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This annual report is printed on environmentally friendly paper.此年度報告以環保紙張印製。

20152015 AnnualReport年報

年報 A

nnual R

ep

ort 2

015

Prosper with Prudence Expand with Innovations

卓越穩健拓展創新

pp

P i h P d卓卓越越穩穩健健

VisionTo become a first-class medium to large bank in Hong Kong

Mission• Provide better service to our customers

• Create higher value to our shareholders

• Build up broader career path for our associates

• Assume full responsibilities as a corporate citizen

Core Values• Integrity

• Impartiality

• Prudence

• Creation

28/F, CCB Tower, 3 Connaught Road Central, Central, Hong Kong

Tel: 3918 6939 www.asia.ccb.com

This annual report is printed on environmentally friendly paper.

Contents

About Us

About CCB

Our History

To Customers and Shareholders

Board of Directors and Executive Management

Subsidiary, Joint Venture and Associated Companies

Corporate Social Responsibility

Awards and Honors

Report of the Directors

Business Review

Independent Auditor’s Report

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

Unaudited Supplementary Financial Information

Service Network

02

03

04

06

07

15

16

18

20

24

28

30

31

32

34

35

135

165

02 China Construction Bank (Asia) Corporation Limited • Annual Report 2015

CHINA CONSTRUCTION BANK (ASIA)

China Construction Bank (Asia) Corporation Limited “CCB (Asia)” is the retail and commercial business platform of China Construction Bank Corporation “CCB” in Hong Kong, offering a wide array of banking products and services to customers, including consumer banking services, commercial banking services, corporate banking services, private banking services and cross-border financial services, etc.

For consumer banking, in addition to providing conventional transactional, foreign exchange and cash services, CCB (Asia) also offers deposits, loans (including personal loans, credit cards loan, residential mortgages and auto-financing), securities agency and investments, consolidated banking, insurance, RMB services, credit card, electronic banking services and safe deposit boxes services.

For commercial banking, CCB (Asia) provides a range of financial products and services to corporations, securities firms and small and medium sized enterprises, including bilateral commercial loans, syndicated loans, SME loans, trade finance, residential and commercial mortgages, FX products, machinery and equipment leasing, stockbroker financing as well as electronic banking, corporate wealth management, cash management and deposit services. CCB (Asia) also capitalizes on the extensive branch network of CCB to create synergistic businesses such as RMB cross-border collaboration services including SBLC loans, LC discount, RMB deposit, remittance and foreign exchange.

For corporate banking, CCB (Asia) provides bilateral loans, syndicated loans, club deals and trade finance to blue-chip companies and large local corporations. Besides, CCB (Asia) also offers comprehensive financing solutions to large state-owned enterprises and Chinese conglomerates, including the provision of credit enhancement service in supporting domestic companies in Mainland China to issue its offshore corporate bond. Fully supported by CCB, CCB (Asia) launches synergistic businesses such as entrusted payment, export account receivable risk participation, discount against draft avalization and more. Other business developments of corporate banking include the aircraft finance business and the emerging business in the Shenzhen Qianhai Financial District and the Shanghai Pilot Free Trade Zone.

In addition, CCB (Asia)’s treasury business includes inter-bank money market transactions and investment in debt instruments. The bank also trades in debt instruments, derivatives and foreign currency for its own account. The Treasury carries out customer driven derivatives, such as foreign currency transactions.

About Us

03China Construction Bank (Asia) Corporation Limited • Annual Report 2015

CHINA CONSTRUCTION BANK

Founded in 1954 and headquartered in Beijing, CCB is a leading commercial bank in China renowned globally.

Adhering to the development strategy of “integration, multi-function, intensiveness, innovative banking and smart

banking”, CCB is committed to serving the real economy and strengthening comprehensive risk management.

CCB has achieved consistent and balanced development in scale, quality and effectiveness, with key financial

indicators and market value in the leading position among peers.

As at the end of 2015, CCB’s total assets stood at RMB18.35 trillion. Net profit amounted to RMB228,900 million

and key financial indicators including ROA, ROE and capital adequacy ratio took the lead in the global banking

sector. As an integrated banking group, CCB has established subsidiaries in non-banking business fields like

investment banking, mutual funds, trusts, leasing, insurance, futures and pension.

With over 14,000 branches and sub-branches in Mainland China, CCB provides services to over 3 million

corporate clients and 300 million individual customers. It has well-established close cooperative relationships

with a large number of high-end customers and outperforming companies from industries which are strategically

important to China’s economy. As of the end of 2015, the bank has established over 130 outlets overseas

including 27 tier one organizations, covering 25 countries and regions. The overseas network includes 18

branches in Hong Kong, Singapore, Frankfurt, Johannesburg, Tokyo, Seoul, New York, Ho Chi Minh City, Sydney,

Taipei, Luxembourg, Macau, Toronto, London, Paris, Barcelona, Amsterdam, Milan and Zurich, and seven wholly-

owned subsidiaries including CCB (Asia), CCB London, CCB Russia, CCB Dubai, CCB Europe, CCB New Zealand

and CCB International.

The bank was listed on the Stock Exchange of Hong Kong Limited (Stock Code: 939) in October 2005 and the

Shanghai Stock Exchange (SSE Code: 601939) in September 2007.

About CCB

Our Historyy


1941 Hong Kong was occup ied by

Japan in World War II. The bank’s

business was suspended again.

1966 Shanghai Fire & Marine Insurance

Co. Ltd. became a subsidiary

of The Bank of Canton and was

renamed Hongkong & Shanghai

Insurance Company L imi ted .

Later, QBE Insurance Group in

Australia became a shareholder of

Hongkong & Shanghai Insurance

Company Limited and renamed

i t QBE Hongkong & Shanghai

Insurance Limited, which is an

associated company of CCB (Asia)

today.

1912 CCB (Asia) originated from The

B a n k o f C a n t o n w h i c h w a s

estab l i shed in Hong Kong in

1912 by Chinese businessmen,

including Li Yuk Tong and Look

Pong Shan from San Francisco

in the United States. It was the

f irst local ly incorporated bank

owned by Chinese people. Led by

the chairman and chief manager

Look Pong Shan, the bank was

headquartered at 6 Des Voeux

Road Central, Hong Kong, which

is now the f lagship branch of

CCB (Asia).

The Bank of Canton’s head office was located at 6 Des Voeux Road Central

1936 T h e b a n k ’ s b u s i n e s s w a s

suspended due to the Great

D e p r e s s i o n . T h r o u g h r e -

capitalization by the prominent

Huo and Soong fami l ies , the

bank finally resumed business on

November 23 and was chaired by

Soong Tse Ven.

The bank expanded its business

t o M a c a u b y s e t t i n g u p a

subsidiary named Kuong Tung

N g a n H o n g , w h i c h w a s t h e

f i rst Chinese-owned f inancia l

institution registered in Macau.

The Bank of Canton resumed its business through re-capitalization by the Soong and Huo families in 1936, chaired by Soong Tse Ven (fourth from right)

1945 World War II ended and Hong

Kong was liberated. Former staff

rebuilt The Bank of Canton and

its banking business was quickly

back on track. It soon became the

largest Chinese-owned remittance

and foreign exchange bank in

Hong Kong in the post-war era.

Celebration of the 35th Anniversary of The Bank of Canton (1947)

Our Historyy


1984 Security Pacif ic National Bank

acquired a 100% interest in The

Bank of Canton and renamed it

Security Pacif ic Asian Bank in

1988.

The inauguration of Security Pacific Asian Bank

2006 China Construction Bank acquired

a 1 0 0 % i n t e r e s t i n B a n k o f

Amer ica (As ia ) f rom Bank of

America and renamed it China

Construction Bank (Asia).

The inauguration of CCB (Asia) (2007)

2009 Acqu i red A IG F inance (Hong

Kong ) and renamed i t Ch ina

Construction Bank (Asia) Finance,

CCB (Asia) has become one of

the largest credit card issuing

institutions in Hong Kong.

Signing ceremony of the acquisition of AIG Finance (Hong Kong) (2009)

T h e t h r e e b u i l d i n g s o f C C B

in Hong Kong were of f ic ia l l y

inaugurated. CCB Tower is the

head office of CCB (Asia), located

at Central; CCB Centre is the mid-

to-back office of CCB’s entities in

Hong Kong, situated in Kowloon

Bay; CCB Hong Kong Training

Centre is CCB’s first offshore

training site, located at Sai Wan.

(From left to right) CCB Centre, CCB Tower & CCB Hong Kong Training Centre

2013 Business integration of CCB Hong

Kong Branch and CCB (Asia).

CCB Hong Kong Business Integration Ceremony (2013)

1992 Secur i t y Pac i f i c Co rpo ra t i on

merged with Bank of America

Corporation. Security Pacific Asian

Bank became a whol ly-owned

subsidiary of Bank of America

Corporation and was renamed

Bank of America (Asia) in 1993.

To Customers and Shareholderss


We are delighted to announce that the consolidated net profit after tax for China Construction Bank (Asia) Corporation Limited

[“CCB (Asia)”] reached HKD2,501 million for the year ended December 31, 2015 , an increase of 46.2% as

compared to 2014.

Total operating income of CCB (Asia) for the year 2015 amounted to HKD6,320 million, an increase of

23.3% as compared with that of 2014. Net interest income and non-interest income were HKD5,349

million and HKD970 million, represented an increase of 12.9% and 150.3% respectively. Under effective

cost controls, the amount of total operating expenses moderately increased by 5.2% to HKD2,810 million

while the cost-to-income ratio reduced to 44.5%. In 2015, the loan impairment charges increased by 57.2%

to HKD452 million was mainly due to higher allowances made for commercial loans and trade finance

businesses.

Total consolidated assets of CCB (Asia) stood at HKD507.5 billion as at December 31, 2015, a mild increase

of 1.5% from HKD500.2 billion at the end of 2014. Available-for-sale financial assets grew by HKD26 billion,

or 43.7%, to HKD85.7 billion. These securities have low risk profiles, and are mainly issued by governments

and banks. Advances to customers and trade bills slightly dropped by 2.9% to HKD238.1 billion. Asset

quality was continuously maintained at a satisfactory level. Impaired advances to customers represented

0.11% of the total advances to customers. Impaired advances and trade bills coverage ratio was 298.7% as

at December 31, 2015, an increase of 32.1 percentage points when compared to the position as at the end

of 2014. Deposits from customers increased by 11.3% to HKD305.6 billion whereas certificates of deposit

and other debt securities issued dropped by 21.7% to HKD52.5 billion.

As at December 31, 2015, CCB (Asia)’s Common Equity Tier 1 Capital Ratio and Tier 1 Capital Ratio were

both 13.7% while the Total Capital Ratio was 16.6%. Average liquidity coverage ratio for the year 2015

was 140.0%. All these ratios were maintained at sound levels, which were well above the regulatory

requirements.

With the full support from our parent bank, China Construction Bank, and unremitting efforts of our board

of directors and staff, CCB (Asia) manages to maintain a steady growth. Taking this opportunity, we would

like to express our sincere gratitude to our customers and shareholders for your continuous support!

Wang Hongzhang Mao Yumin

Chairman Chief Executive Officer

Hong Kong, April 1, 2016

Board of Directors and Executive ManagementtIn 2015


BOARD OF DIRECTORS

WANG Hongzhang Chairman, Non-Executive Director

MAO Yumin Chief Executive Officer, Executive Director

JIANG Xianzhou Alternate Chief Executive, Executive Director

Miranda KWOK Pui Fong President, Executive Director

KANG Yi Non-Executive Director

HU Zhanghong Non-Executive Director

LI Weiping (resigned on June 19, 2015) Non-Executive Director

YING Chengkang Non-Executive Director

XUE Shengli (appointed on June 19, 2015) Non-Executive Director

Bucky FONG Wing Foon Independent Non-Executive Director

James S. DICKSON LEACH Independent Non-Executive Director

CHAN Wing Kee GBS, OBE, JP Independent Non-Executive Director

Lord Peter LEVENE Independent Non-Executive Director

SECRETARIES

Betty CHAN Pik Ha Secretary to the Board of Directors

Ted YAU Ka Bo Company Secretary



MAO Yumin Chief Executive Officer, Executive Director

Mr. Mao, aged 61, has over 30 years of experience in the banking and financial sector. Prior to the current position as the chief executive officer of CCB (Asia) since July 2013, he was the chief executive of China Construction Bank Hong Kong Branch from 2011 to 2013; the chief investment officer of China Construction Bank from 2007 to 2010; the chairman of CCB (London) from 2008 to 2011; and the vice chairman of CCB (Asia) from 2007 to 2011.

Before rejoining China Construction Bank in 2007, Mr. Mao was the executive director and chief executive officer of Shanghai Ai Jian Corporation Limited from 2006 to 2007, which is a public listed company on the Shanghai Stock Exchange, with core businesses in financial trust, securities, real estate, asset management, etc. From 2003 to 2006, he was the senior vice president and the executive director of Cathay International Holdings Limited, which is listed on the London Stock Exchange. From 1997 to 2003, Mr. Mao was the chief executive of China Construction Bank Hong Kong Branch, leading the branch’s commercial business developed swiftly. He was the deputy general manager of International Department of China Construction Bank from 1992 to 1994 and promoted to the general manager of the Department from 1994 to 1996.

Mr. Mao received his bachelor’s degree in finance from Jiangxi University of Finance and Economics in 1983 and completed the Program for Management Development (the 70th Session) in Graduate School of Business Administration of Harvard University, the USA in 1995.

WANG Hongzhang Chairman, Non-Executive Director

Mr. Wang, aged 61, has served as chairman and non-executive director of the Bank since July 2, 2013 and is the chairman of the Strategy and Corporate Governance Committee of the Board of Directors of the Bank. Mr. Wang has served as chairman and executive director of China Construction Bank Corporation since January 2012, and chairman of Sino-German Bausparkasse Co., Ltd. since July 2012. From November 2003 to November 2011, Mr. Wang was chief disciplinary officer of the People’s Bank of China (the “PBOC”). From June 2000 to November 2003, Mr. Wang was the president of Chengdu Branch of the PBOC and administrator of Sichuan Branch of the State Administration of Foreign Exchange. From April 1996 to June 2000, Mr. Wang was deputy director-general of the Supervision Bureau and director-general of the Internal Auditing Department of the PBOC. From November 1989 to April 1996, Mr. Wang served on various positions including assistant president of Qingdao Branch, deputy director of the General Administration Office, deputy director of the Finance Planning Department and general manager of the Banking Business Department of Industrial and Commercial Bank of China (“ICBC”). From January 1984 to November 1989, Mr. Wang worked in the Industrial and Commercial Credit Department and the General Administration Office of ICBC. From September 1978 to January 1984, Mr. Wang worked in the Credit Bureau, Savings Bureau and Industrial and Commercial Credit Department of the PBOC. Mr. Wang is a senior economist and a certified public accountant. Mr. Wang graduated from Liaoning Finance and Economics College with a bachelor’s degree in finance in 1978, and obtained his master’s degree in economics from Dongbei University of Finance and Economics in 1997.



Miranda KWOK Pui Fong President, Executive Director

Ms. Kwok, aged 55, is the president and executive director of the Bank. Ms. Kwok has been serving the Bank for over 30 years. Prior to July 2013, when China Construction Bank reorganized its Hong Kong business by integrating CCB (Asia) and the Hong Kong Branch, she had been the president and chief executive officer of the Bank. Ms. Kwok is a member of the Bank’s senior management and Executive Committee that support the overall bank management and corporate governance, enabling the sustainable development of the Bank. Ms. Kwok also serves as member of the asset and liabilities committee and credit committee of the Bank.

Ms. Kwok’s banking career began in 1984 when she joined Bank of America, Hong Kong as a management trainee and had worked in diversified capacities of various divisions. In 1996, she was transferred to Bank of America (Asia) (renamed to CCB (Asia) in December 2006) from Bank of America, Hong Kong, and was promoted to chief credit officer and senior vice president, responsible for credit approval and portfolio review, special assets management, collection, credit policies and procedures etc. She was appointed chief risk officer in 2005 to manage credit, market and operational risk. In addition, she assumed responsibilities over compliance, internal control and the corporate secretariat. From 2008 to 2010, she assumed the role of head of Consumer Banking in charge of retail business, credit card and wealth management in Hong Kong and Macau.

Ms. Kwok is the vice president of the Hong Kong Institute of Bankers, the director of Hong Kong Mortgage Corporation Limited and a member of the Securities and Futures Appeals Tribunal, the Public Affairs Forum, the Competition Commission and the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Review Tribunal, as well as being a general committee member of the Federation of Hong Kong Industries. Ms. Kwok graduated with an honorable bachelor of social sciences degree in economics and management from the University of Hong Kong in 1984, and graduated with honors from the Graduate School of Retail Bank Management of the Consumer Bankers Association in the United States in July 2001.

JIANG Xianzhou Alternate Chief Executive, Executive Director

Mr. Jiang, aged 54, is the alternate chief executive and executive director of the Bank. He has over 29 years of experience in the financial sector, specializing in commercial banking and asset management. Before taking over his current position in 2014, he was the Chairman of China Construction Bank Principal Asset Management Co. Ltd., a subsidiary of China Construction Bank Corporation, from 2005 to 2014. Mr. Jiang helped spearhead the establishment of the subsidiary, which has now prospered and become a leading asset management company in the industry. Mr. Jiang has assumed numerous senior positions since joining China Construction Bank in 1986. He was promoted to deputy general manager of the Administration Office in 1995, and to deputy general manager of the International Business Department in 1997. In 2004, he took over as general manager of the Institutional Business Department and the Fund Custody Department.

Mr. Jiang graduated from Dongbei University of Finance & Economics in 1982, receiving a bachelor’s degree in Economics. He attained his master’s degree in finance from the Research Institute of Fiscal Science at the Ministry of Finance of the PRC in 1986. He went on to receive a Master of Science in International Banking at Heriot-Watt University in the UK in 1993.



LI Weiping Non-Executive Director (resigned on June 19, 2015)

Mr. Li, aged 62, served as non-executive director of the Bank during the period

from April 25, 2014 to June 19, 2015 and was a member of the Strategy and

Corporate Governance Committee of the Board of Directors and the Nomination

and Remuneration Committee of the Board of Directors of the Bank. Mr. Li served

as general manager of the Human Resources Department of China Construction

Bank Corporation (“CCB”) from August 2008 to July 2014, and acted as employee

representative supervisor of CCB and director of CCB International (Holdings)

Limited. Mr. Li assumed various positions at CCB. He was in charge of the Human

Resources Department from May 2008 to August 2008, and served as deputy

general manager of Beijing Branch from August 2005 to May 2008, deputy general

manager of Guangdong Branch from July 2001 to August 2005, and deputy general

manager of Shenzhen Branch from February 1995 to July 2001. Mr. Li is a senior

economist and graduated from Zhongnan University of Economics and Law with a

bachelor’s degree in finance.

KANG Yi Non-Executive Director

Mr. Kang, aged 49, has served as non-executive director of the Bank since July 2,

2013 and is a member of the Strategy and Corporate Governance Committee of the

Board of Directors and the Risk Committee of the Board of Directors of the Bank.

Mr. Kang is currently the general manager of the Corporate Banking Department of

China Construction Bank Corporation (“CCB”). He joined CCB in July 1988. From

April 2011 to October 2013, he served as general manager of the Personal Deposit

and Investment Department in CCB. Mr. Kang has over 27 years of substantial

banking experience. He was the general manager of the Fujian provincial branch, the

Gansu provincial branch and the Sanxia branch. Mr. Kang is a senior economist. He

received a bachelor’s degree in economics from Shanghai University of Finance and

Economics in 1988. In 1998, he also received a bachelor’s degree in law from Wuhan

University.

HU Zhanghong Non-Executive Director

Dr. Hu, aged 47, has served as non-executive director of the Bank since July 2, 2013

and is a member of the Strategy and Corporate Governance Committee of the Board

of Directors of the Bank. He is the chairman and chief executive officer of CCB

International (Holdings) Limited.

In addition to his official business functions, Dr. Hu holds positions on various

committees including chairman of the Chinese Financial Association of Hong Kong,

member of the Process Review Panel for the Securities and Futures Commission

of Hong Kong, and panel member of the Securities and Futures Appeals Tribunal

of Hong Kong. Dr. Hu also serves as co-chairman of the Committee of VC/PE, vice-

chairman of the Finance Committee of All China Youth Federation, and vice-chairman

of the Securities Committee of the Hong Kong Chinese Enterprises Association.



XUE Shengli Non-Executive Director (appointed on June 19, 2015)

Mr. Xue, aged 49, has served as non-executive director of the Bank since June 19,


Board of Directors and the Nomination and Remuneration Committee of the Board

of Directors of the Bank. He joined China Construction Bank Corporation (“CCB”)

in July 2014 as the general manager of the Human Resources Department. Prior to

joining CCB, Mr. Xue had been working in the Organization Department of the CPC

Central Committee since July 1996. From July 1987 to July 1996, Mr. Xue served

in various positions in the People’s Liberation Army. He has extensive experience

in human resources management and has completed a large number of research

studies in relation to CCB’s human resources management after he joined CCB. Mr.

Xue graduated from Jilin University in July 1987, receiving a Bachelor of Arts degree

in Chinese Language & Literature. Mr. Xue was awarded a Master of Laws degree

in Politics from Peking University in June 2005, and received a doctoral degree in

Economics with specialization in Political Economics from Jilin University in June

2012.

YING Chengkang Non-Executive Director

Mr. Ying, aged 60, has served as non-executive director of the Bank since May 8,


Board of Directors and a member of the Audit Committee of the Board of Directors

of the Bank. He served as general manager of the Asset and Liability Management

Department of China Construction Bank Corporation (“CCB”) from July 2014 to

October 2015. He was responsible for the total scale and structure management of

the CCB group’s asset and liability, capital management, fee-based business and

service pricing management, internal/external interest rate pricing management,

interest rate risk management, liquidity management, comprehensive management

of off-balance sheet business, compilation of periodic financial reports for disclosure

and other related matters.

After joining CCB in September 1987, Mr. Ying assumed various business and

management positions relating to credit, treasury and financial planning at CCB’s

Nanjing branch and Jiangsu branch. He was assigned to the Planning and Finance

Department at the Head Office from March 2001. Up till July 2008, Mr. Ying served as

the department’s deputy general manager and general manager, managing general

planning, fixed assets acquisition, centralised purchasing, financial policy, financial

application system development and other related matters. From July 2008 to July

2014, he served as general manager of the Finance and Accounting Department

of CCB, responsible for the financial management, general business planning,

performance management, cost management, accounting and reporting, financial

internal control and other related matters of the CCB group.

Mr. Ying is a senior economist, and has been granted a special government subsidy

by the State Council. He graduated from Nanjing University in 1982, receiving

a bachelor’s degree in physics. He also received a master’s degree in industrial

economics and business administration from Fudan University in July 1987. He

has over 28 years of experience in bank management, credit, planning, finance,

accounting, tax, audit and asset & liability management.



Bucky FONG Wing Foon Independent Non-Executive Director

Mr. Fong, aged 86, has served as independent non-executive director of the Bank

since April 4, 1972 and is a member of the Nomination and Remuneration Committee

of the Board of Directors of the Bank. Mr. Fong is a director of Fong Sim & Co. (Hong

Kong) Ltd., a long established trading business started by his father in 1946. The

Fong family has been associated with the Bank since the 1930’s when the family

contributed to the re-capitalisation of the Bank of Canton, the predecessor company

of the Bank. Mr. Fong graduated from the University of California with a bachelor’s

degree in June 1952.

James S. DICKSON LEACH Independent Non-Executive Director

Mr. Dickson Leach, aged 70, has served as independent non-executive director

of the Bank since August 15, 1985 and is the chairman of the Audit Committee

of the Board of Directors and a member of the Risk Committee of the Board of

Directors of the Bank. Prior to his retirement, Mr. Dickson Leach was the chairman

of Sir Elly Kadoorie & Sons Ltd., an unlisted company. He was the deputy chairman

of CLP (Holdings) Ltd. and a director of Hong Kong Aircraft Engineering Co. Ltd.

and Hong Kong & Shanghai Hotels, Ltd., all are listed companies. Since leaving

Hong Kong, he has resigned from these directorships. He is now on the board of a U.S.

private company and a Singaporean private company. He holds a master of business

administration degree from Columbia University, and is a fellow of the Institute of

Chartered Accountants in England and Wales.



CHAN Wing Kee GBS, OBE, JP Independent Non-Executive Director

Mr. Chan, aged 69, has served as independent non-executive director of the Bank

since November 1, 2002 and is the chairman of the Nomination and Remuneration

Committee of the Board of Directors of the Bank. Mr. Chan is the managing director

of Yangtzekiang Garment Limited, director of YGM Trading Limited, director of

Hong Kong Knitters Limited and independent non-executive director of China Travel

International Investment Hong Kong Limited.

Mr. Chan is a standing committee member of The 12th Chinese People’s Political

Consultative Conference of The People’s Republic of China, member of The

Selection Committee of the H.K.S.A.R., vice chairman of China Overseas Friendship

Association, chairman of Federation of Hong Kong Guangdong Community

Organisations, honorary chairman & president of Hong Kong Federation of Overseas

Chinese Associations, and council chairman of Cheng Si-Yuan (China-International)

Hepatitis Research Foundation.

He was also a deputy to The 8th and 9th National People’s Congress of The People’s

Republic of China, standing committee member of The 10th & 11th Chinese People’s

Political Consultative Conference of The People’s Republic of China, member of

Hong Kong Affairs Adviser, committee member of The Preparatory Committee of

H.K.S.A.R., member of Basic Law Consultative Committee both in Hong Kong and

Macau, member of Commission on Strategic Development of H.K.S.A.R., member of

the Judicial Officers Recommendation Commission of Hong Kong, chairman of Small

and Medium Enterprises Committee of the H.K.S.A.R., member of Textile Advisory

Board, member of Economic Council of Macau, council member of Hong Kong Trade

Development Council, chairman of HKTDC Mainland Business Advisory Committee,

member of HKTDC Hong Kong/Japan Business Co-operation Committee, president

of Chinese Manufacturers’ Association of Hong Kong, chairman of Friends of Hong

Kong Association, chairman of Textile Council of Hong Kong, president of Federation

of Hong Kong Garment Manufacturers, chairman of Hong Kong Shippers’ Council,

and chairman of The Hong Kong Exporters’ Association.

Mr. Chan graduated from Purdue University with a bachelor of science degree in

industrial engineering.

Lord Peter LEVENE Independent Non-Executive Director

Lord Levene, aged 74, has served as independent non-executive director of the Bank

since September 23, 2013 and is the chairman of the Risk Committee of the Board

of Directors and a member of the Audit Committee of the Board of Directors of the

Bank. During the period from June 2006 to June 2012, he acted as independent non-

executive director of China Construction Bank Corporation. Before that, he served

as chairman of Lloyd’s and held directorships in various other listed companies

including director of J Sainsbury plc from 2001 to 2004, and director of Deutsche

Boerse from 2004 to 2005. He is the chairman of Starr Underwriting Agents Limited

and General Dynamics (UK) Limited and a board member of Haymarket Group Ltd

and Eurotunnel SA. Lord Levene was awarded a bachelor’s degree in economics and

politics from the University of Manchester.

Board of Directors and Executive ManagementExecutive Management as of March 31, 2016


Board of Directors and Executive ManagementttExecutive Management as of March 31, 2016

EXECUTIVE MANAGEMENT

MAO Yumin Chief Executive Officer

JIANG Xianzhou Executive Director & Alternate Chief Executive

Miranda KWOK Pui Fong President & Executive Director

ZHU Feng Deputy Chief Executive

GUO Zhipeng Deputy Chief Executive

LIN Ju Deputy Chief Executive

MA Chan Chi Deputy Chief Executive & Chief Financial Officer

YANG Hao Deputy Chief Executive

Benny HA Yun Sang General Manager, Head of Corporate Banking I Division

Kenneth WONG Kwok Leung General Manager, Head of Corporate Banking II Division

Patrick LEE Yuk Wun General Manager, Head of Commercial Banking Division

Mimi LEE Yim Mei General Manager, Head of Institutional Banking Division

ZHANG Bojie General Manager, Head of Products Division

Ruby YAM Tze Ping General Manager, Head of Private Banking Division

Chris JUE Wai Ling General Manager, Head of Consumer Banking Division

Ahming LAU Chun Ming General Manager, Head of Cross-Border Financial Services Division

CHEN Dajing General Manager, Head of Credit Card & Consumer Finance Division

Sylvia NG Sau Wai General Manager, Head of Marketing Division

Ashley ZHANG Hong General Manager, Head of Treasury Division

Bacon YUEN Yiu Leung General Manager, Head of Finance Division

Phoebe LEE Suet Ching General Manager, Head of Risk Management Division

Arthur WONG Kwok Leung General Manager, Head of Information Systems Division

David WANG Zhengde General Manager, Head of Internal Audit Division

Jessie KWOK Yuen Wai General Manager, Head of General Management Office

Grace LEE Shuk Ha General Manager, Head of Human Resources Division

Edward CHIU Tak Wah General Manager, Head of Operations Division

Janette YU Pui Man General Manager, Head of Legal & Compliance Division

Subsidiary, Joint Venture and Associated CompaniessAs of March 31, 2016


SUBSIDIARY COMPANIES

CCB Nominees Limited

20/F, CCB Centre, 18 Wang Chiu Road, Kowloon Bay, Kowloon

Better Chief Limited


Hong Kong (SAR) Hotel Limited


CCB Securities Limited


CCB Properties (Hong Kong) Holdings Limited


CCB (Asia) Trustee Company Limited

G/F, 6 Des Voeux Road Central, Central, Hong Kong

CCB Hong Kong Property Management Company Limited

29/F, CCB Tower, 3 Connaught Road Central, Central, Hong Kong

CCB (Asia) Insurance Broker Limited


(Incorporated on January 21, 2016)

JOINT VENTURE COMPANY

Diamond String Limited

11/F, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon

ASSOCIATED COMPANY

QBE Hongkong & Shanghai Insurance Limited

17/F, Warwick House, West Wing, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong

Corporate Social Responsibilityy


CCB (Asia) has title-sponsored “Lifeline Express CCB (Asia) Charity Run/Walk” for five consecutive years, raising fund for Lifeline Express Hospital Train and helping Mainland China cataract patients to restore sight.

CCB (Asia) senior management and 500 staff members participated in “Lifeline Express CCB (Asia) Charity Run/Walk 2015”, joining hands to raise funds for underprivileged cataract patients in Mainland China.

CCB (Asia) originated from the first Chinese bank in Hong Kong, The Bank of Canton, with more than 100 years of

remarkable developments till now. On top of fostering a steadily progressing business, CCB (Asia) endeavors to fulfill

social responsibilities as a corporate citizen, not only title-sponsoring and supporting several local mega events, but also

pouring resources to the community and charity programs, with a view to contributing to society by promoting local

culture and helping the needy.

HELPING MAINLAND CATARACT PATIENTS TO RESTORE SIGHT

Since 2011, CCB (Asia) has title-sponsored “Lifeline Express CCB (Asia)

Charity Run/Walk” for five consecutive years, raising fund for the

impoverished cataract patients to regain sight. The Bank raised more than

HKD2.68 million for Lifeline Express Hospital Train in 2015, supporting

more than 1,300 patients to receive free surgeries and treatment. The

event was successfully held at The Clearwater Bay Golf and Country

Club in November 2015. Apart from getting support from nearly 2,500

participants, the event invited Olympic gold medalists Guo Jingjing and

Zhang Yiling to attend the Starting Ceremony and engage in the charity

walk. Every step of the guests and participants signifies the restoration

of sight step by step. Remarkably, CCB (Asia) gathered 500 staff together

with their friends and relatives to join the walk, highlighting the Bank’s

concerted efforts to serve the community, fulfill social responsibilities

of a corporate citizen, and devote resources and time to caring the

underprivileged.

Corporate Social Responsibilityy


CCB (Asia) Volunteers Team supports “Bringing Our Children a Brighter Future – Affiliated Youth Development Program” with their family members.

CCB (Asia) cares about the health of its staff members and aims to raise staff members’ awareness on healthy lifestyles.

CCB (Asia) once again cooperated with Social Enterprise “ADAM” of ADAHK to hold exhibitions for the dragon boat display and giant paddle, aiming to deepen society’s understanding towards inclusive arts.

CCB (Asia) has title-sponsored “CCB (Asia) Hong Kong International Dragon Boat Races” for 3 consecutive years, promoting Chinese traditional culture to the public.

