Summary of 2006 Operating Performance

In 2006, China Development Bank ( CDB ) earnestly followed China's macro-control policy. On the one hand, it kept the consistent financing for the state and local key projects; on the other hand, it actively supported the priority areas of the country that are under the most urgent need of development, and increased financial support for economic and social "bottleneck" areas and weaknesses such as new countryside building. Throughout the year CDB granted loans of RMB89.6 billion, representing 40.7% of its total increment of RMB loans on the balance sheet, for new countryside building, small and medium-sized enterprises, students, renovation of shanty town, and such other areas which were in most urgent need of development in China.

During the recent years, CDB has been engaged in financing and supporting the construction in areas that require development most. Since 2006, CDB has taken the new countryside construction as one of the priority subjects of credit support. CDB, starting by boosting the economic development at the county level, has reinforced financial support for infrastructure construction in rural areas, exploitation of agricultural resources, and development of social undertakings in rural areas as well as industries in the counties, which obviously increased the radiant and influential functions on county development. By the end of 2006, CDB had granted RMB64 billion in the loans for the construction of new countryside and counties, with the balance of RMB179 billion. Last year, CDB granted loans of RMB11.1 billion, financing the construction of 98,000 km highway in rural areas. It also disbursed loans of RMB780 million for the construction of migrant labor training base.

Resolving hot spot and difficult issues of the government was another key task of CDB in 2006. By the end of 2006, CDB had granted loans of RMB32 billion in total to the small and medium-sized enterprises, creating up to 590,000 jobs; it granted state-subsidized student loans of RMB1.4 billion, covering 131 colleges with over 300,000 poverty-stricken students; it also granted loans of RMB11.4 billion for the construction of housing for low-income people and low-rent housing, resolving housing issues for 2.05 million people with low income. During the last two years, CDB granted loans of RMB6 billion to finance the renovation of over 50,000 sq. m. shanty town in the cities of Liaoning Province, which resulted in completing the task one year earlier than expected and helped nearly 900,000 urban residents move out of the badly conditioned shanty town into well-equipped new apartments.

In 2006, China Development Bank, as one of China's leading banks in financing infrastructure construction, earnestly implemented each and every guideline and policy released by the central government, to push forward macro-control. In the same year, CDB controlled new loans within the scale ratified by the People's Bank of China, and granted the loans evenly, with growth lower than the average of all financial institutions in China. On the principle of "highlighting the keystone by treating differentially", CDB issued 78.6% of its total loans to such areas as coal, electricity, oil, transportation, agriculture, forestry, water conservancy, communications, and public facilities. Based on the needs of strategic adjustment of economic structure, 30.2% of total loans were extended to the western region and the northeast industrial base last year.

As of the end of 2006, the balance of CDB's has assets reached RMB2,314.3 billion, the current and accumulative recovery ratios of principal and interest were 100.22% and 99.73% respectively, and non-performing loan ratio was 0.72%.

Financial Highlights

Summary of 2005 Operating Performance

Through its role as a development financial institution of the government, China Development Bank has been a relentless implementer of development financing while keeping its mission clear - strengthening the competitiveness of our country and improving the living standard of our people. We have maintained our strategic focus on national infrastructure, basic and pillar industries, as well as the hi-tech sector utilizing structured finance offerings to accelerate these markets.  As a market leader, we play a critical role in building a healthy financial services sector as well as helping to accelerate the development of a market economy in China through our lending practices. 

We have been very successful in assisting the development of infrastructure within China through focusing on key industry sectors.  From the time when our bank was established in 1994 to the end of 2005, 88.9% of our lending was directed towards eight key industries - power, road construction, railway, petro-chemical, coal mining, telecommunications, public facilities, and agriculture & related industries.  Since 2003, we have emphasized funding towards industry rationalization to provide a more balanced basis for China's future economic growth. 

2005 witnessed another year of record-setting results at CDB.  At the end of the year, our total assets reached RMB 1,897.9 billion, and the total lending portfolio grew to RMB 1,731.8 billion, up by 22.9%.  Our NPL ratio stood at 0.87%, a decrease in both the ratio and the balance from prior year.  Our net profit of RMB 22.8billion, a historical high, increased 31.0% from a year ago.  Our capital adequacy ratio stood at a strong 9.15%.  Our financial results were prepared strictly in compliance with International Financial Reporting Standards and we have been audited by our international auditor.

Summary of 2004 Operating Performance  

In 2004 CDB maintained and strengthened its market performance in the process of resolutely carrying out national macroeconomic adjustment policies and measures, with major operation indicators standing at internationally advanced levels for three consecutive years. As of the end of 2004, the bank's credit assets amounted to RMB1378.6 billion, with current principal and interest recovery ratio of 99.77%, the indicator having maintained world-leading performance for 20 consecutive quarters; the bank's non-performing loan ratio stood at 1.21%, down a year-on-year 0.13 percentage points; the coverage ratio of its risk reserves against non-performing loans hit 285%, and; its capital adequacy ratio reached 10.51%.

