and implementation of internal control related to financial statement at 31 December 2008 in accordance with the relevant rules on normative standard set out in the MOF Internal Accounting Control Regulation – Basic Regulation (Pilot Version). It is responsibility of senior management of your Bank to establish an integral and reasonable internal control system and maintain its availability, ensure the availability of establishment and implementation of internal control related to financial statement as stated in the said Self-appraisal Report, and also guarantee the authenticity and integrity of the said Self-appraisal Report. Our audit is based on the Guidance Opinion about Internal Control Audit issued by the China Institute of Certified Public Accountants. In the process of auditing, we implemented the procedures including inquiry, test, assessment on establishment and implementation of internal control, and other procedures as we deemed necessary. We believe that our audit provided reasonable basis for issuing opinion. Subject to inherent limit of internal control, there is possibility of mistakes incurred by errors or frauds but not observed. Besides, there is certain risk of deducing the future availability of internal control on the basis of current assessment result, because the change of environment may lead to inappropriate internal control, or decline in compliance with internal policies and procedures. Therefore, the valid internal control in this term may not guarantee the validity in the future. We are of the view that the internal control related to financial statement of your Bank as stated in the said Self-appraisal Report is in line with the relevant rules on normative standard set out in the MOF Internal Accounting Control Regulation – Basic Regulation (Pilot Version) in all major aspects. The Report is just for the purpose of filing with relevant departments of the China Securities Regulatory Commission and the Shenzhen Stock Exchange. Any aftereffect resulted from misusage will be irrelevant with the CPA executing the business and the accounting firm.
Ernest & Young Hua Ming
CICPA
People's Republic of China Beijing, 19 March 2009
Zhang Xiaodong
CICPA
Steven Xu
Annual report 2008 Shenzhen Development Bank
Glossary IFRS financial statements
Financial statements prepared under International Financial Reporting Standards. These are the Bank’s supplementary financial statements and are used for reference purposes.
PRC GAAP financial statements
A general term for financial statements prepared under PRC Accounting Standards for business enterprises. PRC GAAP financial statements represent the statutory financial statements of the Bank
Total lending
Unless otherwise stated, total lending represents total loans plus discounted bills and trade finance exposures.
CSRC
The China Securities Regulatory Commission
CBRC
The China Banking Regulatory Commission
Domestic CPA
Refers to Ernst & Young Hua Ming, the CPA firm responsible for auditing our statutory financial statements.
Overseas CPA
Refers to Ernst & Young, the CPA firm responsible for auditing our IFRS financial statements.
NPL
Non-performing loan. A non-performing loans is any loan classified as substandard grade, doubtful or loss.
Capital Adequacy Ratio (CAR)
Net capital / Total risk-weighted assets
Core Capital Adequacy Ratio (CCAR)
Core capital / Total risk-weighted assets. Core capital is defined as total capital less supplementary capital arising from sub-ordinated debt and any provision surplus.
Repossessed assets
Repossessed assets are assets such as properties, vehicles and equipment which are recovered from borrowers whose loans are deemed to be non-performing loans, and who have failed to settle an obligation in cash upon the maturity of the loan, thereby prompting the Bank to foreclose.
MOF
The Ministry of Finance, PRC
CPC
Communist Party of China
195
196
Written Confirmation of Directors and Senior Management on Annual Report 2008 In accordance with Securities Law and No. 2 Regulation on Contents and Format of Information Disclosure on Publicly Listed Companies – Contents and Format of Annual Report (Revised in 2007), we, as directors and senior executives of Shenzhen Development Bank Co., Ltd., provide the following opinions after studying and checking Annual Report 2007 of Bank and its “Abstract”: 1. The Bank operates in strict accordance with Accounting Standards for Enterprises, Accounting System for Enterprises and Accounting System for Financial Enterprises, and the Bank’s 2007 Annual Report and its abstract give a fair view of the financial position and operating results of the Bank. 2. Ernst & Young Huaming Accounting firm and Ernst & Young Accounting firm have audited the annual financial statement of the Bank in compliance with the national and international audit standards, have audited the annual financial statement of the Bank, and have issued standard unqualified audit reports. 3. We undertake that the information disclosed in Bank’s 2007Annual Report and its abstract is true, accurate and complete and that this Annual Report contains no false record, misrepresentation or material omissions, and we are severally and jointly liable for the truthfulness, accuracy and completeness thereof.
Reference Documents 1. Financial statements bearing the signatures and stamps of the chairman of BoD, chief executive officer and officer-in-charge of the accounting institution. 2. Original copies of the audit reports bearing the chop of the accounting firm and signatures of CPAs. 3. Original copies of all documents and notices disclosed on the China Securities, Securities Times and Shanghai Securities by the Bank during the report period.
Board of Directors of Shenzhen Development Bank 20 March 2009
Working Together A strong team culture and spirit is at the heart of SDB’s success. This is a journey in which SDB is committed to overcoming any challenge and achieving even higher rewards. As one team SDB is forging ahead with one unifying service standard, strategy and objective. Our approach to human resources is based on best Chinese and international practices. Staff training, retention and advancement are all important to our business success. SDB endeavours to provide the best working environment for our staff and to foster their personal development so that they are capable of meeting challenges in our constantly-changing world.
SDB took part in the event “Sailing farther, growing together – Voyage along the Coast on the 30th anniversary of the Reform” The sailboat “SDB” sailed along the wind to the China sea frontiers for four months.
Annual Report 2008
Total Deposits
Profit before Provision and Tax
million Yuan
million Yuan
360,514
400,000
Shenzhen Development Bank
201,816
200,000
Annual Report 2008
www.sdb.com.cn
232,206
5,776
6,000
166,897
4,027
4,000
100,000
2,440
2,411
2004
2005
2,000
0
2004
2006
2005
0
2008
2007
2006
2007
2008
Responsive Adaptive Total Loans
Cost Income Ratio
million Yuan
283,741
300,000
46.80
47.64
40
221,036
200,000 150,000
Percentage % 50
41.41
250,000 182,182
38.93
35.99
30
155,848 126,195
20
100,000
10
50,000 0
Shenzhen Development Bank Tower, No. 5047 Shennan Road East, Shenzhen, Guangdong Province, China Postal Code: 518001 Telephone: +86 (755) 8208 8888 Service Line: 95501
8,138
8,000
281,277
300,000
10,000
2004
2006
2005
2008
2007
Capital Adequacy Ratio and Core Capital Adequacy Ratio
0
2004
Percentage %
Percentage % 12
8 5.77 5.77
6 3.70 3.71
4
5.27
3.71 3.68
2007
2008
11.40 9.33
10
7.99
8
5.64
6 4
2.30 2.32 2
2
0
0
2004
2006
NPL Ratio
10
8.58
2005
2005
Capital Adequacy Ratio
2006
2007
2008
Core Capital Adequacy Ratio
0.68 2004
2005
2006
2007
2008
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