PROMOTING CHINESE TRADITIONAL CULTURE, BRINGING INCLUSIVE ARTISTS’ TALENTS INTO FULL PLAY

CCB (Asia) has been the tit le-sponsor of the annual sports event “CCB (Asia) Hong Kong International Dragon Boat Races” held by the Hong Kong Tourism Board for three consecutive years, promoting Chinese traditional culture to the public and tourists. The 2015 Dragon Boat Races attracted around 162,000 citizens and tourists enjoying the races and captivated. Besides, following the success in 2014, CCB (Asia) once again invited artists with disabilities from Arts with the Disabled Association Hong Kong (“ADAHK”) to design spectacular dragon boat display and giant paddles. They were also exhibited in Tsim Sha Tsui Promenade during the races and in CCB Centre in Kowloon Bay after that, showing local inclusive arts to the public. In 2015, during the races, CCB (Asia) set up “CCB (Asia) Row for Charity Zone” for the first time, donating money to ADAHK according to the distances paddled by participants on the dragon boat training machines, so as to join hands with the public to raise fund for ADAHK and contribute to local inclusive arts development.

CARING FOR OUR COMMUNITY

In the aspect of community service, CCB (Asia) has supported “Bringing Our Children a Brighter Future – Affiliated Youth Development Program” organized by The Boys’ & Girls’ Clubs Association (“BGCA”) of Hong Kong for five consecutive years. The theme of 2015 program is ”Together we build with kids, together we share the fun”, promoting various wholesome activities to help the children and teenagers acquire stress relieving techniques and upkeep a healthy lifestyle. CCB (Asia)’s Corporate Volunteers were passionately devoted to such services to care for the community.

CARING FOR OUR STAFF’S HEALTH

CCB (Asia) always cares about its staff members and strives to create a joyful workplace for them. In October 2015, CCB (Asia) held “All-round Caring Week”again, bringing refreshment and health information to staff members every day during the week. The week remarkably ended with “Health Camp” where staff members proactively participated in various sports activities and enjoyed tasty healthy food.

ECHOING ENVIRONMENTAL PROTECTION

For environmental protection projects, CCB (Asia) has echoed and supported “Earth Hour” initiated by WWF for four consecutive years. The bank not only switched off non-essential lights in its offices and its outdoor illuminating signages located in Central and Tsim Sha Tsui during the designated timeslot on the event date, but also encouraged staff to support this activity at home. CCB (Asia) is also the “Earth Partner” of Friends of the Earth (Hong Kong) since 2012, contributing to the sustainable development of the future.

Awards and Honorss


JANUARY 2015

Quamnet Outstanding Enterprise Awards – Outstanding Cross-Border Financial Services 2014Quamnet

MARCH 2015

The 4th Outstanding CorporateSocial Responsibility AwardThe Mirror

MARCH 2015

Caring CompanyThe Hong Kong Council of Social Services

APRIL 2015

The 15th CAPITAL Outstanding Enterprise Awards – Outstanding RMB Banking ServicesCAPITAL

Awards and Honorss


JUNE 2015

The Outstanding Brand Awards 2015 – Banking (Credit Card Services)Economic Digest

JUNE 2015

Financial Institution Awards 2015 – Bank of the Year – Outstanding PerformanceBloomberg Businessweek/Chinese Edition

DECEMBER 2015

CAPITAL WEEKLY PROchoice Award 2015 – Corporate Social ResponsibilityCAPITAL WEEKLY

DECEMBER 2015

IFPHK Accredited Professional Financial Planning Firm 2016Institute of Financial Planners of Hong Kong

Report of the Directorss


The directors have pleasure in submitting their annual report together with the audited consolidated financial statements

for the year ended December 31, 2015.

PRINCIPAL PLACE OF BUSINESS

China Construction Bank (Asia) Corporation Limited (“the Bank”) is a licensed bank incorporated and domiciled in Hong

Kong and has its registered office and principal place of business at 28/F, CCB Tower, 3 Connaught Road Central,

Central, Hong Kong.

PRINCIPAL ACTIVITIES AND BUSINESS REVIEW

The principal activities of the Bank and its subsidiaries (collectively referred to as “the Group”) are the provision of a

range of banking and related financial services through the Bank’s branches and subsidiaries. Further discussion and

analysis of these activities as required by Schedule 5 to the Hong Kong Companies Ordinance, including a discussion

of the principal risks and uncertainties facing the Group and an indication of likely future developments in the Group’s

business, can be found in the Business Review set out on pages 24 to 27 of the Report of Directors. This discussion

forms part of this Report of Directors. Other particulars of the Bank’s subsidiaries are set out in Note 24 to the

consolidated financial statements.

CONSOLIDATED FINANCIAL STATEMENTS

The profit of the Group for the financial year ended December 31, 2015 and the state of the Bank’s and the Group’s

affairs as at that date are set out in the consolidated financial statements on pages 30 to 134.

DIVIDENDS

The directors do not recommend the payment of a final dividend for the year ended December 31, 2015 (2014: HKD Nil).

CHARITABLE DONATIONS

During the year, charitable donations made by the Group amounted to HKD1,380,000 (2014: HKD1,000,000).

CERTIFICATES OF DEPOSIT AND MEDIUM TERM NOTE ISSUED

During the year, the following notes were issued by the Bank under its Medium Term Note (”MTN”) Programme and

Certificate of Deposit (“CD”) Programme to raise funds for general corporate purposes:

Amount Issued

Consideration

received

Class Issued under HKD‘000 HKD‘000

Senior Notes MTN Programme 9,527,955 9,516,386

CDs CD Programme 32,681,378 32,573,341

42,209,333 42,089,727



EQUITY LINKED AGREEMENTS

At no time during the year was the Bank, or any of its holding company, subsidiaries or fellow subsidiaries a party to

any arrangement to enable the directors of the Bank to acquire benefits by means of the acquisition of shares in or

debentures of the Bank or any other body corporate.

DIRECTORS

(a) Directors of the Bank

The directors of the Bank during the year and up to the date of the report were:

WANG Hongzhang (Chairman)

MAO Yumin

Bucky FONG Wing Foon

James S. DICKSON LEACH

CHAN Wing Kee GBS, OBE, JP

Lord Peter LEVENE

XUE Shengli (appointed on June 19, 2015)

KANG Yi

HU Zhanghong

JIANG Chang (appointed on January 18, 2016)

JIANG Xianzhou

Miranda KWOK Pui Fong

LI Weiping (resigned on June 19, 2015)

YING Chengkang (resigned on January 18, 2016)

Pursuant to Clause 111 of the Bank’s Articles of Association, all the Directors of the Bank shall retire from office

and being eligible offer themselves for re-election at the forthcoming annual general meeting of the Bank for three

years up to the date of the annual general meeting of year 2019.

Mr. LI Weiping and Mr. YING Chengkang resigned on June 19, 2015 and January 18, 2016 respectively as non-

executive director of the Bank. Mr. LI Weiping and Mr. YING Chengkang have respectively confirmed that they

have no disagreement with the Board and nothing relating to the affairs of the Bank needed to be brought to the

attention of the shareholder of the Bank.



(b) Directors of the Bank’s subsidiaries

During the year and up to the date of this report, Mr. MAO Yumin, Mr. JIANG Xianzhou and Ms. Miranda KWOK

Pui Fong are also directors in certain subsidiaries of the Bank. Other directors of the Bank’s subsidiaries during the

year and up to the date of this report include:

CHOW Sai Keung

CHENG Tat Kin

LI Sai Cheong

Christine JUE Wai Ling

Raymond TSE (appointed on October 20, 2015)

YUEN Yiu Leung

Edward CHIU Tak Wah

LIN Ju (appointed on January 4, 2016)

KWOK Yuen Wai

YANG Hao (resigned on January 4, 2016)

DIRECTORS’ MATERIAL INTERESTS IN TRANSACTIONS, ARRANGEMENTS AND CONTRACTS

No transactions, arrangements and contracts of significance to which the Bank, or any of its holding companies,

subsidiaries, fellow subsidiaries, joint venture or associate was a party, and in which a director of the Bank had a

material interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year.

DIRECTORS’ INTERESTS IN UNDERLYING SHARES AND DEBENTURES

At no time during the year was the Bank, or any of its holding companies, subsidiaries, fellow subsidiaries, joint venture

or associate a party to any arrangement to enable the directors of the Bank to hold any interests in the shares or

debentures of, the Bank or its specified undertakings or any other body corporate.

MANAGEMENT CONTRACTS

No contracts concerning the management and administration of the whole or any substantial part of any business of the

Bank were entered into or existed during the year.

PERMITTED INDEMNITY PROVISIONS

The Articles of Association provides that every director, secretary or other officer of the Bank shall be entitled to be

indemnified by the Bank against all costs, charges, losses, expenses and liabilities incurred by him in the execution and/

or discharge of his duties and/or the exercise of his powers and/or otherwise in relation to or in connection with his

duties, powers or office. The Bank has maintained appropriate directors and officers liability insurance which provides

personal protection for the directors and management against any financial loss arising from the potential exposures

associated with supervising or managing the Bank.



STATEMENT OF COMPLIANCE

The consolidated financial statements for the year ended December 31, 2015 comply with the applicable disclosure

provisions of the Banking (Disclosure) Rules.

AUDITOR

The consolidated financial statements have been audited by PricewaterhouseCoopers who retire and being eligible,

offer themselves for re-appointment.

On behalf of the Board

WANG Hongzhang

Chairman


Business Revieww


In 2015, the global economy recorded lukewarm growth, due to high volatility in global financial and commodity markets

as well as the sharp fall in oil prices and big commodity prices. The US Federal Reserve announced its first interest

rate hike in seven years, an increase of 0.25%, as a step towards normalizing interest rates, while the RMB was added

to the Special Drawing Rights (SDR), accelerating its globalisation and increasing its investment value. In the years

immediately following the financial crisis, China acted as an engine driving global economic recovery, but recent figures

show that its economic growth has slowed and uncertainty looms in the year ahead. Facing the risks of an economic

downturn in the external environment and continuous capital outflows in emerging markets, it has cast a shadow over

the local economy. Import and export figures were disappointing, affected by weak external demand, and the residential

property market was also quiet in the fourth quarter due to factors such as the US interest rate hike.

In the shadow of a gloomy global economy, the depreciation of RMB, a volatile stock market, the start of a rate hike

cycle, the downturn of the property market, slowing retail and export markets and weak loan demand, the Bank faces

serious challenges ahead in 2016. One bright note is China’s “One Belt and One Road” initiative, a series of innovative

bilateral and regional collaborations with countries geographically involved in the initiative, through which the Bank

anticipates opportunities for local and cross-border business to sustain its long-term growth. The Bank will pursue these

opportunities by leveraging ties with our parent company China Construction Bank Corporation (“CCB”).

In 2015, the Bank’s efforts bore fruit, culminating in the strengthening of our reputation, market share and brand

awareness.

CORPORATE BANKING

In 2015, the Bank maintained the healthy development of our corporate banking business and saw an expansion

in terms of clients and total assets. An increase in cross-border collaborations fuelled further progress in our local

business, and product innovation and diversification of operations allowed us to scale up our service capacity.

The downward pressure of local and overseas economies in the second half of 2015 affected funding costs and market

demand, with RMB-denominated collaborative trade financing business being hardest hit, resulting in a slowdown of

credit growth. By seeking more low-cost funding sources and channelling clients to multi-currency loans, the Bank took

the initiative in controlling lending and kept the size of our credit portfolio stable. The Bank also prioritised syndicated

loan business, trying to increase its market share by leveraging our customer edge. In addition, we referred our clients

to CCB’s Mainland branches, boosting bilateral business cooperation.

The Bank’s credit business is expected to remain stable in 2016. We will strive to widen our customer base for deposits

and develop more low-cost deposits to maintain growth. Meanwhile, the Bank will enrich our cross-border products to

meet customer needs. This will not only enhance the customer experience, but also increase sources of deposits and

fee income.

The Bank will keep leveraging the Mainland’s economic development, as well as Hong Kong’s status as an international

financial hub, to deepen collaborations with Mainland enterprises. We will focus especially on developing collaborative

relationships with leading enterprises in the Mainland’s major industries. As Mainland implements its strategic overseas

plans such as the “One Belt and One Road” and “Going Out” initiatives, the Bank aims to provide strong support for

different enterprises in the form of excellent financial services.

Business Revieww


INSTITUTIONAL BANKING

The Bank serves three types of institutional clients including banks; non-bank financial institutions such as securities

companies, insurance companies, brokerage firms, trust companies, asset management companies and leasing

companies; government or quasi-government entities as well as public utilities. Our major services include deposits,

loans, trade financing, cash management, capital markets solutions and custody services. Through our wholly-owned

subsidiary CCB (Asia) Trustee Company Limited, we also provide trust, fund administration, investor relations and

custody services to RMB Qualified Foreign Institutional Investors ((R)QFII), RMB Qualified Domestic Institutional

Investors ((R)QDII) and funds.

While based primarily in Hong Kong and dedicated to the development strategies and goals of our parent company,

the Bank has also been tapping the liability business in Southeast Asian and other overseas markets, expanding the

scope of our services and our customer base on the back of the Mainland’s economic reform policy. For the loan asset

business, we have strived to develop more local customers, while also working with a number of local Chinese financial

institutions in establishing and expanding bilateral lending business. We have also explored business opportunities under

“One Belt and One Road” and provided support to “Going Out” Mainland customers and major construction projects so

as to continually enhance our asset scale.

In October 2014, the Bank was awarded the right to operate cross-border fund settlements and forex business for the

Shanghai-Hong Kong Stock Connect. Since then, we have become a key executor of forex for the Southbound Trading

Stocks, contributing tremendously to this milestone scheme. The Bank has also watched closely the process of “Opening

up Capital Account”, by not only hosting the “Banking and Mutual Recognition of Funds Forum”, but also helping the

southbound and northbound distribution of funds through our expanded cooperation with CCB.

Moving forward, with the Mainland’s ongoing economic transformation, as well as the acceleration of the “Going

Out” policy for Mainland financial institutions and “Coming In” for overseas entities, the scale and revenues of our

institutional business are expected to grow steadily in 2016.

COMMERCIAL BANKING

The Bank has been supportive of the local SME business development, a move that helped us successfully increase

our operating income and diversify credit risks. By absorbing the SME companies’ operating account funds, the Bank

managed to enhance deposit stability and lower funding costs. In 2015, we continued to expand our business network

through opening two new SME centres. Riding on a network of five SME centres covering Hong Kong Island, Kowloon

and the New Territories, we have further enhanced our market presence and deepened customer relationship.

In 2015, Hong Kong’s economy faced downward pressure, posing enormous challenges to our SME clients. As SMEs

are the mainstay of local economy, we are poised to strengthen our SME business development in hopes of solidifying

the SME customer base to enhance cross-selling opportunities and reinforce customer relationship.

The Bank is set to invest resources in developing the local SME business through improving and optimising the existing

SME network and resources. This will enable us to enhance market awareness, broaden the customer base and

increase business diversification.

Business Revieww


CONSUMER BANKING AND CREDIT CARD & CONSUMER FINANCE

In 2015, our consumer banking business maintained its growth momentum. Through the branch network and ATMs, as

well as other channels such as phone, mobile and internet banking, the Bank was able to provide customers with a wide

variety of products and services. The Bank is also committed to promoting a series of new businesses and network

expansions including branch expansion and relocation, as well as establishing presences in new locations. During the

last year, we set up a Personal Loan Centre in Tsim Sha Tsui and a new branch in Tai Wai as well as relocating our

Cheung Sha Wan branch to street-level. A number of branches also underwent renovation for a fresh new look and

better banking experience for customers. The Bank will continue to step up our collaborations with CCB Mainland

branches in order to seize opportunities through its extensive branch network, channels and customer base.

In addition, the Bank has been optimising our online banking functions and enhancing the customer experience through

new services such as mobile app, new ATM functions and e-cheque. We also launched a new bonus point scheme,

offering special gift redemption every season, upgrading the birthday privileges of packaged banking, in hopes of

attracting more mid-to-high end customers and ensuring customer satisfaction.

The Bank’s credit card business also grew steadily as we launched a new series of new products to successfully acquire

more new customers. Although the new rate hike cycle in the US and the uncertain global economic situation dampened

the market sentiment, the Bank managed to sustain growth in our mortgage, auto loan and personal loan businesses

through further optimisation of our business structure.

Looking ahead, the Bank aims to continue optimising products, channels and processes as well as conducting

collaborations with CCB branches to build greater customer base and bolster customer relationship. We hope to boost

our business revenues through providing more comprehensive and quality services.

PRIVATE BANKING

In 2015, the Bank recorded significant growth in income, loans, deposits, number of customers and assets under

management for our private banking business. Total revenue including interest income and fee income, grew by

130% compared to 2014. Loans jumped 142% and deposits rose 10%, while customer numbers and assets under

management grew by 43% and 41% respectively.

In the past year, the Bank upgraded our investment and insurance product platforms, including launch of a trading

service for preference shares, which enabled private banking customers to subscribe to the preference shares issued by

CCB in December 2015.

The Bank’s development strategy in cross-border finances has been well implemented in private banking and in 2015

the Bank continued to work with the Mainland, Hong Kong and overseas branches. By combining the advantages of

each, we were able to provide customers with one-stop services both locally and internationally meeting the needs of

individuals, families and enterprises. Effective collaborations not only strengthen the relationship between customers

and CCB, but also enhance the customer loyalty and deliver a multi-win situation.

The Bank is ready to explore collaborations with the Mainland and overseas branches, and expand our customer base in

Hong Kong and Southeast Asia in a legal and compliant manner. We will also enrich our product platform, and develop

our investment consultation and customer relationship teams to ensure delivery of highly professional and effective

services.

Business Revieww


TREASURY BUSINESS

In 2015, the Bank had breakthroughs in our offshore RMB market business, broker transactions of money and foreign

exchange, sales and trading of financial products, market-making activities and customer services. In addition to

establishing a broader cooperative relationship in treasury business with peers, corporate and institutional clients,

the Bank was also able to provide local retail and SME clients with more flexible and diversified RMB investment and

financing products. Since the fourth quarter of 2014, when the Hong Kong Monetary Authority designated the Bank as

one of the Primary Liquidity Providers (PLP) for the offshore RMB market in Hong Kong, the Bank has focused on the

businesses of CNH market-making transactions in foreign exchange and money market, the investment of dim-sum

bonds and refining RMB financing channel, in order to assume the responsibilities of a PLP. The Bank launched RMB-

denominated equity-linked products, while also introducing the forex margin trading using RMB as pledged deposits and

dealing currency. For the Bank’s intermediary business, we successfully seized the opportunity to greatly increase the

transaction volume and income of our forex business. We also established debt capital market business to help clients

expand their financing channels, which not only optimised our existing services, but also helped boost our fee income

growth.

The market is expected to face a wide variety of challenges. In particular, the US Federal Reserve’s rate hike in late

2015, its first in nearly ten years, is set to bring marked changes to the low-interest business environment of the past

decade. The offshore RMB exchange rate is expected to fluctuate further – borne out by the overnight interbank rate

soaring over 100% once already in early 2016. The Bank will endeavour to take appropriate measures against risks,

further explore fee income sources, refine our debt securities portfolio management and increase our interest income.

Independent Auditor’s Reportt


To the Members of China Construction Bank (Asia) Corporation Limited

(incorporated in Hong Kong with limited liability)

We have audited the consolidated financial statements of China Construction Bank (Asia) Corporation Limited (the “Bank”)

and its subsidiaries set out on pages 30 to 134, which comprise the consolidated statement of financial position as at

December 31, 2015, and the consolidated statement of comprehensive income, the consolidated statement of changes

in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting

policies and other explanatory information.

DIRECTORS’ RESPONSIBIL ITY FOR THE CONSOLIDATED F INANCIAL STATEMENTS

The directors of the Bank are responsible for the preparation of consolidated financial statements that give a true and

fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified

Public Accountants, and the Hong Kong Companies Ordinance, and for such internal control as the directors determine

is necessary to enable the preparation of consolidated financial statements that are free from material misstatement,

whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these consolidated financial statements based on our audit and to report

our opinion solely to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance 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 Hong Kong Standards on Auditing issued by the Hong Kong Institute of

Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform

the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated

financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the

risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those

risk assessments, the auditor considers internal control relevant to the entity’s preparation of consolidated financial

statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the effectiveness of the 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 consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit

opinion.

Independent Auditor’s Reportt


OPINION

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Bank and

its subsidiaries as at December 31, 2015, and of their financial performance and cash flows for the year then ended

in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in compliance with the

Hong Kong Companies Ordinance.

PricewaterhouseCoopers

Certified Public Accountants


Consolidated Statement of Comprehensive IncomeeFor the year ended December 31, 2015(Expressed in thousands of Hong Kong dollars, unless otherwise stated)


Note 2015 2014

Interest income 12,865,718 11,580,535

Interest expense (7,516,254) (6,840,780)

Net interest income 6 5,349,464 4,739,755

Net fees and commission income 7 1,074,586 1,047,734

Net trading losses 8 (139,279) (710,100)

Net (losses)/gains from financial instruments designated at fair value

through profit or loss 9 (76,542) 8,324

Net gains from disposal of available-for-sale financial instruments 60,181 –

Other operating income 10 51,450 41,680

Total operating income 6,319,860 5,127,393

Operating expenses 11 (2,809,559) (2,669,609)

Operating profit before impairment losses 3,510,301 2,457,784

Impairment allowances released/(charged) on advances to banks 671 (671)

Impairment allowances charged on loans and advances 12 (451,809) (287,446)

Impairment allowances (charged)/released to repossessed assets (170) 216

Operating profit 3,058,993 2,169,883

Loss on sale of subsidiaries 42 – (53,661)

Share of profits of an associate 26 28,486 38,047

Share of profits of a jointly controlled entity 25 43,338 43,168

Profit before taxation 3,130,817 2,197,437

Taxation 14 (630,121) (487,404)

Profit for the year 2,500,696 1,710,033

Other comprehensive income for the year net of tax

Items that may be reclassified subsequently to profit or loss:

Net movement in investment revaluation reserve 16 38,801 55,231

Net movement in exchange reserve 16 – 121

Total comprehensive income for the year 2,539,497 1,765,385

The accompanying notes are the integral part of these consolidated financial statements.

Consolidated Statement of Financial PositionnAs at December 31, 2015(Expressed in thousands of Hong Kong dollars, unless otherwise stated)


Note 2015 2014

ASSETS

Cash and balances with banks and central banks 18 82,020,035 56,747,605

Placements with banks maturing between one and twelve months 59,036,367 107,302,864

Advances to banks 1,360,748 19,707,016

Advances to customers and trade bills 19 238,090,313 245,169,462

Financial instruments measured at fair value through profit or loss 20 3,807 51,036

Available-for-sale financial assets 21 85,695,259 59,649,364

Held-to-maturity investments 22 5,473,670 –

Derivative financial instruments 23 6,289,264 1,060,654

Interest in a joint venture 25 1,937,240 1,893,902

Interest in an associate 26 265,914 237,428

Deferred tax assets 27 112,428 116,732

Fixed assets 28 3,563,991 3,627,061

Other assets 29 23,659,467 4,670,744

Total assets 507,508,503 500,233,868

LIABILITIES

Deposits and balances of banks 30 80,965,080 101,946,271

Deposits from customers 31 305,625,384 274,504,268

Certificates of deposit and other debt securities issued 32 52,501,887 67,018,583

Derivative financial instruments 23 6,744,725 1,053,151

Current tax payable 27 146,728 168,676

Deferred tax liabilities 27 18,276 20,042

Other liabilities 33 9,897,287 6,463,486

Subordinated debts 34 5,776,365 5,766,117

Total liabilities 461,675,732 456,940,594

EQUITY

Share capital 35 28,827,843 28,827,843

Reserves 17,004,928 14,465,431

Total equity 45,832,771 43,293,274

Total equity and liabilities 507,508,503 500,233,868

Approved and authorised for issue by the Board of Directors on April 1, 2016.

WANG Hongzhang MAO Yumin

Chairman Executive Director and Chief Executive Officer


Consolidated Statement of Changes in EquityyFor the year ended December 31, 2015(Expressed in thousands of Hong Kong dollars, unless otherwise stated)


Note

Share

capital

General

reserve

Investment

revaluation

reserve and

hedging

reserve

Exchange

reserve

Regulatory

reserve

Other

reserve

Merger

reserve

Retained

profits Total

Balance as at January 1, 2015 28,827,843 750,956 37,637 – 2,360,788 15,913 62,262 11,237,875 43,293,274

Changes in equity for 2015:

Profit for the year – – – – – – – 2,500,696 2,500,696

Other comprehensive income 16 – – 38,801 – – – – – 38,801

Total comprehensive income – – 38,801 – – – – 2,500,696 2,539,497

Regulatory reserve – – – – (52,864) – – 52,864 –

Balance as at December 31, 2015 28,827,843 750,956 76,438 – 2,307,924 15,913 62,262 13,791,435 45,832,771


Consolidated Statement of Changes in EquityyFor the year ended December 31, 2015(Expressed in thousands of Hong Kong dollars, unless otherwise stated)


Note

Share

capital

General

reserve

Investment

revaluation

reserve and

hedging

reserve

Exchange

reserve

Regulatory

reserve

Other

reserve

Merger

reserve

Retained

profits Total

Balance as at January 1, 2014 28,827,843 750,956 (18,127) (237) 2,467,044 15,913 62,262 9,422,235 41,527,889

Changes in equity for 2014:

Profit for the year – – – – – – – 1,710,033 1,710,033

Other comprehensive income 16 – – 55,231 121 – – – – 55,352

Total comprehensive income – – 55,231 121 – – – 1,710,033 1,765,385

Regulatory reserve – – – – 11,220 – – (11,220) –

Disposal of a subsidiary 42 – – 533 116 (117,476) – – 116,827 –

Balance as at December 31, 2014 28,827,843 750,956 37,637 – 2,360,788 15,913 62,262 11,237,875 43,293,274


Consolidated Statement of Cash FlowssFor the year ended December 31, 2015(Expressed in thousands of Hong Kong dollars, unless otherwise stated)


Note 2015 2014

Net cash inflow from operations 41(a) 82,809,604 45,977,020

Hong Kong Profits Tax paid (352,247) (376,670)

Mainland tax paid (297,284) (166,005)

Net cash inflow from operating activities 82,160,073 45,434,345

Investing activities

Purchase of available-for-sale financial assets (80,142,414) (56,837,368)

Purchase of held-to-maturity investments (5,473,643) –

Proceeds received from redemption and disposal of available-for-sale

financial assets 51,748,536 16,608,473

Purchase of property and equipment (180,073) (287,031)

Dividends received from listed and unlisted investments 3,977 3,748

Net cash outflow from disposal of subsidiaries (net of cash and

cash equivalents disposed) 42 – (1,038,695)

Net cash outflow from investing activities (34,043,617) (41,550,873)

Financing activities

Issuance of subordinated debts – 5,761,633

Interest paid on subordinated debts (247,171) –

Net cash (outflow)/inflow from financing activities (247,171) 5,761,633

Increase in cash and cash equivalents 47,869,285 9,645,105

Cash and cash equivalents as at January 1 59,496,073 50,514,862

Effect of foreign exchange rate changes (914,266) (663,894)

Cash and cash equivalents as at December 31 41(b) 106,451,092 59,496,073

Cash flows from operating activities include:

Interest received 13,118,792 11,721,664

Interest paid 7,761,574 6,724,098


Notes to the Consolidated Financial Statementss(Expressed in thousands of Hong Kong dollars, unless otherwise stated)


1 GENERAL INFORMATION

The consolidated financial statements for the year ended December 31, 2015 comprise China Construction Bank

(Asia) Corporation Limited (“the Bank”) and its subsidiaries (together referred to as “the Group”) and the Group’s

interest in an associate and a joint venture. The consolidated financial statements have been approved by the

Board of Directors on April 1, 2016.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

These consolidated financial statements have been prepared in accordance with all applicable Hong Kong

Financial Reporting Standards (“HKFRSs”), which collectively include all applicable individual Hong Kong

Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by

the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and accounting principles generally

accepted in Hong Kong.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early

adoption for the current accounting period of the Group and the Bank. Note 3 provides information on any

changes in accounting policies resulting from initial application of these developments to the extent that

they are relevant to the Group and the Bank for the current and prior accounting periods reflected in these

consolidated financial statements.

A summary of the significant accounting policies adopted by the Group is set out below.

(b) Basis of preparation

General

The measurement basis used in the preparation of the consolidated financial statements is the historical cost

basis except for financial instruments classified as trading, designated at fair value through profit or loss and

available-for-sale (see Note 2(h)) which are stated at fair value.

The preparation of consolidated financial statements in conformity with HKFRSs requires management to

make judgements, estimates and assumptions that affect the application of policies and reported amounts of

assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical

experience and various other factors that are believed to be reasonable under the circumstances, the results

of which form the basis of making the judgements about carrying values of assets and liabilities that are not

readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimate is revised if the revision affects only that

period, or in the period of the revision and future periods if the revision affects both current and future

periods.

Judgements made by management in the application of HKFRSs that have significant effect in the

consolidated financial statements and major sources of estimation uncertainty are discussed in Note 4.



2 SIGNIFICANT ACCOUNTING POLICIES (continued)

(b) Basis of preparation (continued)

General (continued)

In preparing the capital adequacy ratios of the Group, they are prepared according to the basis of

consolidation for regulatory purposes. The main difference between the consolidation basis for accounting

and regulatory purposes is that the former includes the Bank and all its subsidiaries, an associate and a joint

venture whereas the latter excludes CCB Securities Limited (“CCBS”), CCB Nominees Limited (“CCBN”)

and CCB (Asia) Trustee Company Limited (“CCBT”) which conduct non-banking related business. Details of

the subsidiaries which are not included in consolidation for regulatory purposes are as follows:

Name of company Principal activities Total assets Total equity

December 31,

2015

December 31,

2014

December 31,

2015

December 31,

2014

CCBS Securities brokerage business 614,341 643,656 608,024 606,163

CCBN Custodian and nominee services 39,078 39,699 39,023 39,036

CCBT Trustee and custodian business 6,849 7,474 (7,140) (146)

The accounting policies set out below have been applied consistently across the Bank and its subsidiaries

and to all periods presented in these consolidated financial statements.

(c) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed or has rights,

to variable return from its involvement with the entity and has the ability to affect those returns through its

power over the entity.

Subsidiaries are consolidated into the consolidated financial statements from the date that control

commences until the date that control ceases. Intra-group balances and transactions and any unrealised

profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial

statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as

unrealised gains but only to the extent that there is no evidence of impairment. Accounting policies of

subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the

Group.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for

as equity transaction, whereby adjustments are made to the amounts of controlling and non-controlling

interests within consolidated equity to reflect the change in relative interests, but no adjustments are made

to goodwill and no gain or loss is recognised.




(c) Subsidiaries (continued)

When the Group ceases to have control any retained interest in the entity is remeasured to its fair value

at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair

value is the initial carrying amount for the purposes of subsequently accounting for the retained interest

as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other

comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of

the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive

income are reclassified to profit or loss.

In the Bank’s statement of financial position, its investments in subsidiaries are stated at cost less

impairment losses, if any (Note 2(m)).

(d) Associate

An associate is an entity in which the Group or the Bank has significant influence, but not control, or joint

control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the consolidated financial statements under the equity

method and is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date

fair values of the associate’s identifiable net assets over the cost of the investment (if any). Thereafter, the

investment is adjusted for the post acquisition change in the Group’s share of the associate’s net assets

and any impairment loss relating to the investment (Note 2(m)). Any acquisition-date excess over cost, the

Group’s share of the post-acquisition post-tax results of the associate and any impairment losses for the year

are recognised in the consolidated income statement.

When the Group’s share of losses exceeds its interest in the associate, the Group’s interest is reduced to

nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal

or constructive obligations or made payments on behalf of the associate. For these purposes, the Group’s

interest in the associate is the carrying amount of the investment under equity method together with the

Group’s long-term interests that in substance form part of the Group’s net investment in the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates are

eliminated to the extent of the Group’s interest in the associate, except where unrealised losses provide

evidence of an impairment of the asset transferred, in which case they are recognised immediately in the

income statement.

When the Group ceases to have significant influence over an associate, it is accounted for as a disposal of

the entire interest in that associate, with a resulting gain or loss being recognised in the income statement.

Any interest retained in that former associate at the date when significant influence is lost is recognised at

fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(h)).

In the Bank’s statement of financial position, its investment in an associate is stated at cost less impairment

losses, if any (Note 2(m)).




(e) Joint arrangements

Under HKFRS 11, investments in joint arrangements are classified as either joint operations or joint ventures

depending on the contractual rights and obligations of each investor. The Group has assessed the nature of

its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the

equity method.

Under the equity method of accounting, interests in joint ventures are initially recognised at cost and

adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses and movements

in other comprehensive income. When the Group’s share of losses in a joint venture equals or exceeds its

interests in the joint ventures (which includes any long-term interests that, in substance, form part of the

Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has

incurred obligations or made payments on behalf of the joint ventures.

Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the

Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides

evidence of an impairment of the asset transferred.

Any interest retained in those former joint ventures at the date when joint control is lost is recognised at fair

value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(h)).

(f) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief

operating decision-maker. The chief operating decision-maker, who are responsible for allocating resources

and assessing performance of the operating segments, has been identified as the Chief Executive Officer,

President & Executive Director, and Deputy Chief Executives that make strategic decisions.

(g) Goodwill

Goodwill represents the excess of

(i) the aggregate of the fair value of the consideration transferred, the amount of any non-controlling

interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree;

over

(ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in the income statement as a gain on

a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination

is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit

from the synergies of the combination and is tested annually for impairment or more frequently if events or

changes in circumstances indicate that the carrying value may be impaired (see Note 2(m)). Impairment is

recognised immediately in the income statement and is not reversed in a subsequent period.

On disposal of a cash generating unit during the year, any attributable amount of purchased goodwill is

included in the calculation of the profit or loss on disposal.




(h) Financial instruments

(i) Initial recognition

The Group classifies its financial instruments into different categories at inception, depending on the

purpose for which the assets were acquired or the liabilities were incurred. The categories are: fair

value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale

financial assets and other financial liabilities.

Financial instruments are measured initially at fair value, which normally will be equal to the transaction

price. In case of a financial asset or financial liability not held at fair value through profit or loss, financial

instruments are measured at transaction price plus transaction costs that are directly attributable to the

acquisition of the financial asset or issue of the financial liability. Transaction costs on financial assets

and financial liabilities at fair value through profit or loss are expensed immediately.

The Group recognises financial assets and financial liabilities on the date it becomes a party to the

contractual provisions of the instrument. A regular way purchase or sale of financial assets and financial

liabilities at fair value through profit or loss is recognised using trade date accounting. From this date,

any gains and losses arising from changes in fair value of the financial assets or financial liabilities at

fair value through profit or loss are recorded.

(ii) Classification

Fair value through profit or loss

This category comprises financial assets and financial liabilities held for trading, and those designated

at fair value through profit or loss upon initial recognition, but excludes those investments in equity

instruments that do not have a quoted market price and whose fair value cannot be reliably measured.

Trading financial instruments are financial assets or financial liabilities which are acquired or incurred

principally for the purpose of trading, or are 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. Derivatives that do not qualify for hedge accounting (Note 2(i)) are accounted for as trading

instruments.

Financial instruments are designated at fair value through profit or loss upon initial recognition when:

– the assets or liabilities are managed, evaluated and reported internally on a fair value basis;

Financial assets and financial liabilities under this category are carried at fair value. Changes in the

fair value are included in the income statement in the period in which they arise. Upon disposal or

repurchase, the difference between the net sale proceeds or the net payment and the carrying value is

included in the income statement.




(h) Financial instruments (continued)

(ii) Classification (continued)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are

not quoted in an active market, other than (a) those that the Group intends to sell immediately or in the

near term, which will be classified as held for trading; (b) those that the Group, upon initial recognition,

designates as at fair value through profit or loss or as available-for-sale; or (c) those where the Group

may not recover substantially all of its initial investment, other than because of credit deterioration,

which will be classified as available-for-sale. Loans and receivables mainly comprise advances to

customers and banks, and placements with banks.

Loans and receivables are carried at amortised cost using the effective interest method, less


Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments

and fixed maturity for which the Group has the positive intention and ability to hold to maturity, other

than (a) those that the Group, upon initial recognition, designates as at fair value through profit or loss

or as available-for-sale; and (b) those that meet the definition of loans and receivables.

Held-to-maturity investments are carried at amortised cost using the effective interest method less


If, as a result of a change in intention or ability, it is no longer appropriate to classify an investment as

held-to-maturity, it shall be reclassified as available-for-sale and remeasured at fair value.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets and are not classified in any of

the other three categories above. They include financial assets intended to be held for an indefinite

period of time, but which may be sold in response to needs for liquidity or changes in the market

environment.

Available-for-sale financial assets are carried at fair value. Unrealised gains and losses arising from

changes in the fair value are recognised directly in other comprehensive income and accumulated

separately in equity, except for impairment losses and foreign exchange gains and losses on monetary

items such as debt securities which are recognised in the income statement as classified as net trading

income.

Investments in equity securities that do not have a quoted market price in an active market and whose

fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery

of such unquoted equity instruments, are carried at cost less impairment losses, if any (see Note 2(m)).

When the available-for-sale financial assets are sold, gains or losses on disposal include the difference

between the net sale proceeds and the carrying value, and the accumulated fair value adjustments

which are previously recognised in other comprehensive income shall be reclassified from equity to the

income statement.





(ii) Classification (continued)

Other financial liabilities

Financial liabilities, other than trading liabilities and those designated at fair value through profit or loss,

are measured at amortised cost using the effective interest method.

(iii) Fair value measurement principles

The fair value of financial instruments is based on their quoted market prices at the reporting date

without any deduction for estimated future selling costs. Non-derivative financial assets are priced at

current bid prices, while non-derivative financial liabilities are priced at current offer prices. Derivative

financial instruments are priced at mid-price.

If there is no publicly available latest traded price nor a quoted market price on a recognised stock

exchange or a price from a broker/dealer for non-exchange-traded financial instruments, or if the market

for it is not active, the fair value of the instrument is estimated using valuation techniques that provide

a reliable estimate of prices which could be obtained in actual market transactions.

Where discounted cash flow techniques are used, estimated future cash flows are based on

management’s best estimates and the discount rate used is a market rate at the reporting date

applicable for an instrument with similar terms and conditions. Where other pricing models are used,

inputs are based on market data at the reporting date.

(iv) Derecognition

A financial asset is derecognised when the contractual rights to receive the cash flows from the

financial asset expire, or where the financial asset together with substantially all the risks and rewards

of ownership, have been transferred.

A financial liability is derecognised when the obligation specified in the contract is discharged,

cancelled or expired.

(v) Offsetting

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated

statement of financial position where there is a legally enforceable right to set off the recognised

amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability

simultaneously.





(vi) Embedded derivatives

An embedded derivative is a component of a hybrid (combined) instrument that includes both the

derivative and a host contract with the effect that some of the cash flows of the combined instrument

vary in a way similar to a stand-alone derivative. The embedded derivatives are separated from the

host contract and accounted for as a derivative when (a) the economic characteristics and risks of

the embedded derivative are not closely related to the host contract; and (b) the hybrid (combined)

instrument is not measured at fair value with changes in fair value recognised in the income statement.

The embedded derivative of the Bank’s structured notes are separated from the host contract and

is accounted for in accordance with Note 2(h)(ii). These embedded derivatives are presented in the

consolidated statement of financial position together with the host contract.

(i) Derivative financial instrument and hedging activities

Derivative financial instruments (“derivative”) are initially recognised at fair value on the date on which

a derivative contract is entered into and are subsequently remeasured at their fair value. The method

of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging

instrument, and if so, the nature of the item being hedged. Fair values are obtained from quoted market

prices in active markets, including recent market transactions, and valuation techniques, including discounted

cash flow models as appropriate. All derivatives are carried as assets when fair value is positive and as

liabilities when fair value is negative.

Hedge accounting recognises the offsetting effects on the income statement of changes in the fair values

of the hedging instrument and the hedged item. The Group assesses and documents whether the financial

instruments that are used in hedging transactions are highly effective in offsetting changes in fair values

or cash flows of hedged items attributable to the hedged risks both at hedge inception and on an ongoing

basis. The Group discontinues prospectively hedge accounting when (a) the hedging instrument expires or

is sold, terminated or exercised; (b) the hedge no longer meets the criteria for hedge accounting; or (c) the

Group revokes the designation.

(i) Fair value hedge

A fair value hedge seeks to offset risks of changes in the fair value of recognised asset or liability that

will give rise to a gain or loss being recognised in the income statement.

The hedging instrument is measured at fair value, with fair value changes recognised in the income

statement. The carrying amount of the hedged item is adjusted by the amount of the changes in fair

value attributable to the risk being hedged. This adjustment is recognised in the income statement to

offset the effect of the gain or loss on the hedging instrument.

When a hedging instrument expires or is sold, terminated or exercised, the hedge no longer meets

the criteria for hedge accounting, or the Group revokes designation of the hedge relationship, any

adjustment up to that point, to a hedged item for which the effective interest method is used, is

amortised to the income statement as part of the recalculated effective interest rate of the item over

its remaining life.




(i) Derivative financial instrument and hedging activities (continued)

(ii) Cash flow hedge

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a

recognised asset or liability, or a highly probable forecast transaction, or the foreign currency risk of a

committed future transaction, the effective part of any gain or loss on remeasurement of the derivative

financial instrument to fair value is recognised in other comprehensive income and accumulated

separately in equity in the hedging reserve. The ineffective portion of any gain or loss is recognised

immediately in the income statement.

If the hedge of a forecast transaction subsequently results in the recognition of a non-financial asset

or non-financial liability, the associated gain or loss is reclassified from equity and to be included in the

initial cost or other carrying amount of the non-financial asset or liability.

If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a

financial liability, the associated gain or loss is reclassified from equity to the income statement in the

same period or periods during which the asset acquired or liability assumed affects profit or loss (such as

when interest income or expense is recognised).

For cash flow hedges, other than those covered by the preceding two policy statements, the associated

gain or loss is reclassified from equity to the income statement in the same period or periods during

which the hedged forecast transaction affects profit or loss.

When a hedging instrument expires or is sold, terminated or exercised, or the Group revokes

designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the

cumulative gain or loss at that point remains in equity until the transaction occurs and is recognised in

accordance with the above policy. If the hedged transaction is no longer expected to take place, the

cumulative unrealised gain or loss is reclassified from equity to the income statement immediately.




(i) Derivative financial instrument and hedging activities (continued)

(iii) Hedge effectiveness testing

In order to qualify for hedge accounting, the Group carries out prospective effectiveness testing

to demonstrate that it expects the hedge to be highly effective at the inception of the hedge and

throughout its life. Actual effectiveness (retrospective effectiveness) is also demonstrated on an

ongoing basis.

The documentation of each hedging relationship sets out how the effectiveness of the hedge is

assessed. The method which the Group adopts for assessing hedge effectiveness will depend on its

risk management strategy.

For fair value hedge relationships, the Group util ises the cumulative dollar offset method as

effectiveness testing methodologies. For cash flow hedge relationships, the Group utilises the

cumulative dollar offset method.

For prospective effectiveness, the hedging instrument must be expected to be highly effective in

achieving offsetting changes in fair value attributable to the hedged risk during the period for which the

hedge is designated. For actual effectiveness, the changes in fair value or cash flows must offset each

other in the range of 80 per cent to 125 per cent for the hedge to be deemed effective.

(j) Fixed assets

Fixed assets are stated in the statement of financial position at cost less accumulated depreciation and

impairment losses (see Note 2(m)).

Gains or losses arising from the retirement or disposal of an item of fixed assets are determined as the

difference between the net disposal proceeds and the carrying amount of the item and are recognised in the

income statement on the date of retirement or disposal.

Depreciation is calculated to write off the cost or valuation of items of fixed assets, less their estimated

residual value, if any, using the straight line method over the estimated useful lives as follows:

– Freehold land indefinite

– Leasehold land classified as held under

finance leases

the unexpired term of lease

– Buildings (over interests in leasehold land

classified as held under finance lease)

period of lease term, ranged from

6 years to 34 years

– Buildings (over freehold land) 50 years

– Leasehold improvements shorter of lease term or their estimated

useful lives, 7 years

– Furniture and equipment 2–8 years

Freehold land is not depreciated.




(j) Fixed assets (continued)

Where parts of an item of fixed assets have different useful lives, the cost of the item is allocated on a

reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset

and its residual value, if any, are reviewed annually.

(k) Leases and hire purchase contracts

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group

determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of

time in return for a payment or a series of payments. Such a determination is made based on an evaluation

of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a

lease.

(i) Classification

Leases which transfer substantially all the risks and rewards of ownership to the lessee are classified as

finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the

lessee are classified as operating leases.

(ii) Finance leases

Where the Group is a lessor under finance leases, an amount representing the net investment in

the lease is included in the statement of financial position as loans and advances to customers. Hire

purchase contracts having the characteristics of finance leases are accounted for in the same manner

as finance leases. Impairment losses are accounted for in accordance with the accounting policy as set

out in Note 2(m).

Where the Group acquires the use of assets under finance leases, the amounts representing the

fair value of the leased assets, or, if lower, the present values of the minimum lease payments of

such assets, are included in fixed assets and the corresponding liabilities, net of finance charges, are

recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost

or valuation of the assets over the term of the relevant leases or, where it is likely the Group will obtain

ownership of the asset, the life of the asset, as set out in Note 2(j). Impairment losses are accounted

for in accordance with the accounting policy as set out in Note 2(m). Finance charges implicit in the

lease payments are charged to the income statement over the period of the leases so as to produce

an approximately constant periodic rate of charge on the remaining balance of the obligations for each

accounting period. Contingent rentals are written off as an expense of the accounting period in which

they are incurred.




(k) Leases and hire purchase contracts (continued)

(iii) Operating leases

Where the Group has the use of assets under operating leases, payments made under the leases are

charged to the income statement in equal instalments over the accounting periods covered by the

lease term, except where an alternative basis is more representative of the pattern of benefits to be

derived from the leased asset. Lease incentives received are recognised in the income statement as an

integral part of the aggregate net lease payments made. Contingent rentals are charged to the income

statement in the accounting period in which they are incurred.

(l) Repossessed assets

In the recovery of impaired advances, the Group may take possession of assets held as collateral through

court proceedings or voluntary delivery of possession by the borrowers. Where it is intended to achieve an

orderly realisation of the impaired assets and the Group is no longer seeking repayment from the borrower,

repossessed assets are reported in “Other assets”. The Group does not hold the repossessed assets for its

own use.

Repossessed assets are recorded at the lower of the amount of the related advances and fair value less

costs to sell at the date of repossession, and the related loans and advances together with the related

impairment allowances are derecognised from the statement of financial position. They are not depreciated

or amortised.

(m) Impairment of assets

The carrying amount of the Group’s assets is reviewed at each reporting date to determine whether there is

objective evidence of impairment. Objective evidence that financial assets are impaired includes observable

data that comes to the attention of the Group about one or more of the following loss events which has an

impact on the future cash flows on the assets that can be estimated reliably:

– significant financial difficulty of the issuer or borrower;

– a breach of contract, such as a default or delinquency in interest or principal payments;

– cash flow difficulties experienced by the borrower;

– breach of loan covenants or conditions;

– it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

– significant changes in the technological, market, economic or legal environment that have an adverse

effect on the borrower;

– deterioration in the value of collateral;

– disappearance of an active market for financial assets because of financial difficulties; and

– a significant or prolonged decline in the fair value of an investment in an equity instrument below its

cost.




(m) Impairment of assets (continued)

If any such evidence exists, the carrying amount is reduced to the estimated recoverable amount by means

of a charge to the income statement.

Impairment losses are written off against the corresponding assets directly, except for impairment losses

recognised in respect of loans and receivables, held-to-maturity investments and other financial assets which

are measured at amortised cost, whose recovery is considered doubtful but not remote. In this case, the

impairment losses are recorded using an allowance account. When the Group is satisfied that recovery is

remote, the amount considered irrecoverable is written off against loans and receivables directly and any

amounts held in the allowance account relating to that borrower are reversed. Subsequent recoveries of

amounts previously charged to the allowance account are reversed against the allowance account. Other

changes in the allowance account and subsequent recoveries of amounts previously written off directly are

recognised in the income statement.

(i) Loans and receivables

Impairment losses on loans and receivables are measured as the difference between the asset’s

carrying amount and the present value of estimated future cash flows discounted at the asset’s original

effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets).

Receivables with a short duration are not discounted if the effect of discounting is immaterial.

The total allowance for credit losses consists of two components: individual impairment allowances,

and collective impairment allowances.

The Group 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 the Group determines that no objective evidence of impairment exists for

an individually assessed financial asset, whether significant or not, it includes the asset in a group of

financial assets with similar credit risk characteristics and collectively assesses them 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.

The individual impairment allowance is based upon management’s best estimate of the present value

of the cash flows which are expected to be received discounted at the original effective interest

rate. In estimating these cash flows, management makes judgements about the borrower’s financial

situation and the net realisable value of any underlying collateral or guarantees in favour of the Group.

Each impaired asset is assessed on its own merits.

In assessing the need for collective loan loss allowances, management uses statistical modelling and

considers historical trends of factors such as credit quality, portfolio size, concentrations, and economic

factors. In order to estimate the required allowance, the Group makes assumptions both to define

the way the Group models inherent losses and to determine the required input parameters, based on

historical experience and current economic conditions.





(i) Loans and receivables (continued)

The accuracy of the impairment allowances the Group makes depends on how well the Group can

estimate future cash flows for individually assessed impairment allowances and the model assumptions

and parameters used in determining collective impairment allowances. While this necessarily involves

judgement, the Group believes that the impairment allowances on loans and advances to customers

are reasonable and supportable.

Any subsequent changes to the amounts and timing of the expected future cash flows compared to

the prior estimates that can be linked objectively to an event occurring after the write-down, will result

in a change in the impairment allowances on loans and receivables and be charged or credited to the

income statement. A reversal of impairment losses is limited to the loans and receivables’ carrying

amount that would have been determined had no impairment loss been recognised in prior years.

When there is no reasonable prospect of recovery, the loan and the related interest receivables are

written off.

Loans and receivables with renegotiated terms are loans that have been restructured due to

deterioration in the borrower’s financial position and where the Group has made concessions that it

would not otherwise consider. Renegotiated loans and receivables are subject to ongoing monitoring to

determine whether they remain impaired or past due.

(ii) Available-for-sale financial assets

When there is objective evidence that an available-for-sale financial asset is impaired, the cumulative

loss that had been accumulated in the investment revaluation reserve is transferred to the income

statement. The amount of the cumulative loss that is recognised in the income statement is the

difference between the acquisition cost (net of any principal repayment and amortisation) and current

fair value, less any impairment loss on that asset previously recognised in the income statement.

For unquoted available-for-sale equity securities that are carried at cost, the impairment loss is

measured as the difference between the carrying amount of the equity securities and the estimated

future cash flows, discounted at the current market rate of return for a similar financial asset where the

effect of discounting is material.

Impairment losses recognised in the income statement in respect of available-for-sale equity securities

are not reversed through the income statement. Any subsequent increase in the fair value of such assets

is recognised directly in other comprehensive income.

Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent

increase in fair value can be objectively related to an event occurring after the impairment loss was

recognised. Reversals of impairment losses in such circumstances are recognised in the income

statement.





(iii) Held-to-maturity investments

Impairment on held-to-maturity investments is considered at individual level. The individual impairment

allowance is measured as the difference between the asset’s carrying amount and the present value of

estimated future cash flows, discounted at the asset’s original effective interest rate, where the effect

of discounting is material.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked

objectively to an event occurring after the impairment loss was recognised, the impairment loss is

reversed through the income statement. A reversal of impairment losses shall not result in the asset’s

carrying amount exceeding that which would have been determined had no impairment loss been

recognised in prior years.

(iv) Other assets

Internal and external sources of information are reviewed at each reporting date to identify indications

that the following assets may be impaired or an impairment loss previously recognised no longer exists

or may have decreased:

– fixed assets;

– interests in leasehold land classified as being held under an operating lease; and

– investments in subsidiaries, associates and joint ventures.

If any such indication exists, the asset’s recoverable amount is estimated.

– Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs to sell and value in

use. In assessing value in use, the estimated future cash flows are discounted to their present

value using a pre-tax discount rate that reflects current market assessments of time value of

money and the risks specific to the asset. Where an asset does not generate cash inflows largely

independent of those from other assets, the recoverable amount is determined for the smallest

group of assets that generates cash inflows independently (i.e. a cash-generating unit).

– Recognition of impairment losses

An impairment loss is recognised in the income statement whenever the carrying amount of

an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the

carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then,

to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata

basis, except that the carrying value of an asset will not be reduced below its individual fair value

less costs to sell, or value in use, if determinable.





(iv) Other assets (continued)

– Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used to

determine the recoverable amount. A reversal of impairment losses is limited to the asset’s

carrying amount that would have been determined had no impairment loss been recognised in

prior years. Reversals of impairment losses are credited to the income statement in the year in

which the reversals are recognised.

(n) Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise balances with less than

three months’ maturity from the date of acquisition, including cash and balances with banks, placements

with banks, treasury bills and certificates of deposit that are readily convertible to known amount of cash and

which are subject to an insignificant risk of changes in value.

(o) Employee benefits

The Group contributes to defined contribution retirement schemes under either recognised ORSO scheme or

MPF schemes that are available to the Group’s employees.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate

entity. The Group has no legal or contractive obligations to pay further contributions if the funds does not

hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior

periods.

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the

cost of non-monetary benefits are accrued in the year in which the associated services are rendered by

employees. Where payment or settlement is deferred and the effect would be material, these amounts are

stated at their present values.

(p) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current

tax and movements in deferred tax assets and liabilities are recognised in the income statement except

to the extent that they relate to items recognised in other comprehensive income or directly in equity, in

which case the relevant amount of tax are recognised in other comprehensive income or directly in equity,

respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or

substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being

the differences between the carrying amounts of assets and liabilities for financial reporting purposes and

their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.




(p) Income tax (continued)

Deferred income tax is provided in full, using the balance sheet liability method, on temporary differences

arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated

financial statements. Deferred income tax is determined using tax rates and laws that have been enacted or

substantially enacted by the end of the reporting period and are expected to apply when the related deferred

income tax asset is realised or the deferred income tax liability is settled.

The principal temporary differences arise from asset impairment provisions, depreciation of premises and

equipment, revaluation of certain assets including available-for-sale securities and premises and tax losses

carried forward. However, the deferred income tax is not recognised if it arises from initial recognition of an

asset or liability in a transaction other than a business combination that at the time of the transaction affects

neither accounting nor taxable profit or loss.

Deferred income tax liabilities are provided in full on all taxable temporary differences and deferred income

tax assets are recognised to the extent that it is probable that future taxable profit will be available against

which the temporary differences can be utilised.

Deferred income tax is charged or credited in the income statement except for deferred income tax relating

to fair value re-measurement of available-for-sale investments and revaluation of premises which are charged

or credited to other comprehensive income, in which case the deferred income tax is also credited or

charged to other comprehensive income and is subsequently recognised in the income statement together

with the realisation of the deferred gain and loss.

Additional income taxes that arise from the distribution of dividends are recognised when the liability to pay

the related dividends is recognised.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each

other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets

against deferred tax liabilities if the Group or the Bank has the legally enforceable right to set off current tax

assets against current tax liabilities and the following additional conditions are met:

– in the case of current tax assets and liabilities, the Group or the Bank intends either to settle on a net

basis, or to realise the asset and settle the liability simultaneously; or

– in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same

taxation authority on either:

– the same taxable entity; or

– different taxable entities, which, in each future period in which significant amounts of deferred

tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax

assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.




(q) Financial guarantees issued, provisions and contingent liabilities

(i) Financial guarantees issued

Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified

payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs

because a specified debtor fails to make payment when due in accordance with the terms of a debt

instrument.

Where the Group issues a financial guarantee to customers, the fair value of the guarantee (being the

guarantee fees received) is initially recognised as deferred income within other liabilities. Where the

Bank issues a financial guarantee for its subsidiaries, the fair value of the guarantee is estimated and

capitalised as part of the cost of investment in subsidiaries and deferred income within other liabilities.

The deferred income is amortised in the income statement over the term of the guarantee as income

from financial guarantees issued. In addition, provisions are recognised in accordance with Note 2(q)

(ii) if and when (i) it becomes probable that the holder of the guarantee will call upon the Group under

the guarantee, and (ii) the amount of that claim on the Group is expected to exceed the amount

currently carried in other liabilities in respect of that guarantee i.e. the amount initially recognised, less

accumulated amortisation.

(ii) Other provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Group or the Bank has

a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of

economic benefits will be required to settle the obligation and a reliable estimate can be made. Where

the time value of money is material, provisions are stated at the present value of the expenditure

expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be

estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow

of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the

occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities

unless the probability of outflow of economic benefits is remote.




(r) Revenue recognition

Revenue is measured at the fair value of consideration received or receivable. Provided it is probable that

economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably,

revenue is recognised in the income statement as follows:

(i) Interest income

Interest income for all interest-bearing financial instruments is recognised in the income statement on

an accrual basis using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset and

of allocating the interest income over the relevant period. The effective interest rate is the rate that

exactly discounts estimated future cash payments or receipts through the expected life of the financial

instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset.

When calculating the effective interest rate, the Group estimates cash flows considering all contractual

terms of the financial instrument (for example, prepayment, call and similar options) but does not

consider future credit losses. The calculation includes all fees and points paid or received between

parties to the contract that are an integral part of the effective interest rate, transaction costs and

all other premiums or discounts. Cash rebates granted in relation to residential mortgage loans are

capitalised and amortised to the income statement over three years or their expected life, whichever is

shorter.

For impaired loans, the accrual of interest income based on the original terms of the loan is

discontinued, but any increase in the present value of impaired loans due to the passage of time is

reported as interest income.

Interest income and expenses on the financial instruments classified as trading or designated at fair

value through profit or loss are presented together with all other changes in fair value arising from the

portfolios as “Net (losses)/ gains from financial instruments designated at fair value through profits or

loss” in the income statement.

(ii) Fees and commission income

Fees and commission income arises on financial services provided by the Group including securities,

foreign currency dealings and agency services for insurance companies, remittance, settlement and

account management services, payment and collection services and credit cards services. Fees and

commission income is recognised when the corresponding service is provided, except where the fee

is charged to cover the costs of a continuing service to, or risk borne for, the customer, or is interest

in nature. In these cases, the fee is recognised as income in the accounting period in which the cost or

risk is incurred and is accounted for as interest income.

Origination or commitment fees received/paid by the Group which result in the creation or acquisition

of a financial asset are deferred and recognised as an adjustment to the effective interest rate. When

a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are

recognised on a straight-line basis over the commitment period.

Portfolio and other management advisory and service fees are recognised based on the applicable

service contracts, usually on an asset-apportionate basis.




(r) Revenue recognition (continued)

(iii) Finance income from finance lease and hire purchase contract

Finance income implicit in finance lease and hire purchase payments is recognised as interest income

over the period of the leases so as to produce an approximately constant periodic rate of return on the

outstanding net investment in the leases for each accounting period. Contingent rentals receivable are

recognised as income in the accounting period in which they are earned. Commission paid to dealers

for acquisition of finance lease loans or hire purchase contracts is included in the carrying value of the

assets and amortised to the income statement over the expected life of the lease as an adjustment to

interest income.

(iv) Dividend income

Dividend income from unlisted investments is recognised when the shareholder’s right to receive

payment is established. Dividend income from listed investments is recognised when the share price

of the investment is quoted ex-dividend.

(s) Translation of foreign currencies

Items included in the financial statements of each of the Group’s entities are measured using the currency of

the primary economic environment in which the entity operates (“the functional currency”). The consolidated

financial statements are presented in Hong Kong dollars (HKD), which is the Bank’s functional currency and

the Bank’s and the Group’s presentation currency.

Foreign currency transactions during the year are translated into the functional currency of each entity at the

foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign

currencies are translated into the functional currency of each entity at the foreign exchange rates ruling at

the reporting date. Exchange gains and losses are recognised in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are

translated into Hong Kong dollars using the foreign exchange rates ruling at the transaction dates. Non-

monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated

using the foreign exchange rates ruling at the dates the fair value was determined.

Exchange differences relating to investments at fair value through profit or loss and derivative financial

instruments are included in gains less losses from trading securities or financial instruments designated at

fair value through profit or loss. All other exchange differences relating to monetary items are presented

as gains less losses from dealing in foreign currencies in the income statement. Differences arising on

translation of available-for-sale equity instruments are recognised in equity in the exchange reserves.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating

the foreign exchange rates ruling at the dates of the transactions. Items on statement of financial position

are translated into Hong Kong dollars at the foreign exchange rates ruling at the reporting date. The resulting

exchange differences are recognised in other comprehensive income and accumulated separately in equity in

the exchange reserve.




(s) Translation of foreign currencies (continued)

On disposal of a foreign operation, the cumulative amount of the exchange differences related to that

foreign operation is reclassified from equity to the income statement when the profit or loss on disposal is

recognised.

(t) Related parties

For the purposes of these consolidated financial statements, a party is considered to be related to the Group

if:

(i) the party has the ability, directly or indirectly through one or more intermediaries, to control the Group

or exercise significant influence over the Group in making financial and operating policy decisions, or

has joint control over the Group;

(ii) the Group and the party are subject to common control;

(iii) the party is a subsidiary or an associate of the Group;

(iv) the party is a member of key management personnel of the Group or the Group’s parent, or a close

family member of such an individual, or is an entity under the control, joint control or significant

influence of such individuals;

(v) the party is a close family member of a party referred to in (i) or is an entity under the control, joint

control or significant influence of such individuals; or

(vi) the party is a post-employment benefit plan which is for the benefit of employees of the Group or of

any entity that is a related party of the Group.

Close family members of an individual are those family members who may be expected to influence, or be

influenced by, that individual in their dealings with the entity.

(u) Non-current assets held for sale

Non-current assets are classified as assets held for sale when their carrying amount is to be recovered

principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of

carrying amount and fair value less costs to sell.

(v) Comparatives

When necessary, comparative figures have been reclassified to conform with the current year’s presentation.



3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

(a) New and amended standards adopted by the Group

Annual improvements 2010-2012 cycle

These amendments include changes from the 2010-2012 cycle of the annual improvements project, that

affect the below standards:

• Hong Kong Financial Reporting Standard (“HKFRS”) 8, ‘Operating segments’

The standard is amended to require disclosure of the judgements made by management in aggregating

operating segments and a reconciliation of segment assets to the entity’s assets when segment assets

are reported.

• HKAS 16, ‘Property, plant and equipment’ and HKAS 38, ‘Intangible assets’

Both standards are amended to clarify how the gross carrying amount and the accumulated

depreciation are treated where an entity uses the revaluation model.

• HKAS 24, ‘Related Party Disclosures’

The reporting entity is not required to disclose the compensation paid by the management entity (as a

related party) to management entity’s employee or director, but it is required to disclose the amount

charged to the reporting entity by the management entity for services provided.

The above amendments do not have any material financial impact on the Group.

Annual improvements 2011-2013 cycle

These amendments include changes from the 2011-2013 cycle of the annual improvements project, that

affect the below standard:

• HKFRS 13, ‘Fair value measurement’

It clarifies that the portfolio exception in HKFRS 13, which allows an entity to measure the fair value of

a group of financial assets and financial liabilities on a net basis, applies to all contracts (including non-

financial contracts) within the scope of HKAS 39 or HKFRS 9.

The above amendment does not have any material financial impact on the Group.



3 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (continued)

(b) New and amended standards that have been issued but are not effective for the financial year beginning January 1, 2015 and have not been early adopted

A number of new standards and amendments to standards and interpretations are effective for annual

periods beginning after January 1, 2015, and have not been applied in preparing these consolidated financial

statements. None of these is expected to have a significant effect on the consolidated financial statements

of the Group, except the following set out below:

HKFRS 9 ‘Financial instruments’

The complete version of HKFRS 9 replaces most of the guidance in HKAS 39. HKFRS 9 retains but simplifies

the mixed measurement model and establishes three primary measurement categories for financial assets:

amortised cost, fair value through other comprehensive income and fair value through profit and losses. The

basis of classification depends on the entity’s business model and the contractual cash flow characteristics

of the financial asset. Investments in equity instruments are required to be measured at fair value through

profit or loss with the irrevocable option at inception to present changes in fair value in other comprehensive

income. There is now a new expected credit losses model that replaces the incurred loss impairment model

used in HKAS 39.

For financial liabilities there were no changes to classification and measurement except for the recognition

of changes in own credit risk in other comprehensive income for liabilities designated at fair value through

profit or loss.

HKFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness

tests. It requires an economic relationship between the hedged item and hedging instrument and for

the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes.

Contemporaneous documentation is still required but is different to that currently prepared under HKAS

39. The standard is effective for accounting periods beginning on or after January 1, 2018. Early adoption is

permitted. The Group is yet to assess HKAS 9’s full impact.

Amendment to HKFRS 11, ‘Joint arrangements’ regarding acquisition of an interest in a joint

operation

This amendment provides new guidance on how to account for the acquisition of an interest in a joint

venture operation that constitutes a business. The amendments require an investor to apply the principles of

business combination accounting when it acquires an interest in a joint operation that constitutes a ‘business’.