"Double reductions" of nonperforming asset percentage and nonperforming loan percentage were achieved on the basis of the leading level in 2004. CDB achieved "double reductions" in nonperforming loan percentage and amount for 4 successive years from 1998 to 2002. From 2002, nonperforming loan percentage of CDB gradually acquires stability, fluctuating slightly within the scope of 3% to 0.5% for 3 successive years, which coincides with the situations of the international leading banks after entering a stable period. In the past six years, CDB continuously reduced its nonperforming loan percentage and nonperforming asset percentage, and reached the international leading level in terms of major operation indicators. In 2004, CDB was ranked as one of the most profitable banks in Asia by International Finance.

As the development financing institution of the government, CDB actively developed new thoughts, promoted asset management, and brought along other financial institutions and social capital to jointly support the construction of key projects that concerned the regional development in the past year. In 2004, in order to solve the "bottleneck" that chocked the development of economy, 66% of the new loans of CDB were extended to "coal, electricity, oil and transportation areas". In promised loans that were examined, those of electricity, railway, telecom, highway, public facility, oil, petrifaction and other main industries accounted for 82% in the whole year. Loans extended to middle-western areas and old industrial centers in the northeast amounted to nearly 52% of the total. The key credit projects CDB supported include: national petroleum storage, South-to-North Water Transfers, Beijing Olympic, and Shanghai World Expo. At the same time, CDB reinforces its cooperation with relevant departments, and plays an active role in the development & planning of the cities in the western area of China such as the Yangtze delta region, Beijing, Tianjin and Hebei, etc.

Summary of 2003 Operating Performance

In 2003, CDB firmly carried out the macro-economic policies of the state, aggressively deployed its development financing role in the state's macro-regulation work, energetically supported national economic development and restructuring, and consistently promoted credit building and financing and investment system building. CDB has maintained and solidified its leading market-based performance, and has made new progress in all of its work, achieving its best ever operating results.

Asset quality at the bank has been improving continuously. As of the end of 2003, the NPL ratio, measured under the five-class assets classification method, stood at 1.34%, down 0.44% from the beginning of the year. The NPA ratio stood at 1.88%, down 0.61% from the beginning of the year.

CDB continues to deliver a high standard of asset management performance. In 2003, the current principal and interest recovery ratio and the cumulative principal and interest recovery ratio hit 99.88% and 99.19%, respectively. The current principal and interest recovery ratio has maintained world-leading performance for 16 quarters in a row. For the first time in its history, the current and cumulative principal and interest recovery ratios of the bank have both exceeded 99%.

CDB has further enhanced its risk prevention capability.  Risk reserves to NPAs and risk reserves to NPLs have posted a coverage ratio of 159% and 229%, respectively. Capital adequacy ratio stands at 10.11%.

Summary of 2002 Operating Performance

In 2002, under the leadership of the State Council and thanks to the energetic support of relevant administrations, CDB proactively implemented the government's policy of expanding domestic demand and financial reforms, adapted itself to daily increasing competition, and continually deepened its structural reforms. The bank has achieved remarkable results in all of its work, and has consistently furthered its objectives of " achieve international banking standards, construct an investment and financing system, and support national economic development".

By adopting international best practices, implementing standards of leading international banks, and enhancing internal reforms, CDB has largely realized its goal of achieving international standard performance on the key fronts of organizational design, corporate governance, risk management, credit management, assets and liabilities management, information technology, etc.  Many of its 2002 performance indicators have exceeded the plan estimates at the beginning of the year.

In tandem with a substantial growth of size, assets have posted continuing quality improvement. As of the end of 2002, total assets and total credit assets of the bank hit RMB 1041.7bn and 896.2bn, respectively. The NPL ratio, measured under the five-class assets classification method, stood at 1.78%. The cumulative principal and interest recovery ratio was as high as 98.4%.

In a bid to improve internal management and enhance transparency, CDB has retained leading international accounting firms as its external audit and has published its financial statements prepared and audited in accordance with international accounting standards.

In 2004, the Bank's pre-tax earnings were a record high RMB 25.3 billion, up by RMB 6.8 billion, or 37.0% from 2003. The increase was principally due to the growth of our loan portfolio from RMB 1,139.9 billion at the end of 2003 to RMB 1,409.5 billion in 2004, and gains on the disposal of equity investments. The disposal of equity investments also led to a decrease in dividend income.  It is important to note that the growth in our loan portfolio was achieved without any deterioration in asset quality.