The amendments are applicable to both the acquisition of the initial interest in a joint operation and the

acquisition of additional interest in the same joint operation. However, a previously held interest is not re-

measured when the acquisition of an additional interest in the same joint operation results in retaining joint

control. The application of this new standard has no material financial impact to the Group.




(b) New and amended standards that have been issued but are not effective for the financial year beginning January 1, 2015 and have not been early adopted (continued)

Amendment to HKAS 16, ‘Property, plant and equipment’ and HKAS 38, ‘Intangible assets’ regarding

depreciation and amortisation

This amendment clarifies that the use of revenue-based methods to calculate the depreciation of an asset is

not appropriate because revenue generated by an activity that includes the use of an asset generally reflects

factors other than the consumption of the economic benefits embodied in the asset.

This has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the

consumption of the economic benefits embodied in an intangible asset. The presumption may only be

rebutted in certain limited circumstances. These are where the intangible asset is expressed as a measure of

revenue; or where it can be demonstrated that revenue and the consumption of the economic benefits of the

intangible asset are highly correlated. The application of this new standard has no material financial impact to

the Group.

Amendments to HKFRS 10 and HKAS 28 regarding the sale or contribution of assets between an

investor and its associate or joint venture

These amendments address an inconsistency between HKFRS 10 and HKAS 28 in the sale or contribution

of assets between an investor and its associate or joint venture. A full gain or loss is recognised when a

transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that

do not constitute a business, even if those assets are in a subsidiary. The application of this new standard

has no material financial impact to the Group.

Amendment to HKAS 27, ‘Separate financial statements’ regarding the equity method

The amendment allows entities to use the equity method to account for investments in subsidiaries, joint

ventures and associates in their separate financial statements. The application of this new standard has no

material financial impact to the Group.

HKFRS 15, ‘Revenue from contracts with customers’

This is the converged standard on revenue recognition. It replaces HKAS 11, ‘Construction contracts’, HKAS

18, ’Revenue’ and related interpretations. Revenue is recognised when a customer obtains control of a good

or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits

from the good or service.





HKFRS 15, ‘Revenue from contracts with customers’ (continued)

The core principle of HKFRS 15 is that an entity recognises revenue to depict the transfer of promised goods

or services to customers in an amount that reflects the consideration to which the entity expects to be

entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core

principle by applying the following steps:

• Step 1: Identify the contract(s) with a customer

• Step 2: Identify the performance obligations in the contract

• Step 3: Determine the transaction price

• Step 4: Allocate the transaction price to the performance obligations in the contract

• Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

HKFRS 15 also includes a cohesive set of disclosure requirements that will result in an entity providing users

of financial statements with comprehensive information about the nature, amount, timing and uncertainty

of revenue and cash flows arising from the entity’s contracts with customers. The application of this new

standard has no material financial impact to the Group.

Annual improvements 2014 – HKFRS 7, ‘Financial instruments: Disclosures’

If an entity transfers a financial asset to a third party under conditions which allow the transferor to

derecognise the assets, HKFRS 7 requires disclosure of all types of continuing involvement that the

entity might still have in the transferred assets. It provides guidance about what is meant by continuing

involvement. There is a consequential amendment to HKFRS 1 to give the same relief to first time adopters.

The amendment does not have any material financial impact on the Group.

Amendments to HKAS 1 for the disclosure initiative

The amendments clarify guidance in HKAS 1 on materiality and aggregation, the presentation of subtotals,

the structure of financial statements and the disclosure of accounting policies. The above amendments do

not have any material financial impact on the Group.

There are no other HKFRSs or HK(IFRIC) interpretations that are not yet effective that would be expected to

have a material impact on the Group’s consolidated financial statements.





Amendments to HKFRS 10, HKFRS 12 and HKAS 28 ‘Investment entities: applying the consolidation

exception’

The amendments clarify the application of the consolidation exception for investment entities and their

subsidiaries.

The amendments to HKFRS 10 clarify that the exception from preparing consolidated financial statements

is available to intermediate parent entities which are subsidiaries of investment entities. The exception is

available when the investment entity parent measures its subsidiaries at fair value. The intermediate parent

would also need to meet the other criteria for exception listed in HKFRS 10.

The amendments also clarify that an investment entity should consolidate a subsidiary which is not an

investment entity and which provides services in support of the investment entity’s investment activities,

such that it acts as an extension of the investment entity. However, the amendments also confirm that if the

subsidiary is itself an investment entity, the investment entity parent should measure its investment in the

subsidiary at fair value through profit or loss. This approach is required regardless of whether the subsidiary

provides investment-related services to the parent or to third parties.

The amendments to HKAS 28 allow an entity which is not an investment entity, but has an interest in an

associate or a joint venture which is an investment entity, a relief to retain the fair value measurement

applied by the investment entity associate or joint venture, or to unwind the fair value measurement and

instead perform a consolidation at the level of the investment entity associate or joint venture for their

subsidiaries when applying the equity method.

(c) New Hong Kong Companies Ordinance (Cap. 622)

In addition, the requirements of Part 9 “Accounts and Audit” of the new Hong Kong Companies Ordinance

(Cap. 622) come into operation during the financial year, as a result, there are changes to presentation and

disclosures of certain information in the consolidated financial statements.



4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates

and assumptions are continually evaluated and are based on historical experience and other factors, including

expectations of future events that are believed to be reasonable under the circumstances.

(a) Impairment allowance

(i) Advances to banks and customers

Loan portfolios are reviewed periodically to assess whether impairment losses exist. The Group makes

judgements as to whether there is any objective evidence that a loan portfolio is impaired, i.e. whether

there is a decrease in estimated future cash flows. Objective evidence for impairment is described

in Note 2(m). If management has determined, based on their judgement, that objective evidence

of impairment exists, expected future cash flows are estimated based on historical loss experience

for assets with credit risk characteristics similar to those of the Group. Historical loss experience is

adjusted on the basis of the current observable data. Management reviews the methodology and

assumptions used in estimating future cash flows regularly to reduce any difference between loss

estimates and actual loss experience. Additional information is disclosed in Note 12.

(ii) Available-for-sale financial assets and held-to-maturity investments

The Group determines that available-for-sale financial assets and held-to-maturity investments are

impaired when there has been a significant or prolonged decline in the fair value below cost. The

determination of when a decline in fair value below cost is not recoverable within a reasonable time

period is judgemental by nature, so profit and loss could be affected by differences in this judgement.

The Group recognises an impairment loss for an available-for-sale debt instrument when there is

objective evidence that the debt instrument is impaired. Objective evidence of an impairment for a

debt instrument exists when one or more events have occurred after the initial recognition of the debt

instrument (that is, a credit related event). Apart from taking into consideration the mark-to-market

price of the issue and its external credit rating, the Group also makes estimates on the default rate and

loss ratio of each investment. Additional information is disclosed in Note 21 and 22.

(b) Fair value of derivatives and other financial instruments

The fair value of financial instruments that are not traded in active markets are determined by using valuation

techniques including discounted cash flows analysis and models based on current market parameters. All

models are validated before they are used, and models are calibrated to ensure that output reflects actual

data and comparative market prices. To the extent practical, models use only observable data, however areas

such as credit spread and corrections require management to make estimates. Change in assumptions about

these factors could affect reported fair value of financial instruments. Additional information is disclosed in

Note 23.



5 FINANCIAL RISK MANAGEMENT

The Group derives the majority of its revenue from managing risk from customer transactions. Effectively assessing

and managing all types of risk is central to the success of the Group. Apart from a prudential risk culture, the

Group has established risk governance, structure, risk management processes including policies and procedures

for the identification, measurement, control and monitoring of credit, liquidity, operational, market and capital risks,

by means of which risk and return are evaluated with the goal of producing sustainable revenue and reducing

income volatilities.

The Board of Directors of the Bank, with the assistance of the Risk Committee, provides effective oversight over

the affairs of the Group, the governance framework and practices through delegation of authority to the functional

committees and the senior management. The Risk Committee shall review regularly the Group’s Risk Appetite

Statement and recommend for the Board’s approval. The Chief Executive Officer is responsible for overseeing

all lines of businesses within the Group, supported by the Management Committee comprising the senior

management members. In addition, led by the senior management members, the functional committees including

the Risk Management Committee, the Asset and Liability Committee (“ALCO”), the Operations Committee, the

Information Technology Committee, approve policies and procedures formulated by various working committees and

functional management to identify, analyse, manage and control credit risk, market risk, liquidity risk, operational

risk and capital risks through the use of reliable and up-to-date management and information systems. Policies and

procedures are updated on an ongoing basis to reflect changes in markets, products and industry best practices.

The internal auditors also perform risk-based audits to ensure the soundness of the governance and compliance

with the policies and procedures.

The Group has established policies and procedures to govern the launch of new products and services. A working

committee, New Product Approval Committee, is delegated by the Management Committee to review and

approve new product and service. Composed of management members from key functional areas, the working

committee convenes meetings to assess and discuss product proposals of the Group. This aims to ensure that

risks are properly identified and effective control measures are in place to mitigate any risks involved prior to the

roll-out of any new product or service.



5 FINANCIAL RISK MANAGEMENT (continued)

(a) Credit risk

Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations.

Credit risk exists in the Group’s loans, leases, credit cards, trade finance and treasury transactions. There

is also credit risk in off-balance sheet financial arrangements such as loan commitments, trade-related

contingencies and transaction-related contingencies.

The Group has appointed the intermediate holding company, CCB, as its credit adviser. Credit Risk

Management is responsible for providing centralised credit risk management and control in the Group.

It is independent of the business units, and is headed by the Deputy Chief Executive overseeing Risk

Management who assists the Chief Executive Officer and the Risk Management Committee in the Group’s

credit risk management. The Risk Management Committee is a central forum for overseeing the Group’s

overall asset quality as well as resolving all the important risk or governance issues on credit risk, operational

risk, market risk, liquidity risk, interest rate risk, strategic risk and reputation risk. It is chaired by the

Deputy Chief Executive overseeing Risk Management, and the other members are the Group’s President

and Executive Director, the Chief Financial Officer, the Head of Risk Management, the Head of Legal and

Compliance, the Head of Market Risk and the Head of Operational Risk.

Credit Risk Management’s key functions include the followings:

– Ensure the Group’s risk profile is in line with the risk appetite and strategies set by the Bank.

– Establishing credit strategies, policies and procedures of the Group and issuing lending and monitoring

guidelines to credit officers and business units. Credit policies and procedures are constantly revisited

and updated whenever warranted to accommodate portfolio development, market changes and

regulatory requirements.

– Approving credits within the lending authority delegated by the Risk Management Committee according

to the risk, size and nature of the transactions.

– Maintaining the internal risk rating system for measurement of credit risk exposures. The Group adopts

a two dimensional risk rating methodology for the corporate portfolio, for which risk ratings are assigned

to the obligor and facility separately. This system provides granularity in the rating scale and hence

more refined risk differentiation for better risk and reward analysis and enhanced risk quantification.

For a certain part of the consumer portfolio, in-house scoring models are also adopted to measure the

credit risk involved.

– Monitoring and controlling large exposures, connected lending, product and industry concentration

based on established policies and internal risk limits to ensure prudent credit decisions are made and

that the Group complies with statutory requirements and supervisory guidelines.

– Monitoring criticised loans and managing recoveries of problem assets. Collection and problem asset

management are separately handled by specialised teams which possess the relevant experience and

expert knowledge.




(a) Credit risk (continued)

– Assessing collective and individual loan impairment losses and allowances regularly to ensure the

adequacy of impairment allowances.

– Managing and monitoring the Group’s overall asset quality.

– Supervising the stress-testing programme to provide a forward-looking assessment of the Group’s risk

exposures under stressed conditions, and enable the Group to project tail risks on a bank-wide basis, to

quantify such potential losses and the impact on the Bank in terms of profitability, liquidity and capital

adequacy.

– Co-ordinating and driving credit related initiatives throughout the Group to ensure compliance with

regulatory requirements.

(i) Credit risk for advances

In addition to underwriting standards, the Group manages credit risks through an effective and

prudent credit approval process. In making credit recommendations and decisions, only officers with

appropriate banking experience and product knowledge are delegated specific approval authorities.

There is an additional post-approval review process which monitors the quality of credit decisions and

issues. Results of the post-approval review are used to ensure quality of the credit decisions made, to

identify negative trends which need attention or actions, and to ensure adherence to existing policies

and procedures.

In the approval process, the credit officers assess the purpose and structure of the loan, the ability

of a particular borrower or counterparty to service the proposed facilities, as well as the nature of the

underlying collateral where applicable. The Group categorizes its loans and leases into either consumer

or corporate and commercial credits and monitors their risks separately as discussed below:

Consumer credits are grouped by products and their risk attributes for purposes of evaluating credit

risk, and on-going monitoring of asset quality. Standard credit underwriting criteria are established and

exceptional approvals for deviations from such criteria are required and monitored.

Corporate and commercial credits are evaluated for the default risk, taking into consideration the

related credit enhancements. To support the credit assessment, internal risk rating will be assigned

to the customers. These risk ratings are monitored regularly and updated upon any changes in the

borrower’s or counterparty’s financial position, repayment ability and the related credit enhancements.

(ii) Credit risk for treasury transactions

The credit risk of the Group’s investment in debt securities and treasury hedging transactions is

managed by the use of both internal and external credit ratings and credit limits set on individual

counterparties. Internal and external credit ratings, credit default swap prices and news on each

counterparty are closely tracked and monitored.





(iii) Credit-related commitments

The risks involved in credit-related commitments and contingencies are essentially the same as the

credit risk involved in extending loan facilities to customers. These transactions are therefore subject to

the same credit approval, portfolio maintenance and collateral requirements as for customers applying

for loans.

(iv) Collateral and other credit enhancements

The Group obtains collateral in respect of loans advanced to mitigate the credit risk of the transactions

and has established policies and guidelines on the eligibility and valuation of collateral and other

credit enhancements. However, the approval of credits will be based on the assessment of debt

servicing ability rather than solely dependent on collateral or other credit enhancements. The main

collateral types and credit enhancements include charges over properties, securities, deposits, account

receivables, investment funds, vehicles and machinery, and guarantees.

(v) Risk concentration

The Group sets various risk limits to control exposure to countries, individual counterparties, industries,

intra-group exposures and loan portfolios to avoid excessive risk concentration.

(vi) Credit review and audit

The internal auditors conduct periodic reviews and independent audits of the Group’s credit portfolio

and credit risk management process. This is mainly to ensure due compliance with established credit

policies and procedures, and to evaluate the effectiveness of the credit management process and

control mechanism. The results of these reviews and audits are reported to the Audit Committee as

well as the Board of Directors for effective oversight and monitoring.





(vii) Maximum exposure

2015 2014

Credit risk exposures relating to on-balance

sheet assets by class are as follows:

Cash and balances with banks and central banks 82,020,035 56,747,605

Placements with banks maturing between one

and twelve months 59,036,367 107,302,864


Advances to customers and trade bills 238,090,313 245,169,462

Financial instruments measured

at fair value through profit or loss 3,807 51,036

Available-for-sale financial assets 85,661,416 59,618,077

Held-to-maturity investments 5,473,670 –

Derivative financial instruments 6,289,264 1,060,654

Other assets 23,606,335 4,633,604

Credit risk exposures relating to

off-balance sheet items are as follows:

Financial guarantees and other credit related

contingent liabilities 3,003,644 3,115,303

Loan commitments and other credit related commitments 61,241,291 51,387,137

565,786,890 548,792,758

The above table shows the maximum credit risk exposure to the Group as at December 31, 2015

and 2014, without taking account of any collateral held, master netting agreements or other credit

enhancements attached. For on-balance sheet assets, the exposures set out above are based on

net carrying amounts. For letters of guarantee issued, the maximum exposure to credit risk is the

maximum amount that the Group could be required to pay if the guarantees are called upon. For loan

commitments and other credit related liabilities that are irrevocable over the life of the respective

facilities or revocable in the event of a significant adverse change, the maximum exposure to credit risk

is disclosed as the full amount of the committed facilities sought on these balances.





(vii) Maximum exposure (continued)

Credit risk mitigation, collateral and other credit enhancements

The Group uses a variety of techniques to reduce the credit risk arising from its lending activities.

Enforceable legal documentation establishes the Group’s direct, irrevocable and unconditional recourse

to any collateral, security or other credit enhancements provided. The table below describes the nature

of collateral held and their financial effect by class of financial asset:

Balances and placements with

banks and other financial

institutions

These exposures are generally considered to be low risk due to the

nature of the counterparties. Collateral is generally not sought on

these balances.

Derivative financial instruments Master netting agreements are typically used to enable the effects

of derivative assets and liabilities with the same counterparty to be

offset.


at fair value through profit or

loss – debt securities

These exposures are carried at fair value which reflects the credit

r isk. No collateral is sought directly from the issuer or the

counterparty.

Available-for-sale investment

securities – debt securities

The fair values of these securities have reflected the credit risk. No

collateral is sought directly from the issuer or the counterparty.

Securities lending Under the policy of the Group, collateral coverage ratio under

securities lending is 100%. When the collateral coverage ratio

drops below the coverage requirement, margin call would be

performed.

Loans and advances and trade

bills

These exposures are secured, partial ly secured or unsecured

depending on the type of customers and the products offered to

them. Types of collaterals include residential properties, other

properties, standby LC acceptable to the Group and bank deposits,

etc. Other credit enhancements mainly represent recognised

guarantee. Analysis of gross advances to customers covered by

collateral is listed in Unaudited Supplementary Financial Information

Note 4(a)(i).



Contingent liabilities and

commitments

The componen ts and na tu re o f con t i ngen t l i ab i l i t i es and

commitments is disclosed in Note 38. Regarding the commitments

that are unconditionally cancellable without prior notice, the

Group would assess the necessity to withdraw the credit line in

case the credit quality of a borrower deteriorates. Accordingly,

these commitments do not expose the Group to significant credit

risk. The exposure on commitments that are not unconditionally

cancellable including letter of credit, letter of guarantee issued and

other loan commitments and credit related liabilities are secured,

partially secured or unsecured depending on the type of customers

and the products offered to them.

(viii) Credit quality of gross advances to customers and trade bills and gross advances to banks

2015 2014

Gross advances to customers

Neither past due nor impaired 203,611,762 177,692,720

Past due but not impaired 671,568 699,582

Impaired 223,704 144,953

204,507,034 178,537,255

Trade bills


Past due but not impaired 1,834 –

Impaired 139,549 136,048

34,732,326 67,410,549

Gross advances to banks




(vii) Maximum exposure (continued)

Credit risk mitigation, collateral and other credit enhancements (continued)





(viii) Credit quality of gross advances to customers and trade bills and gross advances to banks

(continued)

(1) Neither past due nor impaired

The credit grading of gross advances and trade bills that were neither past due nor impaired can

be analysed by reference to the loan classification system as defined by the Hong Kong Monetary

Authority (“HKMA”) as follows:

2015 2014


Pass 203,435,151 177,608,927

Special mention 176,611 83,793

203,611,762 177,692,720

Trade bills

Pass 34,590,943 67,274,501

Gross advances to banks

Pass 1,360,748 19,707,687

(2) The aging analysis of gross advances to customers and trade bills which were past due but not

impaired are as follows:

2015 2014


Overdue three months or less 671,568 699,582

2015 2014

Trade bills

Overdue three months or less 1,834 –

(3) Impaired advances and trade bills

Classified or impaired advances to customers and trade bills follow the definition set out in the

Banking (Disclosure) Rules and represent advances which are either classified as “substandard”

or below under the Group’s classification of loan quality, or individually assessed to be impaired.

Details are shown in Note 19(d).





(ix) Credit quality of financial assets other than advances

The following table presents an analysis of investments in debt securities by rating agency designation

at the reporting date, based on Standard and Poor’s Ratings Services, or their equivalents, to the

respective issues of the debt securities. In the absence of such issue ratings, the ratings designated

for the issuers are reported. If there are different ratings for the same securities, the securities are

reported against the lower rating.

2015 2014

AAA 5,834,588 8,235,232

AA+ to A- 73,133,320 46,125,422

Lower than A- 8,928,836 3,565,883

Unrated 3,242,149 1,742,576

91,138,893 59,669,113

Of which classified as

Trading 3,807 12,046

Financial assets designated at fair value through profit or loss – 38,990



91,138,893 59,669,113





(x) Collateral and other credit enhancements held against financial assets

At the reporting date, the lower of gross loan amount and the estimated fair value of the collateral and

other credit enhancements held against financial assets is as follows:

2015 2014

Fair value of collateral and other credit enhancements

held against financial assets that are:

– neither past due nor impaired 120,190,174 126,633,168

– past due but not impaired 547,606 480,066

120,737,780 127,113,234

Collateral mainly includes residential properties, commercial and industrial properties and automobiles.

(xi) Repossession of collateral

During the year, the Group obtained assets by taking possession of collateral with the carrying amount as

follows:

2015 2014

Nature of collateral

Residential properties 2,730 –

Other assets 430 807

3,160 807

(b) Liquidity risk

Liquidity risk is the risk that the Bank may not be able to fund the increase in assets or meet obligations as

they fall due without incurring unacceptable losses. This may be caused by market disruption or liquidity

squeeze whereby the Bank may only unwind specific exposures at significantly discounted values.

The purpose of liquidity management is to ensure sufficient cash flows to meet all financial commitments

and to capitalise on opportunities for business expansion. This includes the Bank’s ability to meet deposit

withdrawals either on demand or at contractual maturity, to repay borrowings as they mature, to comply with

the statutory liquidity ratio, and to make new loans and investments as opportunities arise.

The Bank has established liquidity risk management policy which sets out the liquidity risk management

framework of the Bank, which has been enhanced according to the requirements of HKMA Supervisory

Policy Manual “Sound Systems and Controls for Liquidity Risk Management (LM2)” in 2011.




(b) Liquidity risk (continued)

Liquidity risk management framework

The Board of Directors is ultimately responsible for an effective liquidity risk management framework in

place. Risk Committee (RC) is one of the committees set up by the Board of Directors. The duties of RC

are to approve the risk management framework that is in line with the Bank’s business objectives and

risk profile, and ensure that the liquidity framework is duly implemented and maintained by the senior

management members.

Risk Management Committee (RMC) is set up to oversee the Bank’s overall asset quality as well as resolving

all important risk-related or governance issues on liquidity risk. The RMC is responsible for providing

guidance and overseeing the Bank’s liquidity risk management strategy and development; reviewing or

approving liquidity risk management policies and reviewing the Bank’s liquidity risk position.

ALCO is a functional committee delegated by the Bank’s senior management to oversee the liquidity risk

management in light of the business strategy.

Regular meetings of various committees are held to review the compliance status of liquidity measurements

and the needs of change in strategy and policy. Daily liquidity management is performed by the Treasury.

Risk Management Division is responsible for the daily monitoring of the liquidity limits and measurements,

and submits regular reports of the liquidity profile to ALCO. Internal Audit periodically performs independent

reviews on liquidity management framework to ensure the validity and effectiveness of the Bank’s liquidity

risk management functions.

Funding Strategies

The objective of the Bank’s funding strategy is to strive for a balance between business growth opportunities

and funding stability. The Bank seeks to maintain diversified and stable funding sources with an appropriate

mix of liabilities including customer deposits, interbank borrowings and issuance of negotiable certificates

of deposit. The annual budgeted balance sheet of the Bank, which contains a plan for the composition

of various sources of liabilities, is approved by the Board of Directors in each calendar year. Various

considerations such as the target business growth, market sentiment, target financial ratios and regulatory

requirements would be taken into account in the process of budgeting.

To manage the currency mismatch and avoid over-reliance on the currency swap market, the Bank sets limits

on swapped fund ratios of major currency positions which are subject to daily monitoring. The swapped fund

ratios limit the extent of one currency’s assets being funded by other currencies through the swap market.

The funding support provided by CCB is one of the important components in the Bank’s funding strategies.

The funding from CCB not only supports the Bank’s normal banking business but also provides additional

liquidity cushion in case of local market liquidity drain.





Stress scenario analysis

The Bank regularly performs liquidity stress tests to project the Bank’s cash flows under stress scenarios and

evaluate the sufficiency of liquidity cushion. The stress scenarios cover institution-specific crisis scenario,

general market crisis scenario and combined crisis scenario. The cash flows under each stress scenario are

determined by applying a standard set of prescribed stress assumptions to the Bank’s cash flow projection.

The stress test results are regularly reported to the RMC and ALCO. The definition of liquidity cushion being

held by the Bank is consistent to the definition of High Quality Liquid Assets for purposes of determining

the Bank’s Liquidity Coverage Ratio. It is the Bank’s policy that the liquidity cushion should be able to cover

projected cash outflows under various prescribed stress scenarios.

Contingency Funding Plan (CFP)

The Bank has a CFP that sets out the Bank’s strategies for identifying the occurrence of liquidity event and

the operational procedures for addressing such emergency situation if it really takes place. The CFP contains

a set of early warning indicators that helps to identify any emerging liquidity risks at an early stage. The CFP

also includes detailed action steps and properly assigned responsibilities within the liquidity risk management

framework. The list of potential funding sources, with due consideration of their reliability, priority and the

expected available time during liquidity crisis, is included.

The Bank has not entered into any agreement or arrangement under which the Bank has to fulfil contingent

funding obligations.

Liquidity measurements

(i) Maturity analysis

The maturity analysis lists out the assets and liabilities by their remaining maturities into different

time buckets. The gap amount for each time bucket represents the liquidity exposure after netting the

assets and liabilities maturing in the same bucket. The Bank maintains daily gap limits for each time

bucket to manage liquidity risk. For some liabilities without prescribed maturity date such as demand

deposits from customers, the liabilities are listed in the bucket of “Repayable on Demand”, resulting a

larger negative gap in this time bucket. The Bank considers this is an inherent risk to a consumer and

commercial bank that offers the demand deposit products to customers. By experience the demand

deposits have stable outstandings and the negative gap does not materialise into an immediate outflow

of liquidity. However, to mitigate the liquidity risk, inter-bank and other borrowing facilities, as well as

contingency funding plan are in place to cover withdrawals at unexpected levels of demand. Apart from

the stable customer deposits, the Bank has other sources to fund the earning assets, such as inter-

bank borrowings, certificates of deposit issued, funding support from CCB and share capital.





Liquidity measurements (continued)

(i) Maturity analysis (continued)

The table below sets out the maturity profile of assets and liabilities analysed by the remaining period

to repayment as at the reporting date:

As at December 31, 2015

Repayableon demand

1 month or less

3 months or less

but over 1 month

1 year or less

but over3 months

5 years or less

but over1 year

After 5 years Undated Total

AssetsCash and balances with banks

and central banks 14,288,136 67,731,899 – – – – – 82,020,035Placements with banks maturing

between one and twelve months – – 43,035,204 16,001,163 – – – 59,036,367Advances to banks – 347,938 176,586 836,224 – – – 1,360,748Advances to customers

and trade bills 9,887,425 30,394,075 28,365,035 62,799,680 71,840,585 34,803,513 – 238,090,313Financial instruments measured

at fair value through profit or loss – – – 3,306 501 – – 3,807Available-for-sale financial assets – 6,166,128 12,809,016 18,613,769 45,547,340 2,525,163 33,843 85,695,259Held-to-maturity investments – – 4,974,833 – 498,837 – – 5,473,670Derivative financial instruments – 1,094,063 1,155,428 3,842,658 197,115 – – 6,289,264Interest in a joint venture – – – – – – 1,937,240 1,937,240Interest in an associate – – – – – – 265,914 265,914Deferred tax assets – – – – – – 112,428 112,428Fixed assets – – – – – – 3,563,991 3,563,991Other assets 3,048 21,834,046 708,584 501,807 565,759 45,408 815 23,659,467 Total assets 24,178,609 127,568,149 91,224,686 102,598,607 118,650,137 37,374,084 5,914,231 507,508,503 LiabilitiesDeposits and balances of banks 2,869,495 70,172,349 2,099,963 5,823,273 – – – 80,965,080Deposits from customers 64,339,855 86,292,456 78,925,916 75,292,510 774,647 – – 305,625,384Certificates of deposit and other

debt securities issued – 4,379,911 16,507,802 11,043,756 18,687,865 1,882,553 – 52,501,887Derivative financial instruments – 1,126,117 1,324,170 3,911,372 383,066 – – 6,744,725Current tax payable – – – 146,728 – – – 146,728Deferred tax liabilities – – – – – – 18,276 18,276Other liabilities 1,297 4,491,777 1,185,459 1,188,709 187,205 9,097 2,833,743 9,897,287Subordinated debts – – – – – 5,776,365 – 5,776,365 Total liabilities 67,210,647 166,462,610 100,043,310 97,406,348 20,032,783 7,668,015 2,852,019 461,675,732 Net (liabilities)/assets gap (43,032,038) (38,894,461) (8,818,624) 5,192,259 98,617,354 29,706,069 3,062,212 45,832,771 Of which:Debt securities included in:– trading assets – – – 3,306 501 – – 3,807– available-for-sale financial assets – 6,166,128 12,809,016 18,613,769 45,547,340 2,525,163 – 85,661,416– held-to-maturity investments – – 4,974,833 – 498,837 – – 5,473,670






(i) Maturity analysis (continued)


Repayable

on demand

1 month

or less

3 months

or less

but over

1 month

1 year

or less

but over

3 months

5 years

or less

but over

1 year

After

5 years Undated Total

AssetsCash and balances with banks

and central banks 9,800,544 46,947,061 – – – – – 56,747,605

Placements with banks maturing

between one and twelve months – – 52,168,245 55,134,619 – – – 107,302,864

Advances to banks – 6,140,077 8,554,044 5,012,895 – – – 19,707,016

Advances to customers

and trade bills 8,474,850 19,086,185 45,622,649 87,500,450 53,407,792 31,077,536 – 245,169,462


at fair value through profit or loss – – 38,990 4,551 7,495 – – 51,036

Available-for-sale financial assets – 7,238,801 8,439,383 21,481,962 20,103,432 2,354,499 31,287 59,649,364

Derivative financial instruments – 558,139 271,922 180,201 50,392 – – 1,060,654

Interest in a joint venture – – – – – – 1,893,902 1,893,902

Interest in an associate – – – – – – 237,428 237,428

Deferred tax assets – – – – – – 116,732 116,732

Fixed assets – – – – – – 3,627,061 3,627,061

Other assets 2,442 2,704,063 735,183 675,420 507,837 44,971 828 4,670,744

Total assets 18,277,836 82,674,326 115,830,416 169,990,098 74,076,948 33,477,006 5,907,238 500,233,868

LiabilitiesDeposits and balances of banks 2,742,758 41,612,540 43,676,467 13,914,506 – – – 101,946,271

Deposits from customers 38,654,886 67,505,592 90,693,080 75,963,716 1,686,994 – – 274,504,268

Certificates of deposit and other

debt securities issued – 2,258,667 5,437,068 37,615,022 19,716,564 1,991,262 – 67,018,583

Derivative financial instruments – 420,910 128,718 162,361 341,162 – – 1,053,151

Current tax payable – – – 168,676 – – – 168,676

Deferred tax liabilities – – – – – – 20,042 20,042

Other liabilities 5,753 1,033,557 1,114,251 1,265,552 201,691 9,618 2,833,064 6,463,486

Subordinated debts – – – – – 5,766,117 – 5,766,117

Total liabilities 41,403,397 112,831,266 141,049,584 129,089,833 21,946,411 7,766,997 2,853,106 456,940,594

Net (liabilities)/assets gap (23,125,561) (30,156,940) (25,219,168) 40,900,265 52,130,537 25,710,009 3,054,132 43,293,274

Of which:

Debt securities included in:

– trading assets – – – 4,551 7,495 – – 12,046

– financial assets designated

at fair value through profit or loss – – 38,990 – – – – 38,990

– available-for-sale financial assets – 7,238,801 8,439,383 21,481,962 20,103,432 2,354,499 – 59,618,077




(b) Liquidity risk (continued)Liquidity measurements (continued)

(ii) Undiscounted cash flows by contractual maturities

The following table details the remaining contractual maturities at the reporting date of the Group’s

financial liabilities, which are based on contractual undiscounted cash flows (including interest

payments computed using contractual rates or, if floating, based on rates current at the reporting date)

and the earliest date to pay.


Repayable

on demand

1 month

or less

3 months

or less

but over

1 month

1 year

or less

but over

3 months

5 years

or less

but over

1 year

After


Non-derivative

financial liabilities

Deposits and balances of banks 2,869,495 70,193,020 2,103,626 5,908,868 – – – 81,075,009

Deposits from customers 64,339,855 86,357,446 79,265,808 76,039,710 831,692 – – 306,834,511





Other liabilities 683,581 4,364,251 1,011,603 809,396 185,616 9,097 2,833,743 9,897,287

Subordinated debts – 77,898 143,333 501,962 1,808,202 6,076,304 – 8,607,699

67,892,931 165,409,591 99,260,977 94,755,348 22,839,783 9,230,583 2,852,019 462,241,232

Cash flow of derivatives settled

on a net basis – (38,944) (48,381) (200,075) 71,107 – – (216,293)

Cash flow of derivatives settled

on a gross basis

– inflow – 140,164,698 154,251,274 275,134,127 7,033,602 – – 576,583,701

– outflow – 140,194,973 154,260,276 275,511,130 7,650,569 – – 577,616,948

Contingent liabilities and

commitments

– contingent liabilities 332,991 135,831 550,955 1,733,183 148,947 101,737 – 3,003,644

– commitments 49,125,258 247,141 144,448 3,600,801 8,122,643 1,000 – 61,241,291






(ii) Undiscounted cash flows by contractual maturities (continued)


Repayable

on demand

1 month

or less

3 months

or less

but over

1 month

1 year

or less

but over

3 months

5 years

or less

but over

1 year

After


Non-derivative financial liabilities

Deposits and balances of banks 2,742,758 41,646,530 43,805,446 14,095,782 – – – 102,290,516

Deposits from customers 38,654,886 67,574,438 91,176,438 76,985,659 1,688,859 – – 276,080,280





Other liabilities 5,753 1,033,557 1,114,251 1,265,552 201,691 9,618 2,833,064 6,463,486

Subordinated debts – – 123,599 123,599 988,788 7,002,102 – 8,238,088

41,403,397 112,629,602 141,838,766 131,351,345 24,124,401 9,254,433 2,853,106 463,455,050

Cash flow of derivatives settled on a net basis – 39,595 29,005 (17,761) 17,873 – – 68,712

Cash flow of derivatives settled on a gross basis

– inflow – 64,369,117 50,051,861 47,346,323 5,464,835 – – 167,232,136

– outflow – 64,098,394 50,003,594 47,361,216 6,174,916 – – 167,638,120

Contingent liabilities and commitments

– contingent liabilities 424,628 – 751,361 1,863,075 76,239 – – 3,115,303

– commitments 44,007,670 – 950,905 2,005,511 4,423,051 – – 51,387,137




(c) Market risk

Market risk management by the Group

Market risk is the risk of loss arising from adverse changes in market rates and prices such as foreign

exchange rates and interest rates and prices of debt securities. The Group’s exposure to market risk arises

from its day-to-day activities associated with loans, deposits, securities held for liquidity purposes and

proprietary trading positions.

The Group’s Risk Management Committee is responsible for overseeing the market risk of the Group. The

Group’s market risk framework comprises market risk management policies and control procedures with

appropriate delegation of market risk limits.

The Group’s trading activities are primarily related to foreign exchange and money market transactions. The

Group manages its exposure to market risk through the establishment of various trading limits. In addition

to the overall limits, documented trading policies and procedures define acceptable boundaries within which

traders can execute transactions in their assigned markets.

Value-at-Risk (“VaR”) for the Group

VaR is a technique which estimates the potential losses that could occur on risk positions taken due to

movements in market rates and prices over a specified time horizon and to a given level of confidence. The

Group uses VaR to measure and report the trading book market risk position. The Group sets up VaR limit to

control the trading book maximum market risk exposure. The Group adopts historical simulation approach to

calculate VaR at a 99% confidence level for a one-day holding period.

The table below shows the trading VaR for the Group.

2015 2014

Trading VaR 5,027 1,455

Trading VaR for interest rate risk 3,841 1,454

Trading VaR for foreign exchange risk 1,437 186

(i) Currency risk

Currency risk management by the Group

The Group’s foreign currency positions arise from treasury activities and foreign exchange dealing

to support the commercial and consumer banking operations. The Group has formulated a foreign

exchange policy in managing the Group’s foreign exchange risk. The foreign currency positions are

managed within established limits, including open risk position limits.

In addition to adopting VaR to measure foreign exchange risk, a stress testing programme was

developed to assess the potential loss that the Group may incur from the foreign exchange positions.

The stress testing programme incorporates sensitivity analysis on changes in foreign exchange rates

with various degree of severity. The methodology and assumptions of stress testing programme are

properly documented, reviewed and approved by the Risk Management Committee and/or the Steering

Committee on Stress-testing, with its update at least once a year or when the portfolio or the market

conditions changes significantly.




(c) Market risk (continued)

(i) Currency risk (continued)

Currency risk management by the Group (continued)

The Group developed the medium stress scenario based on annualized volatility (95% confidence

interval) of major foreign currencies in past 10-year historical record, as well as some forward-looking

adjustment factor(s). The stress testing is conducted on outstanding foreign exchange positions. The

prior year figures have been restated to conform with the current year’s presentation. The result of the

medium stress scenario are used to estimate the impact on the Group’s profit before tax in response

to the changes in the foreign exchange rates as specified in the stress testing programme and the

result is as follows (Note 1):

Increase/(decrease)

in Group’s profit

before taxation

2015 2014

(Restated)

Increase in foreign exchange rates 10,942 (7,121)

Decrease in foreign exchange rates (10,942) 7,121

The following percentage changes are adopted on the significant foreign currency positions in stress

testing (for medium stress scenario)(*):

– 0.8% for United States dollars (2014: 0.8%);

– 11.8% for Chinese Renminbi (2014: 4.5%) (Note);

– 16.7% for Euro (2014: 16.1%);

– 15.3% for Pound Sterling (2014: 15.2%);

– 23.8% for Australian dollars (2014: 23.5%); and

– 21.0% for Swiss Franc (2014: 18.0%).

(*) The above estimation excluded the RMB capital

Note: The stress scenario for Chinese Renminbi position was formulated taking the reform of central parity rate on

August 11, 2015 into consideration. The historical data from August 11, 2015 till December 31, 2015 was adopted

consequentially to replace the original data of the past 10 years.






The following table indicates the currency concentration of the Group’s assets and liabilities.


HKD USD EUR RMB Others Total

Assets

Cash and balances with banks

and central banks 34,759,107 32,674,898 2,008,248 11,887,496 690,286 82,020,035


between one and twelve months 26,167,000 25,614,246 1,777,183 5,472,595 5,343 59,036,367

Advances to banks – 659,277 25,840 675,631 – 1,360,748

Advances to customers and trade bills 120,847,984 71,373,210 3,609,238 41,383,132 876,749 238,090,313


at fair value through profit or loss 3,690 – – 117 – 3,807

Available-for-sale financial assets 10,711,549 39,163,099 2,405,245 33,415,366 – 85,695,259

Held-to-maturity securities 4,698,793 774,877 – – – 5,473,670

Derivative financial instruments 29,936 5,817,941 133,189 180,392 127,806 6,289,264

Interest in a joint venture 1,937,240 – – – – 1,937,240

Interest in an associate 265,914 – – – – 265,914

Deferred tax assets 112,428 – – – – 112,428

Fixed assets 3,563,991 – – – – 3,563,991

Other assets 1,271,987 21,095,507 99,419 1,166,428 26,126 23,659,467

Spot assets 204,369,619 197,173,055 10,058,362 94,181,157 1,726,310 507,508,503

Liabilities

Deposits and balances of banks 15,073,042 51,201,028 13,456 14,578,200 99,354 80,965,080

Deposits from customers 159,077,491 65,835,343 1,111,420 74,810,896 4,790,234 305,625,384


debt securities issued 5,757,932 21,475,422 4,477,590 18,449,378 2,341,565 52,501,887

Derivative financial instruments 12,490 375,614 64,478 5,767,536 524,607 6,744,725

Current tax payable 130,269 400 – 16,059 – 146,728

Deferred tax liabilities 18,276 – – – – 18,276

Other liabilities 7,666,243 818,227 107,788 1,215,391 89,638 9,897,287

Subordinated debts – 5,776,365 – – – 5,776,365

Spot liabilities 187,735,743 145,482,399 5,774,732 114,837,460 7,845,398 461,675,732

Forward purchases 52,628,184 276,397,940 6,578,096 250,783,162 14,830,078 601,217,460

Forward sales (24,118,027) (321,724,064) (10,837,168) (235,492,862) (9,077,957) (601,250,078)

Net long/(short) position 45,144,033 6,364,532 24,558 (5,366,003) (366,967) 45,800,153







HKD USD EUR RMB Others Total

Assets


and central banks 22,319,198 13,614,131 411,261 19,612,561 790,454 56,747,605


between one and twelve months 18,103,523 14,347,120 15,086 74,833,502 3,633 107,302,864

Advances to banks 219,292 12,254,256 260,732 6,939,863 32,873 19,707,016

Advances to customers and trade bills 98,650,573 69,011,116 647,430 76,433,264 427,079 245,169,462


at fair value through profit or loss 11,537 38,990 – 509 – 51,036

Available-for-sale financial assets 23,145,074 5,500,673 – 30,908,166 95,451 59,649,364

Derivative financial instruments 22,735 831,379 10,575 122,740 73,225 1,060,654

Interest in a joint venture 1,893,902 – – – – 1,893,902

Interest in an associate 237,428 – – – – 237,428

Deferred tax assets 116,732 – – – – 116,732

Fixed assets 3,627,061 – – – – 3,627,061

Other assets 1,203,030 1,703,483 11,711 1,711,921 40,599 4,670,744

Spot assets 169,550,085 117,301,148 1,356,795 210,562,526 1,463,314 500,233,868

Liabilities

Deposits and balances of banks 19,904,485 39,089,895 2,386 42,718,399 231,106 101,946,271

Deposits from customers 126,857,126 66,211,576 423,891 76,810,349 4,201,326 274,504,268


debt securities issued 5,774,396 30,977,444 – 27,924,808 2,341,935 67,018,583

Derivative financial instruments 18,769 149,934 19,770 299,720 564,958 1,053,151

Current tax payable 163,676 260 4 4,733 3 168,676

Deferred tax liabilities 20,042 – – – – 20,042

Other liabilities 4,328,236 735,374 10,964 1,329,166 59,746 6,463,486

Subordinated debts – 5,766,117 – – – 5,766,117

Spot liabilities 157,066,730 142,930,600 457,015 149,087,175 7,399,074 456,940,594

Forward purchases 24,728,473 121,581,492 550,009 59,879,287 11,077,246 217,816,507

Forward sales (16,255,969) (94,913,588) (1,447,935) (99,452,898) (5,632,292) (217,702,682)

Net long/(short) position (Note) 20,955,859 1,038,452 1,854 21,901,740 (490,806) 43,407,099

Note: The net long position in RMB was mainly representing the RMB assets in relation to the RMB capital.





(ii) Interest rate risk

Interest rate risk management by the Group

The Group’s interest rate exposure arises from the positions in the banking book and proprietary

trading. The interest rate risk exposure in the banking book arises from its normal course of banking

activities, such as lending, accepting deposits, investing in securities for liquidity purposes and issuance

of debts as needed to fund assets. The governing objective in interest rate risk management is to

minimise the potential significant loss as a result of changes in interest rates. The Group holds weekly

interest rate setting meetings to review the latest market rate movements and the overall portfolio

yield. Interest rate risk is managed on a daily basis by the Treasury Division within the limits approved

by the Risk Management Committee. The instruments used to manage interest rate risk include

interest rate swaps and other derivatives.

The Group is exposed to two major sources of interest rate risk, namely, repricing risk and basis risk.

Repricing risk arises from the timing differences in rate changes and cash flows that occur in the

repricing and maturity of fixed and floating rate assets and liabilities, and, to a much less significant

extent, contingent liabilities and commitments (e.g. loan commitments). The Group uses forward

rate agreements and interest rate swaps to mitigate the repricing risk. The Group generally monitors

mismatches by monthly time buckets up to one year and by yearly time buckets thereafter.

Basis risk arises from different pricing basis of assets and liabilities, which results in changes in

the yield on assets and cost of liabilities by different amount within the same repricing period. For

example, loan assets are being tied to the Hong Kong dollar prime rate, and deposit liabilities tied to

the Hong Kong Interbank Offer Rate (“HIBOR”). Basis risk primarily occurs in the Group’s Hong Kong

dollar books. The Group has established stress testing programme to assess the potential erosion of

net interest income that the Group may incur from basis risk.

The Group mainly uses two methodologies to measure and monitor its interest rate risk exposure. One

methodology is VaR measurement. Another methodology is using stress test to assess the banking

book interest rate risk (“IRRBB”). In 2015, the IRRBB stress-testing has further incorporated the

repricing gap and several types of yield curve movement. The prior year figures have been restated

to conform with the current year’s presentation. For interest rate risk monitoring purpose, the Risk

Management Committee reviews the IRRBB stress-testing from time to time, in particular when

reviewing the repricing limits.





(ii) Interest rate risk (continued)

Interest rate risk management by the Group (continued)

Based on data of the statement of financial position and the IRRBB stress-testing results, change of

100 basis points in interest rates would change the Group’s profit before tax as follows:

Increase/(decrease)

in Group’s profit before

taxation

2015 2014

(Restated)

Increase by 100 basis points 379,448 361,866

Decrease by 100 basis points (379,448) (361,866)

Interest rate repricing gap

The table below summarises the Group’s exposure to interest rate risks. Included in the table are the

Group’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing

or maturity dates. The carrying amounts of derivative financial instruments, which are principally used

to reduce the Group’s exposure to interest rate movements, are under the heading “Non-interest

bearing”.






Interest rate repricing gap as at December 31, 2015

1 month

or less

3 months

or less

but over

1 month

1 year

or less

but over

3 months

5 years

or less

but over

1 year

After

5 years

Non-interest

bearing Total

Assets


and central banks 67,761,554 – – – – 14,258,481 82,020,035


between one and twelve months – 43,035,204 16,001,163 – – – 59,036,367

Advances to banks 292,665 206,019 862,064 – – – 1,360,748


and trade bills 135,921,123 57,417,162 30,226,254 13,365,050 26,781 1,133,943 238,090,313


at fair value through profit or loss – 501 3,306 – – – 3,807

Available-for-sale financial assets 6,940,345 16,205,829 20,649,396 39,340,683 2,525,163 33,843 85,695,259

Held-to-maturity securities – 4,974,833 – 498,837 – – 5,473,670

Derivative financial instruments – – – – – 6,289,264 6,289,264

Interest in a joint venture – – – – – 1,937,240 1,937,240

Interest in an associate – – – – – 265,914 265,914

Deferred tax assets – – – – – 112,428 112,428

Fixed assets – – – – – 3,563,991 3,563,991

Other assets 2,737 5 26 – – 23,656,699 23,659,467

Total assets 210,918,424 121,839,553 67,742,209 53,204,570 2,551,944 51,251,803 507,508,503

Liabilities

Deposits and balances of banks 70,463,035 2,099,963 6,068,596 – – 2,333,486 80,965,080

Deposits from customers 133,415,902 87,027,829 67,306,061 738,979 – 17,136,613 305,625,384


debt securities issued 5,084,260 16,772,554 10,924,772 17,838,045 1,882,256 – 52,501,887


Current tax payable – – – – – 146,728 146,728

Deferred tax liabilities – – – – – 18,276 18,276

Other liabilities – – – – – 9,897,287 9,897,287

Subordinated debts – – – – 5,776,365 – 5,776,365

Total liabilities 208,963,197 105,900,346 84,299,429 18,577,024 7,658,621 36,277,115 461,675,732

Net repricing gap 1,955,227 15,939,207 (16,557,220) 34,627,546 (5,106,677)






Interest rate repricing gap as at December 31, 2014

1 month

or less

3 months

or less

but over

1 month

1 year

or less

but over

3 months

5 years

or less

but over

1 year

After

5 years

Non-interest

bearing Total

Assets


and central banks 46,988,116 – – – – 9,759,489 56,747,605


between one and twelve months – 52,168,246 55,134,618 – – – 107,302,864

Advances to banks 6,263,408 8,735,024 4,708,584 – – – 19,707,016


and trade bills 113,382,168 81,008,006 44,622,182 5,227,370 34,643 895,093 245,169,462


at fair value through profit or loss – 40,594 10,318 124 – – 51,036

Available-for-sale financial assets 7,439,527 9,124,306 20,936,356 19,763,389 2,354,499 31,287 59,649,364


Interest in a joint venture – – – – – 1,893,902 1,893,902

Interest in an associate – – – – – 237,428 237,428

Deferred tax assets – – – – – 116,732 116,732

Fixed assets – – – – – 3,627,061 3,627,061

Other assets 376 16 76 470 – 4,669,806 4,670,744

Total assets 174,073,595 151,076,192 125,412,134 24,991,353 2,389,142 22,291,452 500,233,868

Liabilities

Deposits and balances of banks 41,868,226 43,676,466 13,914,505 – – 2,487,074 101,946,271

Deposits from customers 93,838,572 96,392,534 72,635,132 55,660 – 11,582,370 274,504,268


debt securities issued 3,883,837 9,463,584 33,077,607 18,602,257 1,991,298 – 67,018,583


Current tax payable – – – – – 168,676 168,676

Deferred tax liabilities – – – – – 20,042 20,042

Other liabilities – – – – – 6,463,486 6,463,486

Subordinated debts – – – – 5,766,117 – 5,766,117

Total liabilities 139,590,635 149,532,584 119,627,244 18,657,917 7,757,415 21,774,799 456,940,594

Net repricing gap 34,482,960 1,543,608 5,784,890 6,333,436 (5,368,273)




(d) Capital management

Being an authorised institution incorporated in Hong Kong, the Bank is regulated by the HKMA who sets and

monitors capital requirements for the Bank as well as the consolidated position for the banking subsidiaries as

prescribed by the HKMA. A non-banking financial subsidiary, CCBS, is subject to the supervision and capital

requirements of the Hong Kong Securities and Futures Commission.

According to the Banking (Capital) Rules (“Capital Rules”), the Group is required to maintain adequate

regulatory capital to support credit risk, market risk and operational risk.

In addition to meeting the regulatory requirements, the Group’s primary objectives when managing capital

are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns

for shareholders and benefits for other stakeholders, by pricing products and services commensurately with

the level of risk and by securing access to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between

higher shareholder returns and the advantages and security afforded by a sound capital position, and, when

necessary, makes adjustments to the capital structure in light of changes in economic conditions.

The Group monitors its capital structure on the basis of the capital adequacy ratio as calculated in accordance

with the Capital Rules and there have been no material changes in the Group’s policy on the management of

capital during the year.

The Group has formulated a policy on internal capital adequacy assessment process (“CAAP”) that sets out

the methodologies, assumptions and techniques that the Group adopts in allocating the capital requirements

on the residual risks that are not covered by the Capital Rules. The Group adopts the scoring approach in

deriving the internal minimum capital requirement.

Throughout the years ended December 31, 2015 and 2014, the Group has complied with the capital

requirements imposed by the HKMA. Additional information is disclosed in Unaudited Supplementary

Financial Information Note 3.




(e) Fair value of financial assets and liabilities

(i) Financial assets and liabilities measured at fair value

Fair value estimates are generally subjective in nature, and are made as of a specific point in time

based on the characteristics of the financial instruments and relevant market information. The Group

measures fair value using the following hierarchy method:

Level 1: fair values measured using quoted market prices (unadjusted) in active markets for identical

financial instruments.

Level 2: fair values measured using valuation techniques based on observable inputs, either directly

(i.e. as prices) or indirectly (i.e. derived from prices). This category includes quoted prices

in active markets for similar financial instruments, or quoted prices for identical or similar

instruments in markets that are considered less than active, or other valuation techniques

where all significant inputs are directly or indirectly observable from market data.

Level 3: fair values measured using significant unobservable inputs. This category includes inputs

to valuation techniques not based on observable data and the unobservable inputs have

a significant effect on the instrument’s valuation. This category includes instruments that

are valued based on quoted prices for similar instruments where significant unobservable

adjustments or assumptions are required to reflect differences between the instruments.

Where available, the most suitable measure for fair value is the quoted market price. In the absence of

organised secondary markets for most of the unlisted securities and over-the-counter derivatives, direct

market prices of these financial instruments may not be available. The fair values of such instruments

are therefore calculated based on established valuation techniques using current market parameters or

market prices provided by counterparties.

Options traded over the counter are valued using broker quotes price. For other derivative financial

instruments, the Group uses estimated discounted cash flows to determine their fair value and the

discount rate used is a market rate at the end of the reporting period applicable for an instrument with

similar terms and conditions. The fair value of interest rate swaps and currency swaps are calculated

as the present value of the estimated future cash flows. The fair value of forward foreign exchange

contracts is determined using forward exchange market rates at the reporting date.




(e) Fair value of financial assets and liabilities (continued)

(i) Financial assets and liabilities measured at fair value (continued)

The table below analyses financial instruments measured at fair value at the end of the reporting

period, by the level in the fair value hierarchy into which the fair value treatment is categorised:

Level 1 Level 2 Total


Assets

Held for trading:

debt securities 3,807 – 3,807

Available-for-sale securities:

treasury bills 7,829,047 3,368,011 11,197,058

certificates of deposit 347,894 27,378,381 27,726,275

debt securities 42,770,814 3,967,269 46,738,083

equity securities 16,607 – 16,607

Derivatives financial instruments:

exchange rate contracts

forwards – 5,893,443 5,893,443

options purchased – 257,833 257,833

interest rate swaps – 31,275 31,275

currency swaps – 91,867 91,867

equity options purchased – 14,586 14,586

equity swaps – 260 260

50,968,169 41,002,925 91,971,094

Liabilities


debt securities issued – 6,315,883 6,315,883



forwards – 6,162,908 6,162,908

options written – 257,833 257,833


currency swaps – 257,421 257,421

equity options issued – 260 260

equity swaps – 14,586 14,586

Subordinated debts – 5,776,365 5,776,365

– 18,836,973 18,836,973





(i) Financial assets and liabilities measured at fair value (continued)

Level 1 Level 2 Total


Assets

Held for trading:


Designated at fair value through profit or loss:


Available-for-sale securities:

treasury bills 2,846,069 8,199,290 11,045,359

certificates of deposit 232,358 18,430,161 18,662,519

debt securities 26,707,510 3,202,689 29,910,199

equity securities 14,048 – 14,048



forwards – 968,567 968,567

options purchased – 70,909 70,909


equity options purchased – 10,155 10,155


29,851,021 30,892,794 60,743,815

Liabilities



forwards – 669,425 669,425

options written – 70,909 70,909


cross currencies swaps – 288,379 288,379

equity options issued – 10,155 10,155


– 1,053,151 1,053,151

There were no significant transfers between instruments in Level 1 and Level 2 for the year ended

December 31, 2015 and 2014.





(ii) Financial assets and liabilities not measured at fair value

Financial assets and liabilities that are presented not at their fair value on the statement of financial

position mainly represent cash and balances with banks, placements with and advances to banks, and

advances to customers and trade bills. These financial assets are measured at amortised cost less

impairment. Financial liabilities not presented at their fair value on the statement of financial position

mainly represent deposits and balances of banks, deposits from customers, and certificates of deposit

and other debt securities issued. These financial liabilities are measured at amortised cost.

The Group assessed that, except for medium term notes in other debt securities and subordinated

debts measured at amortised cost and their fair values are stated in Note 32 and 34 respectively,

the differences between fair values and carrying amounts of those financial assets and liabilities not

presented on the Group’s consolidated statement of financial position at their fair values are minimal as

most of the Group’s financial assets and liabilities are either short-term or priced at floating rates.

(f) Offsetting financial assets and financial liabilities

(i) Financial assets

The following financial assets are subject to offsetting, enforceable master netting arrangements or

similar agreements.


Gross amounts of recognised

financial assets



set off in the

statement of financial

position

Net amounts of

financial assets

presented in the


position

Related amounts not set off

in the statement of financial position

Financial instruments

Cash collateral received

Net amount

Derivative financial assets 6,289,264 – 6,289,264 (4,106,646) – 2,182,618 Other assets 74,998 (53,555) 21,443 – – 21,443

6,364,262 (53,555) 6,310,707 (4,106,646) – 2,204,061




(f) Offsetting financial assets and financial liabilities (continued)

(i) Financial assets (continued)


Gross

amounts of

recognised

financial

assets

Gross

amounts of

recognised

financial

liabilities

set off

in the

statement

of financial

position

Net

amounts of

financial

assets

presented

in the

statement

of financial

position



Financial

instruments

Cash

collateral

received

Net

amount

Derivative financial assets 1,060,654 – 1,060,654 (454,514) – 606,140

Other assets 246,741 (171,466) 75,275 – – 75,275

1,307,395 (171,466) 1,135,929 (454,514) – 681,415

(ii) Financial liabilities

The following financial liabilities are subject to offsetting, enforceable master netting arrangements and

similar agreements.





financial assets set off in the


position

Net amounts

of financial liabilities

presented in the


position



Financial instruments

Cash collateral received

Net amount

Derivative financial liabilities 6,744,725 – 6,744,725 (4,106,646) – 2,638,079

Other liabilities 149,554 (90,276) 59,278 – – 59,278

6,894,279 (90,276) 6,804,003 (4,106,646) – 2,697,357




(f) Offsetting financial assets and financial liabilities (continued)

(ii) Financial liabilities (continued)


Gross

amounts of

recognised

financial

liabilities

Gross

amounts of

recognised

financial

assets

set off

in the

statement

of financial

position

Net

amounts of

financial

liabilities

presented

in the

statement

of financial

position



Financial

instruments

Cash

collateral

received Net amount

Derivative financial liabilities 1,053,151 – 1,053,151 (454,514) – 598,637

Other liabilities 110,906 (75,617) 35,289 – – 35,289

1,164,057 (75,617) 1,088,440 (454,514) – 633,926

For the financial assets and liabilities subject to enforceable master netting arrangements or similar

arrangements above, each agreement between the Group and the counterparty allows for net

settlement of the relevant financial assets and liabilities when both elect to settle on a net basis, in the

absence of such an election, financial assets and liabilities will be settled on a gross basis, however,

each party to the master netting agreement or similar agreement will have the option to settle all such

amounts on a net basis in the event of default of the other party.



6 NET INTEREST INCOME

2015 2014

Interest income

Interest income arising from financial assets that are not measured

at fair value through profit or loss

Placements and advances to banks 3,676,277 3,243,348


Available-for-sale financial assets 1,812,990 733,502

Held-to-maturity investments 7,201 –

12,865,718 11,580,535

Interest expense

Interest expense arising from financial liabilities that are not measured


Deposits and balances of banks 1,643,893 1,583,693

Deposits from customers 4,127,563 3,813,315

Certificates of deposit and other debt securities issued 1,391,679 1,352,710

Subordinated debt – 91,062

7,163,135 6,840,780

Interest expense arising from financial liabilities that are measured


Certificates of deposit and other debt securities issued 101,537 –

Subordinated debt 251,582 –

353,119 –

Net Interest Income 5,349,464 4,739,755

There were no interest income accrued on impaired financial assets for the year ended December 31, 2015 and

2014.



7 NET FEES AND COMMISSION INCOME

2015 2014

Fees and commission income

Agency fees

– securities 293,059 216,300

– insurance services 196,031 152,887

Remittance, settlement and account management fees 83,851 53,915

Management fees received from intermediate holding company (Note 37(a)) 380,491 360,617

Trade finance 102,620 174,741

Credit cards related 143,977 127,571

Loan related 43,800 90,118

Others 5,407 5,482

1,249,236 1,181,631

Fees and commission expense

Credit cards related (42,964) (45,995)

Brokerage (41,932) (25,814)

Others (89,754) (62,088)

(174,650) (133,897)

Net fees and commission income 1,074,586 1,047,734

Of which:

Net fee and commission income, other than amounts included in determining the effective interest rate, arising

from financial assets or financial liabilities that are neither held for trading nor designated at fair value through

profit or loss.

– fee and commission income 290,397 392,430

– fee and commission expense (42,964) (50,522)



8 NET TRADING LOSSES

2015 2014

Foreign exchange (170,970) (765,396)

Interest rate contracts (11,680) (13,173)

Options 43,800 67,332

Interest income from listed securities 639 415

Net (losses)/gains of debt securities (1,068) 722

(139,279) (710,100)

“Foreign exchange” under “Net trading losses” includes gains and losses from spot and forward contracts,

options and translated foreign currency assets and liabilities, which are not designated as qualifying hedging

relationship.

Net trading losses for 2015 included the foreign exchange losses of RMB assets in relation to RMB capital

injection amounted to HK$183 million (2014: HK$580 million).

9 NET (LOSSES)/GAINS FROM FINANCIAL INSTRUMENTS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

2015 2014

Interest income 394 34,776

Net losses (213) (26,452)

Fair value change of debt securities (76,723) –

(76,542) 8,324

10 OTHER OPERATING INCOME

2015 2014

Dividend income from available-for-sale equity financial assets

unlisted 3,900 3,678

listed 77 70

Others 47,473 37,932

51,450 41,680



11 OPERATING EXPENSES

2015 2014

Staff costs

salaries and other benefits 1,362,701 1,249,850

pension and provident fund costs 99,258 95,704

1,461,959 1,345,554

Premises and equipment expenses excluding depreciation

rental of premises 374,755 368,294

reversal of impairment on fixed assets (2) (18)

maintenance 60,676 107,543

leasing of equipment 29,194 23,665

others 119,747 109,401

584,370 608,885

Auditor’s remuneration 6,864 6,489

Depreciation 242,758 204,603

Marketing expenses 260,582 263,453

Other operating expenses 253,026 240,625

763,230 715,170

2,809,559 2,669,609

12 LOAN IMPAIRMENT CHARGE

2015 2014


Individually assessed impairment allowances charged (Note 19(b)) 79,332 1,635

Collectively assessed impairment allowances charged (Note 19(b)) 321,330 276,957

400,662 278,592

Trade bills

Individually assessed impairment allowances charged (Note 19(c)) 42,637 5,794

Collectively assessed impairment allowances charged (Note 19(c)) 8,510 3,060

51,147 8,854

Total 451,809 287,446



12 LOAN IMPAIRMENT CHARGE (continued)

Include in the above impairment allowances on loans charged/(released):

2015 2014


New and additional charges 451,168 324,380

Releases (3,853) (10,942)

Recoveries (46,653) (34,846)

400,662 278,592

Trade bills

New and additional charges 90,226 8,865

Releases (39,079) (11)

51,147 8,854

Total 451,809 287,446

13 BENEFITS AND INTERESTS OF DIRECTORS

(i) Directors’ emoluments

2015 2014

Fees 890 890

Salaries 12,225 15,051

Discretionary Bonuses 5,281 3,591

Other emoluments – 4

Contributions to provident fund 1,184 1,089

19,580 20,625

(ii) Directors’ material interests in transactions, arrangements or contracts

No significant transactions, arrangements and contracts in relation to the Group’s business to which the

Bank, or any of its holding companies, subsidiaries, fellow subsidiaries, joint venture or associate was a party

and in which a director of the Bank had a material interest, whether directly or indirectly, subsisted at the

end of the year or at any time during the year.



14 TAXATION

(a) Taxation in the consolidated statement of comprehensive income represents:

2015 2014

(restated)

Current tax – Hong Kong Profits Tax

Provision for the year 417,954 380,207

Over-provision in respect of prior years (99,106) (33,336)

318,848 346,871

Current tax – Overseas

Provision for the year 78,728 13,410

Withholding tax in the Mainland 230,007 137,223

308,735 150,633

Deferred tax

Origination and reversal of temporary differences 2,538 (10,100)

630,121 487,404

The provision of Hong Kong Profits Tax for 2015 is calculated at 16.5% (2014: 16.5%) of the estimated

assessable profits for the year.

(b) Reconciliation between tax expense and accounting profit at applicable tax rates:

2015 2014

(restated)

Profit before taxation 3,130,817 2,197,437

Notional tax on profit before tax, calculated at the rates applicable

to profits in the countries concerned 516,585 362,325

Income not subject to taxation (152,942) (17,568)

Expenses not deductible for taxation purposes 102,377 38,631

Over-provision in prior years (99,106) (33,336)

Foreign withholding tax 230,007 137,223

Tax effect of temporary differences not recognised and reversal

of previously recognised deferred tax assets 33,200 129

Actual tax expense 630,121 487,404

Note: The comparative figures have been reclassified to conform with the current year’s presentation.



15 NET HEDGING RESULTS

2015 2014

Fair value hedge

– Loss on Hedging instruments (17,146) (10,082)

– Gain on Hedged items 50,950 10,082

Net hedging results 33,804 –

16 OTHER COMPREHENSIVE INCOME

2015 2014

Items that may be subsequently reclassified to profit or loss:

Available-for-sale investment revaluation reserve

Changes in fair value recognised during the year 9,215 17,599

Reclassification adjustments for amounts transferred to profit or loss 29,586 37,454

Net movement in the available-for-sale investment revaluation reserve

during the year in other comprehensive income 38,801 55,053

Hedging Reserve

Changes in cash flow hedge – 178

Movement in investment revaluation reserve 38,801 55,231

Exchange Reserve – 121

Other comprehensive income (Note) 38,801 55,352

Note: There was no tax impact resulted from each component of other comprehensive income.



17 SEGMENTAL INFORMATION

(a) Reportable segments

The Group manages its businesses by divisions, which are organized by products services and customer

types. In a manner consistent with the way in which information is reported internally to the executive

management for the purposes of resource allocation and performance assessment, the Group has presented

the following 4 reportable segments, under which there was a change in the grouping of commercial banking

in 2015. Engaged mainly in businesses with small and medium sized enterprises, commercial banking was

previously grouped with corporate banking. In 2015, to further align with the internal management structure

and reporting information, it was grouped with consumer banking. Comparatives amounts have been

restated to ensure consistent basis with the revised segment information.

(i) Corporate and institutional banking

This segment mainly represents the provision of a range of financial products and services to

corporations and financial institutions. The products and services mainly include commercial loans,

syndicated loans, trade financing, foreign exchange and deposit-taking activities.

(ii) Consumer and commercial banking

This segment mainly represents the provision of a range of financial products and services to individual

customers and small and medium sized enterprises. The products and services mainly comprise

residential and commercial mortgages, personal loans, credit cards, auto-financing, commercial loans,

trade financing, deposit-taking activities, foreign exchange, wealth management, insurance and

securities agency services.

(iii) Treasury

This segment covers the Bank’s treasury operations. The Treasury Division enters into inter-bank

money market transactions and invests in debt instruments. It also trades in debt instruments,

derivatives and foreign currency for its own account. The Treasury carries out customer driven

derivatives, such as foreign currency transactions. Its function also includes the management of the

Group’s overall liquidity position, including the issuance of certificates of deposit.

(iv) Others

This segment mainly represents management of shareholders’ funds and investments in premises and

other unallocated units.

Segment assets and liabilities are mainly composed of placement with banks, advances to banks and

customers, investment securities, derivatives financial instruments, deposits and certificates of deposit and

other debt securities issued.

Revenue and expenses are allocated to the reportable segments with reference to interest and fee and

commission income generated by those segments and the expenses incurred by these segments or which

otherwise arise from the depreciation or amortisation of assets attributable to these segments.



17 SEGMENTAL INFORMATION (continued)

(a) Reportable segments (continued)

2015

Corporate

and

Institutional

Banking

Consumer

and

Commercial

Banking Treasury Others

Inter-

segment

elimination Total

Net interest income 1,574,715 2,371,156 663,246 740,347 – 5,349,464

Total operating income

– External 3,861,932 587,802 1,830,170 39,956 – 6,319,860

– Inter-segment (2,124,494) 2,638,288 (1,453,434) 939,640 – –

Total operating income 1,737,438 3,226,090 376,736 979,596 – 6,319,860

Depreciation and amortization (28,952) (143,056) (7,447) (63,303) – (242,758)

Total operating expenses (347,915) (1,898,888) (116,663) (446,093) – (2,809,559)

Operating profit before impairment

losses 1,389,523 1,327,202 260,073 533,503 – 3,510,301

Charge on impairment (158,698) (292,610) – – – (451,308)

Non-operating profit – – – 71,824 – 71,824

Profit before taxation 1,230,825 1,034,592 260,073 605,327 – 3,130,817

Total assets 145,758,456 95,216,677 259,692,193 7,514,261 (673,084) 507,508,503

Total liabilities 116,922,269 194,140,352 147,001,953 4,284,242 (673,084) 461,675,732




(a) Reportable segments (continued)

2014 (restated)

Corporate

and

Institutional

Banking

Consumer

and

Commercial

Banking Treasury Others

Inter-

segment

elimination Total

Net interest income 1,103,197 1,876,067 1,131,505 628,986 – 4,739,755

Total operating income

– External 4,517,841 613,932 175,593 (179,973) – 5,127,393

– Inter-segment (3,122,118) 1,976,647 521,046 624,425 – –

Total operating income 1,395,723 2,590,579 696,639 444,452 – 5,127,393

Depreciation and amortization (19,713) (116,837) (6,743) (61,310) – (204,603)

Total operating expenses (317,566) (1,794,919) (103,943) (453,181) – (2,669,609)

Operating profit/(loss) before

impairment losses 1,078,157 795,660 592,696 (8,729) – 2,457,784

Charge on impairment (170,535) (117,366) – – – (287,901)

Non-operating profit – – – 27,554 – 27,554

Profit before taxation 907,622 678,294 592,696 18,825 – 2,197,437

Total assets 177,420,801 88,963,057 226,550,978 7,465,414 (166,382) 500,233,868

Total liabilities 89,905,545 189,602,276 173,650,035 3,949,120 (166,382) 456,940,594





(b) Geographical information

The following table sets out information about the geographical location of the Group’s revenue from

external customers, profit before taxation, total assets, total liabilities, specified non-current assets,

contingent liabilities and commitments. The geographical location of customers is based on the location at

which the services were provided. Specified non-current assets comprise fixed assets, interests in leasehold

land, interest in a joint venture and interest in an associate and the geographical location is based on the

physical location of the asset for fixed assets, and the location of the operation to which they are allocated

for interest in a joint venture and interest in an associate.

Revenue

from

external

customers

Profit

before

taxation

Total

assets

Total

liabilities

Specified

non-current

assets

Contingent

liabilities

and

commitments


Hong Kong (place of domicile) 6,319,860 3,130,817 507,508,503 461,675,732 5,767,145 64,244,935

Revenue

from

external

customers

Profit

before

taxation

Total

assets

Total

liabilities

Specified

non-current

assets

Contingent

liabilities

and

commitments


Hong Kong (place of domicile) 5,078,172 2,192,415 500,233,868 456,940,594 5,758,391 54,502,440

Macau 49,221 5,022 – – – –

5,127,393 2,197,437 500,233,868 456,940,594 5,758,391 54,502,440



18 CASH AND BALANCES WITH BANKS AND CENTRAL BANKS

2015 2014

Cash in hand 233,266 238,071

Balances with banks 1,927,199 3,086,568

Balances with central banks 12,127,672 6,475,905

Placement with banks maturing within one month 67,731,898 46,947,061

82,020,035 56,747,605

19 ADVANCES TO CUSTOMERS AND TRADE BILLS

(a) Advances to customers and trade bills less impairment

2015 2014

Advances to customers less impairment

Gross advances to customers 204,507,034 178,537,255

Dealers’ commission and deferred fee income (63,896) (29,209)

204,443,138 178,508,046

Less: Impairment allowances

collectively assessed (910,638) (684,849)

individually assessed (114,226) (55,144)

Net advances to customers 203,418,274 177,768,053

Trade bills less impairment

Trade bills 34,732,326 67,410,549

Less: Impairment allowances



Net trade bills 34,672,039 67,401,409

Net advances to customers and trade bills 238,090,313 245,169,462



19 ADVANCES TO CUSTOMERS AND TRADE BILLS (continued)

(b) Movement in impairment allowances on advances to customers

2015

Collectively

assessed

allowances

Individually

assessed

allowances Total

As at January 1,2015 684,849 55,144 739,993

Loans written off as uncollectible (137,535) (24,909) (162,444)

Recoveries of advances written off 41,994 4,659 46,653

Impairment losses charged to the statement of

comprehensive income (Note 12) 321,330 79,332 400,662

As at December 31, 2015 910,638 114,226 1,024,864

2014

Collectively

assessed

allowances

Individually

assessed

allowances Total

As at January 1, 2014 506,011 58,518 564,529

Loans written off as uncollectible (125,597) (8,064) (133,661)

Recoveries of advances written off 31,791 3,055 34,846



Disposal of China Construction Bank (Macau)

Corporation Limited (“CCBM”) (4,313) – (4,313)

As at December 31, 2014 684,849 55,144 739,993




(c) Movement in impairment allowances on trade bills

2015

Collectively

assessed

allowances

Individually

assessed

allowances Total

As at January 1, 2015 3,346 5,794 9,140



As at December 31, 2015 11,856 48,431 60,287

2014

Collectively

assessed

allowances

Individually

assessed

allowances Total

As at January 1, 2014 286 – 286



As at December 31, 2014 3,346 5,794 9,140




(d) Impaired advances and trade bills and impairment allowance

(i) Impaired advances and allowances are analysed as follows:

2015 2014

% of gross

advances

% of gross

advances

Gross impaired advances 223,704 0.11 144,953 0.08

Individual impairment allowances (114,226) (55,144)

109,478 89,809

Gross individually assessed

impaired advances 138,075 0.07 55,215 0.03


23,849 71

Net realisable value of

collateral held against the

impaired advances 42,701 19,997

Impaired advances are advances with objective evidence of impairment.

The above individual impairment allowances were made after taking into account the realisable value of

collateral in respect of such advances.

As at December 31, 2015, the Group’s gross impaired advances to customers included $85,629 (2014:

$89,738) advances mainly comprised credit card advances and unsecured personal loans for which

impairment allowances were collectively assessed.




(d) Impaired advances and trade bills and impairment allowance (continued)

(ii) Impaired trade bills and allowances are analysed as follows:

2015 2014

% of gross

trade bills

% of gross

trade bills

Gross impaired trade bills 139,549 0.40 136,048 0.20


91,118 130,254

Gross individually assessed

impaired trade bills 139,549 0.40 136,048 0.20


91,118 130,254

Net realisable value of

collateral held against the

impaired trade bills – –

Impaired trade bills are advances with objective evidence of impairment.

(e) Net investment in finance leases and hire purchase contracts

Loans and advances to customers include net investments in equipment leased to customers under finance

leases and hire purchase contracts having the characteristics of finance leases. The contracts usually run for

an initial period of 5 to 20 years. The total minimum lease payments receivable and their present value at the

year-end are as follows:

2015 2014

Total minimum lease payments 7,337,969 7,479,099

Unearned future finance income on finance leases (342,881) (991,997)

Present value of the minimum lease payments 6,995,088 6,487,102

Impairment allowances



Impairment allowances (41,648) (34,784)

Net investment 6,953,440 6,452,318




(e) Net investment in finance leases and hire purchase contracts (continued)

The residual maturity analysis of the minimum lease payments and present value of the minimum lease

payments are analysed as follows:

2015 2014

Total minimum lease payments

Not later than one year 1,737,926 1,723,631

Later than one year and not later than five years 3,133,528 3,174,100

Later than five years 2,466,515 2,581,368

7,337,969 7,479,099

2015 2014

Present value of the minimum lease payments

Not later than one year 1,648,495 1,595,728

Later than one year and not later than five years 2,947,922 2,842,137

Later than five years 2,398,671 2,049,237

6,995,088 6,487,102

20 FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS

2015 2014

Held for trading 3,807 12,046

Designated at fair value through profit or loss – 38,990

3,807 51,036



20 FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)

Financial instruments measured at fair value through profit or loss analysed by type of issuer and place of listing

are as follows:

Held for Trading

Designated at fair value

through profit or loss

2015 2014 2015 2014

Other debt securities issued by

government 3,807 12,046 – –

corporate – – – 38,990

3,807 12,046 – 38,990

Analysed by place of listing

listed in Hong Kong 3,807 12,046 – 38,990

21 AVAILABLE-FOR-SALE FINANCIAL ASSETS

2015 2014

Treasury bills issued by central governments 11,197,058 11,045,359

Certificates of deposit issued by banks 27,726,275 18,662,519

Other debt securities issued by

Banks 31,392,273 26,639,089

Corporate 15,345,810 3,271,110

85,661,416 59,618,077

Equity shares issued by corporate

listed outside Hong Kong 16,607 14,048

unlisted 17,236 17,239

33,843 31,287

85,695,259 59,649,364


listed in Hong Kong 19,572,807 4,638,333

listed outside Hong Kong 31,391,556 25,161,651

unlisted 34,730,896 29,849,380

85,695,259 59,649,364

The unlisted equity shares of $17,236 (2014: $17,239) is marked at cost. The fair value information has not been

disclosed as there is no active trading market for the private equities and no observable inputs in order to reliably

estimate the fair value of the unlisted equity. The equity is an investment made by the Group for being members

of the electronic payment system in Hong Kong. Management has no intention to dispose of this investment as at

December 31, 2015.



22 HELD-TO-MATURITY INVESTMENTS

2015 2014

Debt securities issued by

Banks 4,974,833 –

Corporate 498,837 –

5,473,670 –


Unlisted 5,473,670 –

Market value of unlisted securities 5,472,374 –

The fair value of held-to-maturity financial assets is based on quoted market bid prices.

23 DERIVATIVE FINANCIAL INSTRUMENTS

Derivatives include forward, swap and option transactions undertaken by the Group in the foreign exchange

and interest rate markets. The Group uses derivatives for proprietary trading and sale to customers as risk

management products. These positions are actively managed through entering into offsetting deals with external

parties to ensure the Group’s net exposures are within acceptable risk levels. No significant proprietary positions

are maintained by the Group as at the reporting date. The Group also uses these derivatives in the management of

its own asset and liability portfolios and structural positions.

(a) Notional amounts of derivatives

2015 2014

Managed inconjunction

with financialinstrumentsdesignated

at fair valuethrough

profit or lossHeld fortrading

Used forhedging Total

Managed in

conjunction

with financial

instruments

designated

at fair value

through

profit or loss

Held for

trading

Used for

hedging Total

Exchange rate contracts

forwards 121,602,321 474,304,045 – 595,906,366 87,122,820 128,316,717 25,245 215,464,782

options purchased – 12,553,282 – 12,553,282 – 13,335,977 – 13,335,977

options written – 12,553,282 – 12,553,282 – 13,335,977 – 13,335,977

Interest rate swaps 2,842,915 – 23,643,510 26,486,425 4,481,952 – 568,046 5,049,998

Currency swaps 5,311,095 – – 5,311,095 2,351,724 – – 2,351,724

Equity options purchased/issued – 141,426 – 141,426 – 156,692 – 156,692

Equity swaps – 141,426 – 141,426 – 156,692 – 156,692

129,756,331 499,693,461 23,643,510 653,093,302 93,956,496 155,302,055 593,291 249,851,842

The principal derivatives instruments used by the Group are interest and foreign exchange rate related

contracts, which are primarily over-the-counter derivatives. The Group also participates in exchange traded

derivatives.



23 DERIVATIVE FINANCIAL INSTRUMENTS (continued)

(b) Notional amounts of derivatives by remaining maturity analysis

The following table provides an analysis of the notional amounts of derivatives of the Group by relevant

maturity grouping based on the remaining periods to settlement at the reporting date.

2015 2014

1 year

or less

Over 1 year

to 5 years Total

1 year

or less

Over 1 year

to 5 years Total


forwards 594,712,974 1,193,392 595,906,366 215,386,307 78,475 215,464,782

options purchased 11,188,145 1,365,137 12,553,282 10,651,956 2,684,021 13,335,977

options written 11,188,145 1,365,137 12,553,282 10,651,956 2,684,021 13,335,977

Interest rate swaps 2,415,118 24,071,307 26,486,425 2,552,008 2,497,990 5,049,998

Currency swaps – 5,311,095 5,311,095 – 2,351,724 2,351,724

Equity options purchased/issued 141,426 – 141,426 156,692 – 156,692

Equity swaps 141,426 – 141,426 156,692 – 156,692

619,787,234 33,306,068 653,093,302 239,555,611 10,296,231 249,851,842

(c) Fair values and credit risk weighted amounts of derivatives

2015 2014

Fair value

assets

Fair value

liabilities

Credit risk

weighted

amount

Fair value

assets

Fair value

liabilities

Credit risk

weighted

amount


forwards 5,893,443 6,162,908 4,763,353 968,567 669,425 1,100,754

options purchased 257,833 – – 70,909 – –

options written – 257,833 136,557 – 70,909 157,832

Interest rate swaps 31,275 51,717 62,254 10,507 13,767 13,210

Currency swaps 91,867 257,421 127,402 – 288,379 58,793

Equity options purchased/issued 14,586 14,586 – 10,155 10,155 –

Equity swaps 260 260 4,274 516 516 4,701

6,289,264 6,744,725 5,093,840 1,060,654 1,053,151 1,335,290

As at December 31, 2015 and 2014, the credit risk weighted amount was calculated in accordance with

the Capital Rules and depends on the status of the counterparty and the maturity characteristics. The risk

weights used range from 20% to 100% (2014: 20% to 100%) for all derivatives.

Derivative financial instruments are presented in net when there is legally enforceable right to set off the

recognised amounts, and there is an intention to settle them on a net basis or realise the asset and settle

the liability simultaneously. As at December 31, 2015, no derivative financial instruments have fulfilled the

above criteria, and therefore no derivative financial instruments were offset on the statement of financial

position (2014: Nil).



24 SUBSIDIARIES

Particulars of the subsidiaries as at December 31, 2015 are as follows:

Name of company

Place of

incorporation

and place of

business

Particulars of issued

shares held Percentage held Principal activities

Directly Indirectly

CCBN Hong Kong HK$6,000,000 of 600,000

ordinary shares

100% – Custodian and

nominee services

CCBS Hong Kong HK$500,000,000 of

500,000,000 ordinary

shares

100% – Securities

brokerage business

CCBT Hong Kong HK$10,000,000 of 100,000

ordinary shares

100% – Trustee and

custodian business

CCB Hong Kong Property

Management Company

Limited

Hong Kong HK$10,000 of 10,000

ordinary shares

100% – Management services

and investment

holding

CCB Properties

(Hong Kong) Holdings

Limited (“CCBPHK”)

Hong Kong HK$1 of 1 ordinary share – 100% Investment holding

Better Chief Limited (“BCL”) Hong Kong HK$100 of 100

ordinary shares

– 100% Property investment

Hong Kong (SAR) Hotel

Limited (“HKSAR Hotel”)

Hong Kong HK$10,000 of 10,000

ordinary shares

– 100% Hotel operation and

management

All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in the subsidiary

undertakings held directly by the Bank do not differ from the proportion of ordinary shares held. There is no non-

controlling interest for both years for all of the subsidiaries.



25 INTEREST IN A JOINT VENTURE

2015 2014

As at January 1 1,893,902 1,850,734

Share of profits 43,338 43,168

As at December 31 1,937,240 1,893,902

The joint venture listed below has share capital consisting solely of ordinary shares, which is held indirectly by the

Group.

Particulars of the joint venture as at December 31, 2015 are as follows:

Name of company

Place of

business/Place

of incorporation

Percentage of

ownership held

by the Group

Nature of the

relationship

Measurement

method

Diamond String Limited Hong Kong 50% Note Equity

Note: Diamond String Limited’s principal activity is property investment and it is strategic to the Group’s activities, viz., holding property

for the Bank’s operation. Diamond String Limited is a private company and there is no quoted market price available for its shares.

Contingent liabilities, guarantees and commitments in respect of joint venture

There are no contingent liabilities, guarantees and commitments relating to the Group’s interest in Diamond String

Limited as at December 31, 2015 and 2014.

Diamond String Limited has commitments contracted as at December 31, but not provided for, which are as

follows:

2015 2014

Contracted sum 35,811 49,162

Deposit paid (12,958) (13,887)

Commitments outstanding 22,853 35,275

There was no dividend paid by Diamond String Limited to the Group during the year ended December 31, 2015

and 2014.



25 INTEREST IN A JOINT VENTURE (continued)

Summarised financial information for a joint venture

Set out below is the summarised financial information for Diamond String Limited which is accounted for using the

equity method.

As at December 31

2015 2014

(restated)

Current

Cash and cash equivalents – 6,607

Other current assets 32,229 32,290

Total current assets 32,229 38,897

Financial liabilities (222,019) (232,917)

Other current liabilities (24,911) (4,375)

Total current liabilities (246,930) (237,292)

Non-current

Financial assets 212,370 195,287

Other assets 1,817,899 1,848,117

Total non-current assets 2,030,269 2,043,404

Financial liabilities (1,603,790) (1,721,552)

Other liabilities (25,133) (23,488)

Total non-current liabilities (1,628,923) (1,745,040)

Net assets 186,645 99,969


Summarised statement of comprehensive income

For the year ended

December 31

2015 2014

Revenue 222,691 227,297

Depreciation and amortisation (55,501) (55,002)

Interest income 292 867

Interest expense (22,986) (29,799)

Profit before taxation 108,811 114,200

Income tax expense (22,135) (27,864)

Profit for the year & total comprehensive income 86,676 86,336

Dividends received from joint venture – –



25 INTEREST IN A JOINT VENTURE (continued)

Summarised financial information for a joint venture (continued)

Reconciliation of summarised financial information

Reconciliation of the summarised financial information presented to the carrying amount of its interest in the joint

venture.

Summarised financial information

2015 2014

Net assets as at January 1 99,969 13,633

Profit for the year 86,676 86,336

Net assets as at December 31 186,645 99,969

Interest in a joint venture @ 50% 93,322 49,984

Fair value adjustment of investment in property held by

the joint venture at the acquisition date 1,843,918 1,843,918

Carrying value of interest in a joint venture as at December 31 1,937,240 1,893,902

26 INTEREST IN AN ASSOCIATE

2015 2014

Share of net assets 265,914 237,428

Particulars of the associate as at December 31, 2015 are as follows:

Name of company

Place of

business/Place

of incorporation

Particulars of issued

and paid up capital

Percentage of

ownership held

by the Group

Principal

activities

Nature of

relationship

Measurement

method

QBE Hongkong & Shanghai

Insurance Limited (“QBE”)

Hong Kong HK$78,192,220 of

78,192,220 ordinary

shares

25.50% Insurance Note Equity

Note: QBE is the authorised insurance agents and brokers and it is a strategic partnership for the Group, providing insurance products to

the Bank’s customers. QBE is a private company and there is no quoted market price available for its shares.

There are no contingent liabilities, guarantees and commitments relating to the Group’s interest in the associate as

at December 31, 2015 and 2014.



26 INTEREST IN AN ASSOCIATE (continued)

The movement of the interest in the associate is as follows:

2015 2014

As at January 1 237,428 199,381

Share of profits 28,486 38,047

As at December 31 265,914 237,428

There was no dividend paid by QBE to the Group during the year ended December 31, 2015 and 2014.

Summarised financial information for an associate

The Group has incorporated QBE’s results from December 1, 2014 to November 30, 2015 (2014: December 1,

2013 to November 30, 2014) since the financial statements of QBE as at December 31, 2015 is not yet ready and

the impact of its one month result is not significant.

Set out below is the summarised financial information for QBE which is accounted for using the equity method.

As at November 30

2015 2014

Current

Current assets 2,814,999 2,450,670

Current liabilities (1,612,576) (1,472,342)

Non-current

Non-current assets 617,835 579,260

Non-current liabilities (777,457) (626,498)

Net assets 1,042,801 931,090



26 INTEREST IN AN ASSOCIATE (continued)

Summarised financial information for an associate (continued)

Summarised statement of comprehensive income

For the 12 months ended

November 30

2015 2014

Revenue 1,692,326 1,680,834

Depreciation and amortisation 13,866 3,782

Interest income 25,202 24,173

Interest expense (13) –

Profit before taxation 130,786 177,268

Income tax expense (19,075) (28,066)

Profit for the year & total comprehensive income 111,711 149,202

Dividends received from associate – –

Reconciliation of summarised financial information

Reconciliation of the summarised financial information presented to the carrying amount of its interest in an

associate.

Summarised financial information 2015 2014

Opening, net asset as at December 1 931,090 781,888

Profit for the year 111,711 149,202

Closing, net assets as at November 30 1,042,801 931,090

Interest in an associate @ 25.5% 265,914 237,428



27 INCOME TAX IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(a) Current tax payable in the consolidated statement of financial position represents:

2015 2014

(restated)

Provision for Hong Kong Profits Tax for the year 417,954 380,207

Provisional Profits Tax paid (287,622) (216,120)

Balance of Profits Tax provision relating to prior years (63) (420)

130,269 163,667

Provision for tax in the Mainland 16,459 5,009

Current tax payable 146,728 168,676

(b) Deferred tax assets and deferred tax liabilities

2015 2014

Deferred tax assets recognised on the consolidated

statement of financial position 112,428 116,732

2015 2014

Deferred tax liabilities recognised on the consolidated

statement of financial position 18,276 20,042

As at December 31, 2015 and 2014, majority of the deferred tax assets and deferred tax liabilities recognised

will be recovered after twelve months.




27 INCOME TAX IN THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

(b) Deferred tax assets and deferred tax liabilities (continued)

The components of deferred tax assets recognised in the consolidated statement of financial position and

the movements during the year are as follows:

Impairment

allowances

Accelerated

tax

depreciation

Provision

for staff

bonus Others Total

As at January 1, 2014 72,052 (6,493) 33,588 5,427 104,574

Credited/(charged) to the

statement of comprehensive

income 30,125 (13,155) – (4,812) 12,158

As at December 31, 2014 &

January 1, 2015 102,177 (19,648) 33,588 615 116,732

Credited/ (charged) to the

statement of comprehensive

income 38,565 (8,976) (33,115) (778) (4,304)

As at December 31, 2015 140,742 (28,624) 473 (163) 112,428

The components of deferred tax liabilities recognised in the consolidated statement of financial position and

the movements during the year are as follows:

Accelerated

tax

depreciation Tax losses Others Total

As at January 1, 2014 (3,882) 16,392 (30,494) (17,984)

Credited /(Charged) to the statement of

comprehensive income 331 (1,267) (1,122) (2,058)

As at December 31, 2014 &

January 1, 2015 (3,551) 15,125 (31,616) (20,042)

Credited/(charged) to the statement of

comprehensive income 274 3,273 (1,781) 1,766

As at December 31, 2015 (3,277) 18,398 (33,397) (18,276)



28 FIXED ASSETS

Leasehold

land(*) Buildings

Leasehold

improvements

Furniture and

equipment Total

Cost:

As at January 1, 2015 87,110 3,356,357 457,755 528,925 4,430,147

Additions – 260 25,444 154,369 180,073

Written off – – (4,281) (22,000) (26,281)

As at December 31, 2015 87,110 3,356,617 478,918 661,294 4,583,939

Accumulated depreciation:

As at January 1, 2015 25,890 259,653 177,694 338,927 802,164

Charge for the year 1,463 91,006 54,273 96,016 242,758

Written off – – (4,048) (21,846) (25,894)

As at December 31, 2015 27,353 350,659 227,919 413,097 1,019,028

Allowances for impairment losses:

As at January 1, 2015 – – 74 848 922

Reversal of impairment losses – – – (2) (2)

As at December 31, 2015 – – 74 846 920

Net book value:

As at December 31, 2015 59,757 3,005,958 250,925 247,351 3,563,991



28 FIXED ASSETS (continued)

Leasehold

land(*) Buildings

Leasehold

improvements

Furniture and

equipment Total

Cost:

As at January 1, 2014 87,110 3,356,330 328,479 391,127 4,163,046

Additions – 27 130,691 156,313 287,031

Written off – – (1,415) (18,515) (19,930)

As at December 31, 2014 87,110 3,356,357 457,755 528,925 4,430,147

Accumulated depreciation:

As at January 1, 2014 24,427 169,775 130,988 292,235 617,425

Charge for the year 1,463 89,878 48,121 65,141 204,603

Written off – – (1,415) (18,449) (19,864)

As at December 31, 2014 25,890 259,653 177,694 338,927 802,164

Allowances for impairment losses:

As at January 1, 2014 – – 74 866 940

Reversal of impairment losses – – – (18) (18)

As at December 31, 2014 – – 74 848 922

Net book value:

As at December 31, 2014 61,220 3,096,704 279,987 189,150 3,627,061

(*) All leasehold land are held under finance leases.

29 OTHER ASSETS

2015 2014

Accrued interest receivable 1,882,106 2,135,180

Settlement accounts 224,898 553,184

Customer liability under acceptances 404,306 213,145

Money market trade date receivable 20,150,390 1,163,280

Accounts receivable 776,036 393,402

Repossessed assets 3,160 807

Refundable deposits 91,197 86,447

Others 127,374 125,299

23,659,467 4,670,744

The fair value of other assets approximately equals to their carrying amount.



30 DEPOSITS AND BALANCES OF BANKS

2015 2014


31 DEPOSITS FROM CUSTOMERS

2015 2014

Demand deposits and current accounts 19,759,007 11,635,702

Savings deposits 44,150,101 26,832,157

Time and call deposits 241,175,364 235,690,132

Structured notes 140,247 156,692

Other deposits 400,665 189,585

305,625,384 274,504,268

32 CERTIFICATES OF DEPOSIT AND OTHER DEBT SECURITIES ISSUED

2015 2014

Issued at amortised cost:

Certificates of deposit 21,891,314 46,942,296

Other debt securities 24,294,690 20,076,287

46,186,004 67,018,583

Issued at designated at fair value through profit and loss:

Certificates of deposit 1,564,975 –

Other debt securities 4,750,908 –

6,315,883 –

52,501,887 67,018,583

As at December 31, 2015, the fair values of other debt securities issued at amortised cost were 24,342,973 (2014:

22,511,384). The fair values were measured using level 2 hierarchy method as disclosed in Note 5(e)(i).



33 OTHER LIABILITIES

2015 2014

Accrued interest payable 1,884,301 2,129,621

Settlement accounts 225,548 569,246

Accounts payable 484,218 403,881

Acceptances outstanding 404,306 213,145

Accrued salaries and welfare 244,842 231,136

Amount due to an intermediate holding companies 2,874,365 2,635,066

Money market trade date payable 3,515,661 –

Others 264,046 281,391

9,897,287 6,463,486

The fair value of other liabilities approximately equals to their carrying amount.

34 SUBORDINATED DEBT

2015 2014

Subordinated debt

– At fair value under fair value hedge 5,776,365 –

– At amortised cost – 5,766,117

On August 20, 2014, the Bank issued subordinated note with aggregate nominal amount of USD750 million,

bearing a fixed interest rate of 4.25% per annum to institutional investors. The note was issued at discount with

maturity due on August 20, 2024. The note was listed on the Stock Exchange of Hong Kong Limited.

Subordinated debt was raised by the Bank for the development and expansion of business. The subordinated debt

will be written off at the point of non-viability as determined by the HKMA. These notes have been qualified and

included as the Bank’s Tier 2 Capital in accordance with the Capital Rules.

The Bank has not had any default of principal or interest or other breaches with respect to the subordinated debt

during the year.

Subsequent to initial recognition, subordinated debt are measured at their amortised cost using the effective

interest method, except where the Bank designates the subordinated debt at fair value starting July 2015 under

fair value hedge. The fair value hedge principally consists of interest rate swaps that are used to protect against

changes in the fair value of the subordinated debt due to movements in market interest rates.

As at December 31, 2014, the fair value of subordinated debt issued at amortised cost was 5,871,656. The fair

values were measured using level 2 hierarchy method as disclosed in Note 5(e)(i).



35 SHARE CAPITAL AND RESERVES

(a) Share capital

2015 2014

Issued and fully paid

162,776,068 (2014: 162,776,068) HKD ordinary shares 6,511,043 6,511,043

440,000,000 (2014: 440,000,000) RMB ordinary shares 22,316,800 22,316,800

28,827,843 28,827,843

(b) Reserves

(i) General reserve

General reserve is appropriated from the retained profits for future use.

(ii) Investment revaluation reserve and hedging reserve

The investment revaluation reserve comprises the cumulative net change in the fair value of available-

for-sale financial assets until the financial assets are derecognised and is dealt with in accordance with

the accounting policies adopted for the measurement of the available-for-sale financial assets at fair

value.

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of

hedging instruments used in cash flow hedges pending subsequent recognition of the hedged cash

flow in accordance with the accounting policy adopted for cash flow hedges in Note 2(i)(ii).

(iii) Regulatory reserve

Regulatory reserve comprises reserves maintained in accordance with Hong Kong regulations. At

Group level, it includes a regulatory reserve of $2,307,924 (December 31, 2014: $2,360,788) to satisfy

the provisions of the Hong Kong Banking Ordinance for prudential supervision purposes. Movement in

this reserve is made directly through retained profits and in consultation with HKMA.

(iv) Other reserve

Other reserve is used to record the corresponding amount of the share options and bonus rewards

granted by the former parent company to the Bank’s employees. The options and rewards granted

are classified as equity-settled share-based payments and the amount recognised in other reserve

represents capital contribution from its former parent company and is not distributable.

(v) Merger reserve

Merger reserve arises as a result of the acquisition of a majority of the corporate banking business

(“Acquired Business”) of CCB Hong Kong Branch (“HKBR”). This amount represented the difference

between the net book value of the Acquired Business and the consideration paid.

(vi) Retained profits

The Bank and its financial subsidiaries are required to maintain minimum capital adequacy ratios under

their respective regulatory jurisdictions. The minimum capital requirements could therefore potentially

restrict the amount of retained profits available for distribution to the shareholders.



36 STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF THE BANK

Statement of Financial Position of the Bank

Note 2015 2014

ASSETS





Financial instruments measured at fair value through profit or loss 3,807 51,036




Investments in subsidiaries 516,010 516,010

Interest in an associate 10,411 10,411

Deferred tax assets 112,428 116,732

Fixed assets 2,784,400 2,823,166

Other assets 23,635,146 4,622,201

Total assets 505,116,027 497,349,863

LIABILITIES



Certificates of deposit and other debt securities issued 52,501,887 67,018,583


Current tax payable 146,792 168,740

Other liabilities 7,151,578 3,677,090

Subordinated debts 5,776,365 5,766,117

Total liabilities 459,586,778 454,302,722

EQUITY

Share capital 28,827,843 28,827,843

Reserves 36(a) 16,701,406 14,219,298

Total equity 45,529,249 43,047,141

Total equity and liabilities 505,116,027 497,349,863

Approved and authorised for issue by the Board of Directors on April 1, 2016.

WANG Hongzhang MAO Yumin

Chairman Executive Director and Chief Executive Officer



36 STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF THE BANK (continued)

(a) Reserve movement of the Bank

Details of the changes in the Bank’s reserve between the beginning and the end of the year are set out

below:

General

reserve

Investment

revaluation

reserve and

hedging

reserve

Regulatory

reserve

Other

reserve

Merger

reserve

Retained

profits Total

Balance as at January 1, 2015 750,956 37,638 2,307,924 15,913 62,262 11,044,605 14,219,298

Profit for the year – – – – – 2,443,307 2,443,307

Other comprehensive income:

change in fair value of available-for-sale

financial assets – 38,801 – – – – 38,801

Total comprehensive income – 38,801 – – – 2,443,307 2,482,108

Balance as at December 31, 2015 750,956 76,439 2,307,924 15,913 62,262 13,487,912 16,701,406

General

reserve

Investment

revaluation

reserve and

hedging

reserve

Regulatory

reserve

Other

reserve

Merger

reserve

Retained

profits Total

Balance as at January 1, 2014 750,956 (18,015) 2,307,924 15,913 62,262 8,852,288 11,971,328

Profit for the year – – – – – 2,192,317 2,192,317

Other comprehensive income:

change in fair value of available-for-sale

financial assets – 55,653 – – – – 55,653

Total comprehensive income – 55,653 – – – 2,192,317 2,247,970

Balance as at December 31, 2014 750,956 37,638 2,307,924 15,913 62,262 11,044,605 14,219,298

37 MATERIAL RELATED PARTY TRANSACTIONS

During the year, the Group entered into transactions with related parties in the normal course of its banking

business including lending, acceptance and placement of inter-bank deposits, correspondent banking transactions,

securities brokerage and derivative transactions. The transactions were priced at the relevant market rates at the

time of each transaction.

Advances to banks comprise advances to the intermediate holding company under normal course of business and

bear interest ranging from 0.067% p.a. to 4.25% p.a. (2014: 0.037% p.a. to 4.5% p.a.) with a contractual term of 3

months to 1 year in 2015 (2014: 1 month to 1 year).



37 MATERIAL RELATED PARTY TRANSACTIONS (continued)

Save as disclosed in the above notes, transactions with related parties which the Group entered into during the

years are summarised as follows:

(a) The amount of material related party transactions during the year and outstanding balances at the reporting date are set out below:

Intermediate

holding company Fellow subsidiaries Associate

2015 2014 2015 2014 2015 2014

Interest income 1,185,327 2,242,788 31,483 5,197 – –

Interest expense 1,567,567 1,363,294 13,559 29,328 5,432 4,322

Net fees and commission income

– Management fees (Note 7) 380,491 360,617 – – – –

– Others 1,100 389 – 2,000 – –

Net trading losses – (1,626) – – – –

Operating income 3,432 3,302 2,805 3,974 – –

Operating expenses 63,913 9,189 4,237 4,530 – –

Amounts due from:

Cash and balances with banks 26,206,125 21,185,417 155,473 – – –

Placements with banks maturing between

one and twelve months 29,606,588 4,886,802 – – – –

Advances to banks 1,195,332 18,994,538 – – – –

Advances to customers and trade bills 14,452,062 22,629,271 2,309,315 1,474,717 – –

Available-for-sale financial assets 2,280,559 907,534 – – – –

Derivative financial instruments 2,758,767 105,220 – – – –

Other assets 21,008,252 1,931,382 29,860 62,219 – –

Amounts due to:

Deposits and balances of banks 74,465,453 89,603,634 10,016 268,093 – –

Deposits from customers 2,847 2,847 3,385,639 3,149,160 793,796 638,977

Certificates of deposit and other debt

securities issued – – – – – –

Derivative financial instruments 1,484,774 51,115 – – – –

Other liabilities 6,451,253 2,963,333 58,457 33,975 2,990 2,117

Contingencies and commitments:

Direct credit substitutes – – – – – –

Other commitments – – 1,162,523 600,000 – –

Derivative financial instruments:

(notional amount)

Exchange rate contracts 237,041,027 26,022,356 – – – –

Interest rate swaps – 38,776 – – – –




(a) The amount of material related party transactions during the year and outstanding balances at the reporting date are set out below: (continued)

The Group may enter into transactions with entities directly or indirectly owned by the Mainland government

through its government authorities, agencies, affiliations and other organisations (“state-owned entities”)

in the normal course of business. These transactions are entered into on terms similar to those that would

have been entered into with non-state-owned entities. These transactions include but are not limited to:

– lending and deposit taking;

– inter-bank balances taking and placing;

– insurance and securities agency;

– custody services;

– sale, purchase, underwriting and redemption of bonds;

– purchase, sale and leases of property and other assets; and

– rendering and receiving of utilities and other services.

The Group’s pricing and approval processes for major products and services do not depend on whether

the customers or counterparties are state-owned entities. Having due regard to the substance of the

relationships, the Group is of the opinion that none of these transactions are material related party

transactions that require separate disclosure.

During the year ended December 31, 2014, the following transactions were entered into:

(i) The Bank disposed of CCBM to CCB as Macau Branch. For details, please refer to Note 42.

(ii) The Bank acquired net advances to customers and trade bills amounted to approximately HKD20.1

billion from HKBR at fair value.




(b) Directors and key management personnelDuring the year, the Group provided credit facilities to and accepted deposits from the directors and key

management personnel of the Group and its holding companies and their close family members and

companies controlled or significantly influenced by them. The credit facilities and deposits were provided and

taken in the ordinary course of business and on substantially the same terms as for comparable transactions

with persons of a similar standing, or where applicable, with other employees. These transactions did not

involve more than the normal risk of collectability or present other unfavourable features.

2015 2014

Loans 14,172 9,850

Interest income earned 277 222

Deposits 45,369 29,644

Interest expense paid 723 393

Compensation – Salaries and other short-term benefits 35,585 39,536

(c) Loans to DirectorsParticulars of loans to directors disclosed pursuant to Section 17 of the Hong Kong Companies (Disclosure of

Information about Benefits of Directors) Regulation (Cap. 622G) for the year ended December 31, 2015 are

shown as below. They are not directly comparable with the loans to officers, which include directors and key

management personnel, reported for the year ended December 31, 2014, which were pursuant to Section

161B of the predecessor Hong Kong Companies Ordinance (Cap. 32).

2015 2014

Aggregate amount in respect of principal and interest

as at December 31 8,455 9,850

The maximum aggregate amount outstanding in respect

of principal and interest during the year 11,245 15,058

38 CONTINGENT LIABILITIES AND COMMITMENTS

The following is a summary of the contractual amounts of each significant class of contingent liabilities and

commitments to extend credit:

2015 2014

Direct credit substitutes 645,873 554,923

Transaction-related contingencies 1,417,612 1,665,654

Trade-related contingencies 940,159 894,726

Other commitments:

which are unconditionally cancellable or automatically cancellable

due to the deterioration in the credit worthiness of the borrower 49,125,258 44,007,670

with an original maturity under one year 1,698,285 448,879

with an original maturity over one year 10,417,748 6,930,588

64,244,935 54,502,440



38 CONTINGENT LIABILITIES AND COMMITMENTS (continued)

Contingent liabilities and commitments are credit-related instruments which include letter of credits, guarantees

and commitments to extend credit. The risk involved is essentially the same as the credit risk involved in extending

loan facilities to customers. These transactions are, therefore, subject to the same credit application, portfolio

maintenance and collateral requirements as for customers applying for the loans. The contractual amounts

represent the amounts at risk should the contract be fully drawn upon and the client defaults. As the facilities may

expire without being drawn upon, the contract amounts do not represent expected future cash flows.

39 CAPITAL COMMITMENTS

Capital commitments outstanding as at December 31, not provided for in the consolidated financial statements are

as follows:

2015 2014

Expenditure contracted but not provided for 86,869 75,453

Expenditure authorised but not contracted for 43,527 48,331

130,396 123,784

40 LEASE COMMITMENTS

At December 31, 2015, the Group had future aggregate minimum lease payments under non-cancellable operating

leases as follows:

2015 2014

Buildings:

not later than one year 269,435 277,569

later than one year and not later than five years 219,853 287,750

489,288 565,319

The Group lease a number of properties under operating leases. The leases typically run for an initial period of 1 to

5 years with an option to renew the lease when all terms are renegotiated. Lease payments are usually increased

every 3 years to reflect market rentals. None of the leases includes contingent rentals.



41 NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Reconciliation of operating profit to net cash inflow from operations

2015 2014

Operating activities

Operating profit 3,058,993 2,169,883

Adjustments for:

Dividend income (3,977) (3,748)

Depreciation 242,758 204,603

(Releases)/charges on impairment allowances on advances to banks (671) 671

Charges on impairment allowances on loans and advances 451,809 287,446

Charges/(releases) on impairment allowances on repossessed assets 170 (216)

Written off of loans and advances net of recoveries (115,791) (98,815)

Reversal of impairment on fixed assets (2) (18)

Written off of fixed assets 387 66

Interest income on held-to-maturity investments (27) –

Interest expenses on subordinated debts 251,582 91,062

Fair value adjustment on subordinated debts 10,541 –

Effect of foreign exchange rate changes 1,644,083 898,376

5,539,855 3,549,310

(Increase)/decrease in operating assets

Balances and placements with banks with original maturity beyond

three months and balance with central banks 71,602,292 (89,792,348)

Gross advances to banks 18,346,939 (7,362,765)

Gross advances to customers and trade bills 6,743,131 52,142,373

Financial instruments measured at fair value through profit or

loss with original maturity beyond three months 47,229 970,425

Derivative financial instruments (5,228,610) 522,272

Other assets (18,988,893) (1,527,948)

72,522,088 (45,047,991)

Increase/(decrease) in operating liabilities

Deposits and balances of banks (20,981,191) (9,401,217)


Derivative financial instruments 5,691,574 (513,678)

Certificates of deposit and other debt securities issued (14,516,696) 24,139,349

Other liabilities 3,432,858 (3,107,559)

4,747,661 87,475,701

Net cash inflow from operations 82,809,604 45,977,020



41 NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

(b) Cash and cash equivalents in the consolidated statement of cash flows

2015 2014


Placements with banks with original maturity within three months 28,481,856 14,989,136

Treasury bills and certificates of deposit held with original maturity

within three months categorized as available-for-sale 346,737 1,999,943

106,451,092 59,496,073

(c) Reconciliation with the consolidated statement of financial position

2015 2014

Cash and balances with banks and central banks (Note 18) 82,020,035 56,747,605


Financial instrument held categorised as

– trading (Note 20) 3,807 51,036

– available-for-sale (Note 21) 85,695,259 59,649,364

Amounts shown in consolidated statement of financial position 226,755,468 223,750,869

Less: Amounts with an original maturity of beyond three months

Placements with banks and money at call and

short notice with banks (34,952,047) (106,554,339)

Financial instrument held categorised as

– trading (3,807) (51,036)

– available-for-sale (85,348,522) (57,649,421)

Cash and cash equivalent in the consolidated statement of cash flows 106,451,092 59,496,073



42 DISPOSAL OF A SUBSIDIARY

In order to support the strengthening of business of CCB Group in Macau and increase the influence of overseas

markets, management disposed of the assets and liabilities of the Bank’s wholly owned subsidiary CCBM to CCB as

Macau Branch on June 7, 2014.

June 7, 2014

Consideration received in cash and cash equivalents 914,826

Analysis of assets and liabilities over which control was lost

Assets

Cash and balances with banks and central banks 3,765,790

Advances to banks 865,275

Advances to customers 6,051,824

Investment securities 475,836

Other assets 126,015

11,284,740

Liabilities

Deposits and balances of banks (2,182,270)

Deposits from customers (6,548,827)

Certificates of deposit and other debt securities issued (1,505,376)

Other liabilities (79,780)

(10,316,253)

Net assets disposed of 968,487

Loss on disposal (53,661)

Net cash outflow on disposal of a subsidiary

Consideration received in cash and cash equivalents 914,826

Less: cash and cash equivalents disposed of (2,375,168)

(1,460,342)

Cash and cash equivalent of disposal group previously classified

as held for sale 421,647

(1,038,695)

43 IMMEDIATE PARENT AND ULTIMATE CONTROLLING PARTY

At December 31, 2015, the Bank’s immediate parent is CCB Overseas Holdings Limited (“CCBOHL”), a company

incorporated in Hong Kong. CCBOHL is controlled by CCB. Central Huijin Investment Ltd. is the controlling party of

CCB, and is a wholly-owned subsidiary of China Investment Corporation which is a wholly state-owned investment

and management company. The Group’s intermediate parent, CCB, which is a listed bank incorporated in the

Mainland, produces financial statements available for public use.

Unaudited Supplementary Financial InformationnFor the year ended December 31, 2015(Expressed in thousands of Hong Kong dollars, unless otherwise stated)


The notes to the consolidated financial statements and the following unaudited supplementary information are prepared

to comply with the Banking (Disclosure) Rules.

1 OVERDUE AND RESCHEDULED ASSETS

(a) Gross advances to customers overdue for more than three months:

2015 2014

% on total

advances to

customers

% on total

advances to

customers

Six months or less but over three months 23,084 0.01 13,966 0.01

One year or less but over six months 2,891 – – –

Over one year 45,531 0.02 46,391 0.03

Total gross amount of advances overdue for

more than three months 71,506 0.03 60,357 0.04

Individually assessed impairment allowances

made in respect of the above overdue

advances 54,014 49,463

Net realisable value of collateral held against

the overdue advances 5,320 18,240

Covered portion of overdue advances 2,891 1,065

Uncovered portion of overdue advances 68,615 59,292

71,506 60,357

Collateral held with respect of overdue advances to customers is residential properties.



1 OVERDUE AND RESCHEDULED ASSETS (continued)

(b) Gross trade bills overdue for more than three months:

2015 2014

% on total

trade bills

% on total

trade bills

Six months or less but over three months 1,697 0.01 – –

One year or less but over six months – – 136,048 0.20

Over one year 135,959 0.39 – –

Total gross amount of trade bills overdue for

more than three months 137,656 0.40 136,048 0.20

Individually assessed impairment allowances

made in respect of the above overdue trade

bills 46,538 5,794

Net realisable value of collateral held against

the overdue trade bills – –

Covered portion of overdue trade bills – –

Uncovered portion of overdue trade bills 137,656 136,048

137,656 136,048

As at December 31, 2015 and 2014, there were no overdue advances to banks.

(c) Rescheduled advances to customers:

2015 2014

% on total

advances to

customers

% on total

advances to

customers

Rescheduled advances to customers 69,416 0.03 78,844 0.04

Rescheduled advances are those advances which have been restructured or renegotiated because of

deterioration in the financial position of the borrower, or the inability of the borrower to meet the original

repayment schedule and for which the revised payment terms are non-commercial to the Bank. The

rescheduled advances are stated net of any advances that have subsequently become overdue for over three

months and reported as overdue advances as above.

As at December 31, 2015 and 2014, there were no rescheduled advances to banks and trade bills.

(d) Other overdue and rescheduled assets

As at December 31, 2015 and 2014, there were no other overdue and rescheduled assets.



2 LIQUIDITY RATIO

(a) Average liquidity coverage ratio (“LCR”)/Average liquidity ratio

2015

Year ended

December 31,

2014

% %

Average liquidity coverage ratio – First quarter 165.7 N/A

– Second quarter 128.6 N/A

– Third quarter 146.1 N/A

– Fourth quarter 119.8 N/A

Average liquidity ratio for the year N/A 58.5

The average value LCR is for each quarter in 2015 based on the arithmetic mean of its LCR as at each

month-end in the quarter for the Bank as required by the Hong Kong Monetary Authority (“HKMA”) for its

regulatory purposes.

Other LCR disclosure requirements under the Banking (Disclosure) (Amendment) Rules 2015 are published

on the Bank’s website: http://www.asia.ccb.com/hongkong.

The average liquidity ratio for year ended December 31, 2014 is calculated as the simple average of each

calendar month’s average liquidity ratio for the Bank as required by the HKMA for its regulatory purposes, in

accordance with the Fourth Schedule of the Hong Kong Banking Ordinance.

(b) Liquidity cushion

The size and composition of the Bank’s liquidity cushion as of December 31, 2015 and December 31, 2014

was:

2015 2014

Cash & Central Bank reserves 12,360,938 6,713,976

Hong Kong Government Exchange Fund 3,016,302 8,199,290

Other securities which fulfil the High Quality Liquidity Assets definition 37,940,497 30,451,510

This is an additional information disclosed in relation to the requirement of HKMA Supervisory Policy Manual

“Sound Systems and Controls for Liquidity Risk Management”.



3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT

(a) Capital adequacy ratio

Group

2015 2014

Common Equity Tier 1 capital ratio 13.7% 14.8%

Tier 1 capital ratio 13.7% 14.8%

Total capital ratio 16.6% 18.0%

Capital adequacy ratios were compiled in accordance with the Banking (Capital) Rules (“the Capital Rules”)

issued by the HKMA. The ratios as of December 31, 2015 and 2014 were complied in accordance with the

amended Capital Rules effective from January 1, 2013 for the implementation of the “Basel III” capital

accord.

The capital adequacy ratio (“CAR”) was computed on a consolidated basis, including the Bank and its

subsidiaries, CCB Hong Kong Property Management Company Limited and all of its subsidiaries (“CCBP

Group”).

In accordance with the thresholds as determined in Part 3 of the Capital Rules, the Bank’s shareholdings in

CCB Securities Limited, CCB Nominees Limited and CCB (Asia) Trustee Company Limited were included in

the total risk weighted assets of the Group.

In calculating the risk weighted assets, the Group adopted the Standardised (Credit Risk) Approach and the

Standardised (Market Risk) Approach for credit risk and market risk respectively. For operational risk, the

capital requirement is calculated using the Basic Indicator Approach.

(b) Leverage ratio

2015 2014

Leverage ratio 8.16% N.A.

The disclosure on leverage ratio is effective since March 31, 2015 and is computed on the same consolidated

basis as specified in a notice from the HKMA in accordance with section 3C of the Capital Rules. The

relevant disclosures pursuant to section 45A of the Banking (Disclosure) Rules can be found on the Bank’s

website: http://www.asia.ccb.com/hongkong.

(c) Countercyclical Capital Buffer Ratio

There is no information disclosed relating to the Countercyclical capital buffer ratio pursuant to section

45B of the Banking (Disclosure) Rules for 2015 because the applicable JCCyB ratios for Hong Kong and for

jurisdiction outside Hong Kong are at 0% before January 1, 2016 according to section 3P and section 3Q of

the Capital Rules.



3 CAPITAL ADEQUACY RATIO AND CAPITAL MANAGEMENT (continued)

(d) Credit risk

The Group uses the following external credit assessment institutions (“ECAIs”) to calculate its capital

adequacy requirements under the Standardised (Credit Risk) Approach prescribed in the Capital Rules:

– Moody’s Investors Service

– Standard & Poor’s Ratings Services

The process used to map ECAIs issue specific ratings in the Group’s banking book is consistent with those

prescribed in the Capital Rules.

The capital requirements on each class of exposures under the Standardised (Credit Risk) Approach at the

reporting date are summarised as follows:

Capital charges

2015 2014

Exposures on the statement of financial position

Public sector entity 3,147 2,882

Bank 9,483,672 12,619,322

Securities firm 2,976 5,230

Corporate 8,172,894 5,517,594

Regulatory retail 1,384,999 987,028

Residential mortgage loans 638,123 584,767

Other exposures which are not past due exposures 1,083,383 837,255

Past due exposures 21,819 26,591

Sub-total 20,791,013 20,580,669

Exposures not on the statement of financial position

Direct credit substitutes 38,640 38,822

Transaction-related contingencies 54,470 30,512

Trade-related contingencies 12,867 14,014

Other commitments 398,202 238,074

Exchange rate contracts 402,185 105,390

Interest rate contracts 4,980 1,057

Equity contracts 342 376

Sub-total 911,686 428,245

Total capital charge for credit risk 21,702,699 21,008,914




(e) The risk weighted assets for each class of credit risk exposures are set out as follows:


Exposures covered

by recognised credit

risk mitigation

Exposures after

recognised credit

risk mitigation Risk weighted amount

Class of exposures

Total

Exposures* Collateral Guarantees Rated Unrated Rated Unrated Total

On-balance sheet

Sovereign 23,358,819 – 191,726 23,550,545 – – – –

Public sector entity 93,508 – 103,185 – 196,693 – 39,339 39,339

Bank 250,689,627 – 54,692,619 291,716,202 13,666,044 112,308,218 6,237,679 118,545,897

Securities firm 526,491 452,093 – – 74,398 – 37,199 37,199

Corporate 171,257,491 4,053,348 (54,846,173) 36,300,678 76,057,293 27,544,285 74,528,296 102,072,581

Cash 233,266 – – – 233,266 – – –

Regulatory retail 23,446,829 362,011 (1,500) – 23,083,318 – 17,312,489 17,312,489

Residential mortgage loans 19,403,250 – (91,821) – 19,311,429 – 7,976,534 7,976,534

Other exposures which are not

past due exposures 13,095,237 285,527 (48,036) – 12,761,674 – 13,542,291 13,542,291

Past due exposures 183,795 – – – 183,795 – 272,742 272,742

Off-balance sheet

Off-balance sheet exposures

other than OTC derivative

transactions or credit

derivative contracts 7,091,242 212,555 – 1,638,458 5,240,229 1,075,958 5,226,262 6,302,220

OTC derivative transactions

Exchange rate contracts 11,681,397 – – 11,511,500 169,897 4,890,931 136,381 5,027,312

Interest rate contracts 151,631 – – 145,564 6,067 56,187 6,067 62,254

Equity contracts 8,746 – – 8,746 – 4,274 – 4,274

Total 521,221,329 5,365,534 – 364,871,693 150,984,103 145,879,853 125,315,279 271,195,132

* Total exposures represent the principal amount or credit equivalent amount, as applicable, net of individually assessed

impairment allowances.




(e) The risk weighted assets for each class of credit risk exposures are set out as follows: (continued)


Exposures covered

by recognised credit

risk mitigation

Exposures after

recognised credit

risk mitigation Risk weighted amount

Class of exposures

Total

Exposures* Collateral Guarantees Rated Unrated Rated Unrated Total

On-balance sheet

Sovereign 17,541,586 – 51,091 17,592,677 – – – –

Public sector entity 101,620 – 78,515 – 180,135 – 36,027 36,027

Bank 292,325,675 – 65,022,284 347,173,165 10,174,794 152,725,002 5,016,526 157,741,528

Securities firm 661,444 530,694 – – 130,750 – 65,375 65,375

Corporate 142,686,455 4,790,431 (65,015,491) 15,885,397 56,995,136 11,974,785 56,995,136 68,969,921

Cash 238,072 – – – 238,072 – – –

Regulatory retail 16,777,293 325,049 (1,774) – 16,450,470 – 12,337,853 12,337,853

Residential mortgage loans 18,888,938 255,015 (134,625) – 18,499,298 – 7,309,593 7,309,593

Other exposures which are not

past due exposures 10,039,286 354,220 – – 9,685,066 – 10,465,683 10,465,683

Past due exposures 221,937 – – – 221,937 – 332,373 332,373

Off-balance sheet

Off-balance sheet exposures

other than OTC derivative

transactions or credit

derivative contracts 5,121,766 522,641 – 1,395,000 3,204,125 822,500 3,195,276 4,017,776

OTC derivative transactions

Exchange rate contracts 2,987,477 – – 2,814,967 172,510 1,144,870 172,509 1,317,379

Interest Rate contracts 22,997 – – 12,962 10,035 3,174 10,036 13,210

Equity contracts 9,918 – – 9,918 – 4,701 – 4,701

Total 507,624,464 6,778,050 – 384,884,086 115,962,328 166,675,032 95,936,387 262,611,419

* Total exposures represent the principal amount or credit equivalent amount, as applicable, net of individually assessed

impairment allowances.




(e) The risk weighted assets for each class of credit risk exposures are set out as follows: (continued)

The aggregate credit risk weighted amounts of the contingent liabilities and commitments are as follows:

2015 2014

Credit risk weighted amounts 6,302,220 4,017,776

The risk weights used in the computation of credit risk weighted amounts range from 0% to 100% (2014: 0%

to 100%).

(f) Credit risk mitigation

As mentioned in Note 5(a) to the consolidated financial statements on the credit risk management of the

Group, the Group has established policies in managing and recognising credit risk mitigation, one of which

is the taking of collateral and other credit enhancements. The principal types of collateral taken by the Group

are also those of the recognised credit risk mitigation as prescribed in the Capital Rules.

For regulatory capital calculation, the Group adheres to the criteria as stipulated in the Capital Rules when

assessing the eligibility of the credit risk mitigation.

Recognised collateral include both financial and physical collateral. Financial collateral include cash deposit,

shares and debt securities and mutual fund, whilst physical collateral include commercial real estate

and residential real estate. The exposure amount after mitigation is determined by applying the standard

supervisory haircut stipulated in the Capital Rules as an adjustment discount to the current collateral value.

Recognised guarantor is any sovereign entities, public sector entities, banks and regulated securities firms

with a lower risk weight than the borrower.

On-balance sheet and off-balance sheet recognised netting is not adopted by the Group.

(g) Over-the-counter (“OTC”) derivative transactions

In respect of the Group’s counterparty credit risk which arises from OTC derivative transactions, the

related credit risk management has set out in Note 5(a) to the consolidated financial statements. In sum,

the counterparty credit risk arising from OTC derivatives in the trading book is subject to the same credit

risk management framework of the banking book. The Group manages and monitors the risk exposure by

determining the current exposure amount of the transactions.

There were neither repo-style transactions nor credit derivative contracts entered into by the Group as at





(g) Over-the-counter (“OTC”) derivative transactions (continued)

(i) Counterparty credit risk exposures

2015 2014

Gross total positive fair value 5,744,526 732,831

Credit equivalent amount 11,841,774 3,020,392

Credit equivalent amount or net credit exposures net of

recognised collateral held 11,841,774 3,020,392

Risk weighted amounts 5,093,840 1,335,290

(ii) Major class of exposures by counterparty type

2015

Contract

amount

Credit

equivalent

amount

Risk

weighted

amount

Banks 587,249,638 11,729,624 4,981,690

Corporate 4,592,086 109,743 109,743

Others 148,187 2,407 2,407

591,989,911 11,841,774 5,093,840

2014

Contract

amount

Credit

equivalent

amount

Risk

weighted

amount

Banks 200,266,045 2,837,768 1,152,667

Corporate 10,621,755 177,092 177,091

Others 428,877 5,532 5,532

211,316,677 3,020,392 1,335,290




(h) Asset securitisation

There was no asset securitisation for which the Group is an originating institution or an investing institution as

at December 31, 2015 and 2014.

(i) Market risk

2015 2014

Interest rate exposures 668,724 176,853

Foreign exchange exposures (including options) 1,786,822 22,817

Capital charge for market risk 2,455,546 199,670

(j) Operational risk

2015 2014

Capital charge for operational risk 775,051 601,401

(k) Equity exposures in banking book

Investments in equity shares which are intended to be held on a continuing basis, but which do not comprise

investments in associate, jointly controlled entities or subsidiaries, are classified as available-for-sale

securities and are reported in the statement of financial position as “Available-for-sale financial assets”.

2015 2014

Cumulative realised gains on disposal – –

Unrealised gains

– recognised in reserve but not through the statement

of comprehensive income 15,894 13,333



4 SEGMENTAL INFORMATION

(a) Gross advances to customers

(i) Gross advances to customers by industry sectors

Analysis of gross advances to customers covered by collateral is as follows:

Group

2015 2014

Outstanding

balance

% of

advances

covered by

collateral

Outstanding

balance

% of

advances

covered by

collateral

Advances for use in Hong Kong

Industrial, commercial and financial

Property development 13,304,723 34.80 6,806,508 19.75

Property investment 29,059,241 88.06 27,941,571 82.14

Financial concerns 8,315,954 57.61 5,400,081 45.46

Stockbrokers 1,426,825 52.19 1,819,941 35.69

Wholesale and retail trade 14,526,660 67.25 19,902,498 88.30

Manufacturing 8,432,071 53.19 7,728,248 65.47

Transport and transport equipment 11,416,919 71.04 9,363,740 85.96

Recreational activities 26,845 69.14 737,173 99.40

Information technology 1,652,762 2.50 1,417,155 1.80

Others 15,943,675 61.95 26,729,171 83.51

104,105,675 107,846,086

Individuals

Loans for the purchase of flats in

the Home Ownership Scheme,

Private Sector Participation

Scheme and Tenants Purchase

Scheme 6,771 100.00 7,776 100.00

Loans for the purchase of other

residential properties 14,247,201 99.51 13,813,682 99.57

Credit card advances 6,289,380 0.00 5,794,173 0.00

Others 17,673,137 29.45 9,057,401 53.26

38,216,489 28,673,032

Trade finance 7,146,314 72.89 15,739,594 89.47

Advances for use outside Hong Kong 55,038,556 51.09 26,278,543 50.54

Gross advances to customers 204,507,034 59.06 178,537,255 71.20




(a) Gross advances to customers (continued)

(i) Gross advances to customers by industry sectors (continued)

Further analysis of gross advances to customers which constitute not less than 10% of gross advances

to customers are as follows:

2015 2014

(1) Property investment

Impaired advances 68 205

Overdue advances – 205

Individually assessed impairment allowances – –

Collectively assessed impairment allowances 14,181 14,638

Impairment allowances (released)/charged during the year (457) 554

Advances written-off during the year 865 –

(ii) Gross advances to customers by geographical areas

2015 2014

Hong Kong 166,841,339 137,315,253

China 32,663,974 31,798,412

Macau 118,999 109,400

Others 5,020,105 9,314,190

204,644,417 178,537,255

(iii) Impaired advances by geographical areas

2015 2014

Gross

impaired

advances

Individually

assessed

impairment

allowances

Gross

impaired

advances

Individually

assessed

impairment

allowances

Hong Kong 218,304 108,826 144,953 55,144

China 5,400 5,400 – –

223,704 114,226 144,953 55,144

More than 90% of the collective impairment allowances were allocated to Hong Kong as at December

31, 2015 and 2014 respectively. The geographical analysis is based on location of the customers and

has taken account of transfer of risk.




(b) International claims

International claims are exposures recorded on the statement of financial position based on the location of

the counterparties after taking into account the transfer of risk. For a claim guaranteed by a party situated in

a country different from the counterparty, risk will be transferred to the country of the guarantor. For a claim

on the branch of a bank, the risk will be transferred to the country where its head office is situated. Claims

on individual countries or areas, after risk transfer, amounting to 10% or more of the aggregate international

claims are shown as follows:


Non-bank private sector

Banks

Official

sector

Non-bank

financial

Institutions

Non-

financial

private

sector Total

Developing Asia and Pacific 245,038,427 4,987,373 2,824,775 83,272,981 336,123,556

– of which China 244,335,694 4,987,373 2,824,775 83,153,468 335,301,310


Banks

Public sector

entities Others Total

Asia Pacific excluding Hong Kong 290,009,999 2,891,212 73,792,284 366,693,495

– of which China 289,797,874 2,881,233 73,642,224 366,321,331

These are changes of reporting basis and the categorisation on the types of counterparties as required by

the HKMA in 2015, hence the disclosures reported during the year of 2014 are not directly comparable.



5 MAINLAND ACTIVITIES EXPOSURES

The table below summarises the Mainland China activities exposure of the Bank, categorised by types of

counterparties:


Types of Counterparties

On-balance

sheet

exposure

Off-balance

sheet

exposure Total

(a) Central government, central government-owned

entities and their subsidiaries and joint ventures

(“JVs”) 40,864,669 4,846,169 45,710,838

(b) Local governments, local government-owned entities

and their subsidiaries and JVs 19,823,937 114,037 19,937,974

(c) Mainland nationals residing in Mainland China or

other entities incorporated in Mainland China and

their subsidiaries and JVs 38,546,523 1,001,580 39,548,103

(d) Other entities of central government not reported in

part (a) above 3,973,905 1,225,459 5,199,364

(e) Other entities of local governments not reported in

part (b) above 536,350 – 536,350

(f) Mainland nationals residing outside Mainland China or

entities incorporated outside Mainland China where

the credit is granted for use in Mainland China 19,663,329 2,405,380 22,068,709

(g) Other counterparties where the exposures are

considered by the reporting institution to be

Mainland China activities exposures 7,828,818 527 7,829,345

Total 131,237,531 9,593,152 140,830,683

Total assets after provision 505,215,042

On-balance sheet exposures as percentage of total assets 25.97%



5 MAINLAND ACTIVITIES EXPOSURES (continued)


Types of Counterparties

On-balance

sheet

exposure

Off-balance

sheet

exposure Total

(a) Central government, central government-owned

entities and their subsidiaries and joint ventures

(“JVs”) 34,271,681 3,477,344 37,749,025

(b) Local governments, local government-owned entities

and their subsidiaries and JVs 15,678,755 635,560 16,314,315

(c) Mainland nationals residing in Mainland China or

other entities incorporated in Mainland China and

their subsidiaries and JVs 25,310,603 190,018 25,500,621

(d) Other entities of central government not reported in

part (a) above 748,325 – 748,325

(e) Other entities of local governments not reported in

part (b) above 660,886 – 660,886

(f) Mainland nationals residing outside Mainland China or

entities incorporated outside Mainland China where

the credit is granted for use in Mainland China 19,790,579 2,559,653 22,350,232

(g) Other counterparties where the exposures are

considered by the reporting institution to be

Mainland China activities exposures 3,593,194 572 3,593,766

Total 100,054,023 6,863,147 106,917,170

Total assets after provision 497,773,847

On-balance sheet exposures as percentage of total assets 20.10%



6 CURRENCY CONCENTRATIONS

The Group had the following net foreign currency exposures which exceeded 10% of the net foreign currency

exposure in all currencies:


RMB USD Others Total

HKD equivalent

Spot assets 94,181,157 197,173,055 11,784,672 303,138,884

Spot liabilities (137,154,260) (145,482,399) (13,620,130) (296,256,789)

Forward purchases 250,783,162 276,397,940 21,408,174 548,589,276

Forward sales (235,492,862) (321,724,064) (19,915,125) (577,132,051)

Net long/(short) position (Note) (27,682,803) 6,364,532 (342,409) (21,660,680)

Net structural position – – – –


RMB USD Others Total

HKD equivalent

Spot assets 210,562,526 117,301,148 2,820,109 330,683,783

Spot liabilities (171,403,976) (142,930,600) (7,856,088) (322,190,664)

Forward purchases 59,879,287 121,581,492 11,627,255 193,088,034

Forward sales (99,452,898) (94,913,588) (7,080,227) (201,446,713)

Net long/(short) position (415,061) 1,038,452 (488,951) 134,440

Net structural position – – – –

The net options position is calculated using the Simplified Approach and there was no net options position as at


Note: The net short position of RMB mainly stemmed from RMB17.6 billion of the RMB capital related assets being converted into Hong

Kong dollars during 2015.



7 CORPORATE GOVERNANCE

The Bank has fully complied with the requirements set out on “Corporate Governance of Locally Incorporated

Authorised Institutions” under the Supervisory Policy Manual issued by the HKMA in August 2012.

There are four special committees under the Board of Directors, namely Strategy and Corporate Governance

Committee, Audit Committee, Nomination and Remuneration Committee and Risk Committee and the five key

functional committees, namely Management Committee, Risk Management Committee, Operations Committee,

Information Technology Committee and Asset and Liability Committee directly report to Senior Management.

(a) Board of Directors

The Board of Directors has the ultimate responsibilities to the shareholders, depositors, creditors, employees

and other stakeholders, banking supervisors of the Group in ensuring that the business and operational

functions of the Group are managed in a prudent, professional and competent manner and in conformity

with relevant laws and regulations. Key specialised committees are established to be responsible to and

report to the Board of Directors, and assist the Board of Directors in performing its duties according to

the authorization of the Board of Directors. The functional committees are established to ensure that such

operational functions, as well as efficient management of the main types of risk arising out of the business,

are effectively carried out.

The key functions and powers of the Board of Directors are set out below:

– Determining the Bank’s development strategy, and supervising its implementation;

– Deciding on the business plan, investment plan and risk capital distribution plan of the Bank;

– Preparing annual financial budget and final accounts of the Bank;

– Preparing profit distribution plan and planning for making up losses of the Bank;

– Preparing plans for the increase or reduction of the Bank’s share capital, issuance of the Bank’s

convertible bonds, subordinated bonds, corporate bonds or other negotiable securities and listing;

– Preparing plans for the Bank’s major acquisitions;

– Preparing plans for merger, division, dissolution and liquidation of the Bank;

– Deciding on the Bank’s equity investment, bond investment, asset acquisition, asset disposal,

asset written-off, asset mortgage, other non-commercial banking business guarantees and external

donations;

– Deciding on the setting up of the Bank’s internal management departments;

– Deciding on the setting up of subsidiaries;

– According to the shareholder’s requirements, appointing or removing the chief executive officer of the

Bank, senior executive vice president, executive vice president and senior management members and

determining their remuneration, reward and penalty;

– Formulating the Bank’s basic management systems, and supervising the implementation of these

systems;



7 CORPORATE GOVERNANCE (continued)

(a) Board of Directors (continued)

– Deciding on risk management policies and internal control policies of the Bank, formulating risk

management system and internal control system, and supervising the implementation of such systems;

– Making proposal for the engagement, dismissal or retention of auditors to the Shareholders’ General

Meeting;

– Receiving and reviewing work reports of the Bank’s senior management, and supervising, checking and

assessing his/her work and adopting accountability system;

– Assessing and evaluating the duty performance of directors and senior management members;

– Regularly evaluating and continuously improving corporate governance of the Bank, and conducting a

regular evaluation of the performance of the Board of Directors;

– Formulating the amendments to the Articles of Association of the Bank and the Procedural Rules for

Board of Directors of the Bank, and formulating other systems, rules and measures of the Board of

Directors;

– Formulating the capital planning and relevant systems on capital adequacy ratio assessment and

management, and supervising the implementation of such systems;

– Formulating relevant systems for the management of accounting consolidation of the Bank and its

affiliates, and supervising the implementation of such systems;

– Delegating all or any part of the authorities given by the shareholder to the chief executive officer of

the Bank and allowing the chief executive officer to further delegate all or part of his/her authority

to other personnel of the Bank provided that the aforesaid delegation should be made by way of

authorisation document; and

– Exercising other functions and powers vested by laws, regulations, rules, and relevant provisions

of the relevant regulatory authorities, and the Articles of Association as well as those authorised by

the Bank’s ultimate sole shareholder, China Construction Bank Corporation (“CCBC”), and/or the

Shareholders’ General Meeting.

Members of the Board of Directors, who come from a variety of different backgrounds, have a diverse range

of business, banking and professional expertise. Currently, the Board of Directors comprises three executive

directors and nine non-executive directors. Of the nine non-executive directors, four are independent non-

executive directors.




(b) Strategy and Corporate Governance Committee

The Strategy and Corporate Governance Committee is responsible to the Board of Directors and the main

duties and powers of the Committee are:

– Preparing the Bank’s strategy and development plan, supervising and evaluating the implementation of

plan, and providing suggestions to the Board of Directors;

– Examining the Bank’s annual operation plan and fixed asset investment budget, and submitting them to

the Board of Directors for consideration;

– Examining the report on implementation of annual operation plan and fixed asset investment budget;

– Evaluating coordinative development of various businesses, and providing suggestions to the Board of

Directors;

– Examining significant organisational adjustment and institutional scheme of the Bank, and providing

suggestions to the Board of Directors;

– Examining major investment and financing plan of the Bank, and providing suggestions to the Board of

Directors;

– Supervising the implementation of the relevant resolutions of the Shareholders’ General Meetings and

board meetings;

– Regularly receiving and reviewing the reports of senior management and making suggestions on

operation management, as well as formulating rules for implementation to facilitate execution;

– Ensuring that the Bank has committed adequate efforts, time and resources according to compliance

requirements;

– Formulating and regularly reviewing whether the Bank is in compliance with the laws, regulations and

codes on corporate governance, and making suggestions to the Board of Directors; and

– Other matters authorised by the Board of Directors.

According to the terms of reference of the Committee, the Committee shall be composed of at least three

directors. The Chairman of the Committee shall be taken by Chairman of the Board of Directors. Members

other than the Chairman of the Committee shall be appointed by the Board of Directors.

(c) Audit Committee

The Audit Committee serves as the “eyes and ears” to the Board of Directors in monitoring compliance with

the Group’s policies and other internal and statutory regulations. It provides oversight of the Group’s internal

and external auditors and thereby assists the Board of Directors in providing independent review of the

effectiveness of the financial reporting process and internal control system of the Group.




(c) Audit Committee (continued)

The main duties and powers of the Audit Committee are:

– Supervising financial reports of the Bank, and examining the Bank’s accounting information and

disclosure of its major events;

– Supervising and evaluating internal control of the Bank;

– Supervising and evaluating internal and external audit work of the Bank, proposing to the Board

of Directors on engagement or replacement of independent audit firm, and responsible for the

communication and co-ordination between external auditors and internal auditors;

– Receiving and reviewing the work report of the person in charge of the internal audit department;

inspecting, monitoring and assessing the internal audit function;

– Paying attention to improper acts which may occur;

– Appointing the person in charge of the internal audit department;

– Approving the internal audit charter formulated by the internal audit department and its regular updates;

– Reporting to the Board of Directors its work, issues within its authority scope and decisions or

suggestions of the Committee; and maintaining communication and co-operation with other special

committees;

– Discussing the problems encountered during the financial audit and suggestions, and any matters

proposed by the auditor for discussion (without the presence of the management at the meeting);

– Reviewing and approving the scope of audit and its frequency;

– Reviewing the audit report and ensuring that the senior management (together with the monitoring

department) take actions as necessary to tackle the internal control weaknesses, areas that do not

comply with the laws, regulations and policies, or issues identified by other auditors/internal auditor in

a timely manner;

– Reviewing the on-site examination report of HKMA and reporting the significant findings to the Board

of Directors;

– Reporting to the Board of Directors significant audit findings, and making relevant suggestions; and


According to the terms of reference of the Committee, the Committee shall consist of at least three

directors, shall only be composed of non-executive directors, the majority of whom shall be independent non-

executive directors (“independent directors”), and at least one independent director shall have appropriate

professional qualifications or expertise in appropriate accounting or relevant financial management. Members

of the Committee shall be appointed by the Board of Directors. The Chairman shall be appointed for the

Committee to take charge of the work of the Committee. The Chairman shall be an independent director and

elected by more than half of the members of the Committee.




(d) Nomination and Remuneration Committee The Nomination and Remuneration Committee is responsible to the Board of Directors and the main duties

and powers of the Committee are:

– Organising the formulation of standards and procedures for the election of directors and senior

management members of the Bank, and submitting the proposed procedures and standards to the

Board of Directors for approval;

– Proposing to the Board of Directors on candidates for directors and chief executive officer of the Bank;

– Proposing to the Board of Directors on candidates for members of various special committees of the

Board of Directors;

– Examining the candidates for senior management members of the Bank nominated in accordance with

rules of shareholder and making suggestions to the Board of Directors;

– Formulating development plans for the senior management members and fostering plans for the key

backup talents;

– Reviewing the Bank’s remuneration management system, and proposing to the Board of Directors for

decision;

– Organising the preparation of performance evaluation methods and remuneration plan for directors of

the Bank, and submitting them to the Board of Directors for review;

– Organising the preparation of performance evaluation methods and remuneration plan for senior

management members of the Bank, and submitting them to the Board of Directors for approval;

– Organising performance evaluation on directors, proposing the distribution of remuneration for

directors, and submitting it to the Board of Directors for review;

– Organising performance evaluation on the senior management members, proposing the plan for

distribution of remuneration for senior management members and key personnel, and submitting it to

the Board of Directors for approval;

– Supervising the implementation of the Bank’s performance evaluation system and remuneration

system;

– Reviewing corporate level’s remuneration adjustments and performance-based bonus with reference

to the corporate goals and objectives resolved by the Board of Directors from time to time, assessing

whether such bonus involves any unidentified business interests, and submitting it to the Board of

Directors for approval;

– Proposing to the Board of Directors on the appointment or re-appointment of directors and the

succession plan of directors;

– Examining and approving relevant compensation to the executive directors and senior management

members for loss or termination of office or appointment to ensure such compensation is consistent

with provisions of relevant contracts; if it fails to abide by the relevant agreements, relevant

compensation shall be proper and reasonable;




(d) Nomination and Remuneration Committee (continued)

– Examining and approving compensation for dismissing or removing relevant directors due to their

misconduct to ensure such arrangement is consistent with provisions of relevant agreement; if it fails

to comply with the relevant agreements, relevant compensation shall be reasonable and proper;

– Reporting its decisions or suggestions to the Board of Directors unless such report is not allowed by

laws or supervisory regulations;

– Reviewing the structure, size and composition of the Board of Directors (including skills, knowledge

and experience) at least once a year, and putting forth recommendations on proposed adjustment of

the Board of Directors to implement corporate strategy of the Bank;

– Regularly reviewing the contribution required from a director to perform his/her duties and powers to

the Bank, and whether he/she is spending sufficient time performing them; and


According to the terms of reference of the Committee, the Committee shall be composed of at least three

directors, majority of whom shall be independent directors. Members of the Committee shall be appointed

by the Board of Directors. The Chairman of the Committee shall be taken by an independent director, and

shall be elected by all members of the Committee and reported to the Board of Directors for approval.

(e) Risk Committee

The Risk Committee is responsible to advise the Board of Directors in carrying out its risk management

responsibilities i.e. to ensure an adequate oversight of the Bank’s overall risk management framework and

to promote regular and transparent communications within the organisation in respect of bank-wide risk

management issues.

The main duties and powers of the Committee are:

– Examining the Bank’s risk management policies according to the overall strategy of the Bank, and

supervising and evaluating implementation and effect of these policies;

– Providing guideline to the formulation of risk management system of the Bank;

– Supervising and evaluating the setting, organisation, work procedures and effect of risk management

department, and making recommendations for improvement;

– Reviewing the Bank’s risk report including strict compliance with any related due diligence, statutory

and regulatory limits and relevant requirements, as well as material risks involved in obtaining the

approval from senior management members/Committee members; carrying out regular evaluation on

the Bank’s risk; and giving opinions on the improvement of the Bank’s risk management;

– Evaluating relevant work of senior management of the Bank in charge of risk management;




(e) Risk Committee (continued)– Supervising the compliance of core businesses, management systems and major operation activities of

the Bank;

– Discussing the risk management strategies and risk appetite of the Bank based on the existing laws/

regulations/regulatory requirements with due regard to its own business scale, nature and complexity

etc., and making suggestions to the Board of Directors;

– Ensuring that comprehensive and integrated management is adopted with respect to the definition,

identification and management of major risks:

• Formulating a set of definitions applicable to the whole entity with respect to different types of

risks faced by the Bank;

• Comprehensively monitoring existing risks across the entity where the entity covers all branches

under the Group where the Bank has management rights; and

• Ensuring that potential risks involved in the Bank’s existing and new businesses are effectively

identified, understood and assessed.

– Approving the risk management framework that is in line with the Bank’s business objectives, risk

appetite and profile, and ensuring that the framework is duly implemented and maintained by the

senior management members;

• Monitoring and reviewing the risk governance structure of the Bank and approving the risk

management policies as a whole; ensuring the sound operation of risk management and various

internal control functions; whether in terms of decision-making or reporting structure, maintaining

effective independence from the business departments that involve risks; possessing adequate

power, resources, professional knowledge and expertise to perform its duties; and

• Ensuring the Bank has a sound stress test system.

– Regularly reviewing the risk management framework to ensure the Bank has a suitable structural

system to manage its risks arising in the course of business development and arising from the changes

in external market environments;

– Ensuring that the information system and its infrastructure are provided with adequate resources to

cope with the Bank’s risk management and reporting needs;

– Receiving and reviewing the report on the implementation of compliance policies to ensure that

compliance risks are effectively managed; and


According to the terms of reference of the Risk Committee, membership of the Risk Committee shall be

appointed by the Board of Directors. The Committee shall be composed of at least three directors, all or

majority of whom shall be non-executive directors. The Chairman of the Committee shall be elected by all

members of the Committee and reported to the Board of Directors for approval. Other than members of

the Committee, the Chief Risk Officer, the Chief Financial Officer and the Head of Compliance and Internal

Control of the Bank shall sit in on meetings of the Committee as ex officio members.




(f) Management Committee

The Management Committee is responsible for implementing the resolutions of the shareholders and the

Board of Directors and the requests of the committees directly under the Board of Directors.

The main duties of the Committee are:

– It is responsible for establishing the daily operations management for the Bank, including organising,

implementing, completing and approving the Bank’s business objectives and plans;

– It is responsible for approving and deciding upon the important issues within its authority arising in

daily operations management;

– In accordance with standards and procedures, it organises all functional committees, working

committees and departments within its jurisdiction and ensures they carry out their duties;

– The Management Committee conducts regular meetings, including management meetings and

business analysis meetings, at which it discusses reports received;

– The Management Committee holds management meetings on a monthly basis and business analysis

meetings would be held every quarter, but also meets on an ad hoc basis as required.

Chief Executive Officer and President & Executive Director act as co-chair. The Management Committee

comprises of management members. Head of General Management Office acts as the secretary of the

Committee.

(g) Risk Management Committee

The Risk Management Committee acts as a central forum for overseeing the Bank’s overall asset quality

as well as resolving all important risk related or governance issues on credit risk, operational risk, market

risk, liquidity risk, interest rate risk, strategic risk and reputation risk. In addition, three working committees

namely Credit Approval Committee, Special Assets Management Committee and Steering Committee on

Stress Testing are established under the Risk Management Committee. The major responsibilities of the

Risk Management Committee include :

– Oversee overall asset quality of the Bank;

– Ensure a comprehensive and integrated management approach is adopted within the Bank with respect

to the definition, identification and management of major risks;

– Ensure the Bank’s risk profile is in line with the risk appetite and strategies under the direction of the

Bank’s Senior Management and the Risk Committee;




(g) Risk Management Committee (continued)

– Ensure the risk management framework is properly implemented and maintained and is adequate for

the scale and complexity of the Bank’s business operation;

– Approve or review new or major changes in risk policies and processes to ensure they adequately

accommodate the updated market conditions and economic trends, as well as due compliance of any

relevant laws and regulations;

– Approve or review various risk limits, parameters and thresholds, as well as credit programs/products/

risk assessment tools to ensure pertinent risks are addressed/mitigated;

– Approve the delegation of approval authorities to designated committees/individuals;

– Approve or review major risk assessment/monitoring reports;

– Approve or review the results of the stress-testing programme and any necessary remedial actions as

reported by the Steering Committee on Stress Testing;

– Approve the Annual Business Continuity Report;

– Review the trends in credit quality and delinquency, the risk positions of the Bank and material issues

relating to impairment allowances as reported by the Special Assets Management Committee; and

– Review and approve credit actions or applications.

The Risk Management Committee is chaired by the Deputy Chief Executive overseeing Risk Management,

and the other members are the Bank’s President and Executive Director, the Chief Financial Officer, the

Head of Risk Management, the Head of Legal and Compliance, the Head of Market Risk and the Head of

Operational Risk.

(h) Operations Committee

The Operations Committee is charged with the responsibility for:

– Formulating and approving operations policies, procedures and guidelines pertaining to all business

activities of the Bank to ensure ongoing operational efficiency, cost-effectiveness and adequate

controls, as well as compliance with all applicable regulatory and operational risk requirements and

standards;

– Formulating, delegating and announcing operational authorities (through operational policies,

procedures and guidelines) to staff of different levels so as to ensure responsible staff will discharge

daily duties and responsibilities in a legitimate and adequately controlled manner. Delegation of

authorities shall be approved by the Board of Directors and/or the functional committee;

– Reviewing and approving standard service charges and fees in relation to settlement, clearing and

account services offered by the Bank to ensure fairness and market competitiveness;




(h) Operations Committee (continued)

– Defining and approving the Bank’s outsourcing policies, procedures and guidelines, so as to ensure

outsourced activities are effectively operated, properly monitored, and applicable regulatory and

corporate guidelines/rules fully complied;

– Approving the Bank to open account with a third party financial institution; and

– Approving daily maximum customer transaction limits of various channels of the Bank.

Membership of the Operations Committee is appointed by the Management Committee and ratified by the

Board of Directors. The Operations Committee is chaired by Deputy Chief Executive; there are ten other

members, namely Corporate Banking Division representative, Commercial Banking Division representative,

Consumer Banking Division representative, Head of Operations Division, Finance Division representative,

Head of Cross Border Financial Division, Head of Legal & Compliance Division, Head of Operations &

Services of Consumer Banking Division, Head of Information Systems Division and Risk Management

Division representative.

(i) Information Technology Committee

The Information Technology Committee is a functional committee directly reporting to Senior Management

under the Board of Directors, and is enacted with the following scope & responsibilities:

– Overseeing the development of the Bank’s long-term and near-term information technology strategic

plans, including strategy formulation, risk management and resource planning;

– Ensuring the IT strategy is co-operating and synchronised with CCB;

– Formulating and approving major information technology policies and processes;

– Prioritising and monitoring major information technology projects and allocation of resources, whereby

such work may be delegated to designated sub-committee(s);

– Assessing the effectiveness of information technology budgeting, planning and resourcing processes,

whereby the areas relating to project may be delegated to designated sub-committee(s);

– Appraising major accomplishments in the application of technology and the overall IT service

performance;

– Ensuring an adequate information technology control environment in place, which is in compliance with

regulations, guidelines, and governance set by regulatory bodies and CCB; and

– Providing a platform to disseminate information technology related policies and processes to business

units, as well as to solicit their inputs and support.




(i) Information Technology Committee (continued)

Membership of the Information Technology Committee is appointed by the Senior Management. Currently,

the Committee consists of seventeen members with the President and Executive Director as the

Chairperson. Other members are Deputy Chief Executive, Head of Information Systems, Head of Corporate

Banking, Head of Commercial Banking, Head of Consumer Banking, Head of Credit Card and Consumer

Finance, Head of Treasury, Head of Finance, Head of Risk Management, Head of Operations, Head of Legal

& Compliance, Head of eBusiness, Head of Operations & Services of Consumer Banking, Head of Wholesale

Products, Head of Cross Border Financial Services, and Head of Institutional Banking. Representative from

Audit function and IT related functions of CCB are invited as advisor in the Committee while Information

Systems Representative is the secretary to the Committee.

(j) Asset and Liability Committee

The Asset and Liability Committee (“ALCO”) is the functional committee delegated by the Senior

Management to exercise oversight of the Bank’s assets and liabilities. Its main responsibility is to develop

strategies on the asset and liability structure and capital allocation according to the annual business plan,

financial budgets, strategic goals and risk appetite approved by the Board, and to determine the measures

(including assets and liabilities matching and risk hedging) to ensure that the business is conducted within

the risk appetite of the Bank.

ALCO members include Chief Financial Officer as the Chairperson, Chief Executive Officer, Executive

Director & Alternate Chief Executive, President & Executive Director, Deputy Chief Executives and the Head

of Risk Management Division, Finance Division, Treasury Division, Corporate Banking Division, Institutional

Banking Division, Commercial Banking Division and Consumer Banking Division.

8 RISK MANAGEMENT

(a) Operational risk management

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems

or from external events. The Board recognises operational risk as a distinct risk category that should be

managed with full attention and should be kept up with the best practice of the industry.

The Group has formulated and implemented the Operational Risk Management Policy which provides a

bank-wide classification of operational risks and sets out the requirements on identification, assessment,

reporting, monitoring and mitigation.



8 RISK MANAGEMENT (continued)

(a) Operational risk management (continued)

To ensure operational risks being under proper monitoring and supervision, an effective internal control

system has been enforced by means of computer systems and rigorous procedures. The Group has

maintained sound risk management systems, well defined procedures and established controls to monitor

transactions and positions, documentation of books and records, regulatory compliance reviews, prudent

underwriting and reconciliation standards, periodic reviews by internal audit, examiners and external

auditors, and continuous maintenance of high employee risk awareness and ethical standards. Business line

management is responsible for managing operational risks specific to their business units on a day-to-day

basis.

The Group has regularly reviewed and enhanced the Business Continuity Plan of all critical banking services.

It has also maintained data processing back-up sites and facilities to support the business operations in the

event of any disastrous events. To ensure practicality of the plan, drill on contingency plans on certain critical

business functions has been duly performed annually and the result was satisfactory.

Operational Risk Department drives the development of operational risk management process; and

coordinates the execution of operational risk management activities, in particular conducting self-assessment

exercises and the setting up of key risk indicators. In addition, the Risk Committee assists the Board in

managing all types of risk, including operational risk and the Risk Management Committee was designated

by the Board to oversee the operational risk of the Group.

The internal control environment is assessed and reviewed by the Internal Audit Division on an on-going

basis while the Regional Audit Office of the intermediate holding company, CCB, will also conduct reviews

on the Group on a regular basis. The results of their monitoring activities are directly reported to the senior

management of the Group, the Board of Directors, as well as to the senior management of the intermediate

holding company. They are independent to provide (negative or positive) assurance on the effectiveness of

the first and second levels of control on the internal control system of all process owners. Their periodic

reviews cover a comprehensive evaluation of all the Group’s business processes and support functions.

Compliance awareness is enhanced through training, regular compliance circulars and issuance of compliance

policies and procedures. All officers are required to actively engage in the continuous monitoring process. A

Compliance Officer is designated to oversee the overall regulatory compliance matters.




(b) Market risk management

The Group’s market risk management is detailed in Note 5(c) to the consolidated financial statements.

The Group’s foreign exchange risk exposure arises from its foreign exchange trading activities. For the year

ended December 31, 2015, the average monthly revenue of the foreign exchange trading activities was

negative $15,936 (2014: negative $63,326) and the standard deviation of this monthly revenue was $108,456

(2014: $194,498). An analysis of the frequency distribution of the monthly foreign exchange trading revenue is

presented by the following charts. The comparative figures have been updated to conform with the current

year’s presentation.

Frequency distribution of monthly FX trading income

2015

Nu

mb

er

of

mo

nth

s

Revenues (HK$ Thousand)

0

1

2

3

4

5

-200,000 to -150,000

-149,999 to -100,000

-99,999 to -50,000

-49,999 to 0

1 to 50,000

50,001 to 100,000

100,001 to 150,000

150,001 to 200,000




(b) Market risk management (continued)

Frequency distribution of monthly FX trading income

2014 (restated)

Nu

mb

er

of

mo

nth

s

Revenues (HK$ Thousand)

0

1

2

3

4

5

-400,000 to -300,000

-299,999 to -200,000

-199,999 to -100,000

-99,999 to 0

1 to 100,000

100,001 to 200,000

200,001 to 300,000

300,001 to 400,000

Service NetworkkAs of March 31, 2016


COMMERCIAL BANKING OFFICES Telephone

Central 3/F, CCB Tower 2903 8366

Kowloon Bay 26/F, CCB Centre 3718 3322

Tsimshatsui 25/F, Tower 6, The Gateway, 9 Canton Road 2903 8366

SME CENTERS Telephone

Kowloon Bay G/F, CCB Centre 3718 3422

Mongkok Room 1017–18, 10/F, Park-in Commercial Centre, 56 Dundas Street 3918 6766

Sheung Shui Units 1103A–06, 11/F, Landmark North, 39 Lung Sum Avenue 3918 6722

Sheung Wan Unit 910, 9/F, Wing On Centre, 111 Connaught Road 3918 6778

Wanchai Unit C, 20/F, China Overseas Building, 139 Hennessy Road 3918 6708

PRIVATE BANKING Telephone

Central 10/F, CCB Tower, 3 Connaught Road Central 3718 3779

CONSUMER BRANCHES Telephone

Aberdeen Shop 7, G/F, Site 4, Aberdeen Centre 3918 6836

Causeway Bay Jardine’s Bazaar 51–53 Jardine’s Bazaar 3718 3520

Causeway Bay Plaza G/F, Causeway Bay Plaza I, 489 Hennessy Road 3718 7680

Chai Wan Shop 301, Level 3, New Jade Shopping Arcade 3718 7678

Central G/F, 6 Des Voeux Road Central 3918 6666

Central CCB Tower 3/F, CCB Tower 3918 6800

Central Des Voeux Road 99 Des Voeux Road Central 3718 7690

Cheung Sha Wan Unit G02, G/F, Cheung Sha Wan Plaza, 833 Cheung Sha Wan Road 3718 3600

Happy Valley G/F, 37 & 39 Sing Woo Road 3918 6600

Hunghom Ma Tau Wai Road G/F, Chasegold Tower, 100 Ma Tau Wai Road 3718 3580

Hunghom Whampoa Shop A3, G/F, Yuen Wah Building, Whampoa Estates 3718 3180

Jordan 316 Nathan Road 3718 3999

Kowloon Bay Amoy Gardens Shop 181, G/F Phase II A, Amoy Gardens 3718 7366

Kowloon Bay CCB Centre G/F, CCB Centre 3718 7900

Kwun Tong Hoi Yuen Road 56 Hoi Yuen Road 3718 7082

Kwun Tong Hip Wo Street 191 Hip Wo Street 3718 7333

Ma On Shan Shop 297, Level 2, Ma On Shan Plaza 3718 3560

Mei Foo Shop N46, G/F, 2 Humbert Street, Mei Foo Sun Chuen 3918 6630

Mongkok Allied Plaza Shop G46, G/F, Allied Plaza, 760 Nathan Road 3918 6620

Mongkok Nathan Road 788–790 Nathan Road 3718 7128

North Point 382–384 King’s Road 3718 3500

Sai Wan 518 Queen’s Road West 3718 3640

Sai Ying Pun 73–78 Des Voeux Road West 3718 3960

Shatin Lucky Plaza Shop 194, Level 3, Shatin Lucky Plaza 3718 7650

Shatin Plaza Shop 5, Level 1, Shatin Plaza 3718 3160

Service NetworkkAs of March 31, 2016


CONSUMER BRANCHES (continued) Telephone

Shau Kei Wan 2 Po Man Street 3718 7000

Sheung Shui 67 San Fung Avenue 3718 3620

Sheung Wan Des Voeux Road 237 Des Voeux Road Central 3718 7040

Tai Kok Tsui Olympian City Shop 109, 1/F, Olympian City 2 3718 3920

Taikoo Shing Shop 001, G/F, Cityplaza II 3718 7380

Tai Po Shop 9B, G/F, 1 On Chee Road 3718 7022

Tai Wai 42 Tai Wai Road 3918 6599

Tseung Kwan O Shop 190, Level 1, Metro City 3 3718 3120

Tsimshatsui Hankow Road 17 Hankow Road 3718 3680

Tsimshatsui Humphreys Avenue 3–3A Humphreys Avenue 3718 7166

Tsuen Wan 282–284 Sha Tsui Road 3718 7199

Tuen Mun Shop 9, G/F, Tuen Mun Town Plaza 2 3718 3118

Wanchai Great Eagle Centre Shop 121, 1/F, Great Eagle Centre 3718 3900

Wanchai Hennessy Road Unit C, G/F, China Overseas Building, 139 Hennessy Road 3718 7233

Wanchai Johnston Road 150 Johnston Road 3718 7300

Wanchai Queen’s Road East 72 Queen’s Road East 3718 3668

Yaumati 556 Nathan Road 3718 7200

Yuen Long 68–76 Castle Peak Road 3718 3543

WEALTH MANAGEMENT CENTER Telephone

Sheung Shui G/F, 97 San Fung Avenue 3918 6790

PERSONAL LOAN CENTERS Telephone

Causeway Bay 25/F, Causeway Bay Plaza I, 489 Hennessy Road 3718 7928

Kowloon Bay Shop 181, G/F, Phase IIA, Amoys Gardens 3718 7373

Mongkok 1/F, 788 Nathan Road 3718 7568

Tsimshatsui Unit 1603, 16/F, Carnarvon Plaza, 20 Carnarvon Road 3918 6388

Tsuen Wan Room 945, 9/F, Nan Fung Centre 3718 3940

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