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2 Capital and Capital Adequacy Ratio PDF

51 Pages·2015·2.76 MB·English
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Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. 中 國 銀 行 股 份 有 限 公 司 BANK OF CHINA LIMITED (a joint stock company incorporated in the People’s Republic of China with limited liability) (the “Bank”) (Stock Code: 3988 and 4601 (Preference Shares)) ANNOUNCEMENT Bank of China Limited Capital Adequacy Ratio Report of 2014 In accordance with the relevant requirements under the Capital Rules for Commercial Banks (Provisional) promulgated by the China Banking Regulatory Commission, the meeting of the Board of Directors of the Bank held on 25 March 2015 considered and approved Bank of China Limited Capital Adequacy Ratio Report of 2014. Set out below is a complete version of the report for reference only. By Order of the Board Bank of China Limited YEUNG Cheung Ying Company Secretary Beijing, PRC 25 March 2015 As at the date of this announcement, the directors of the Bank are: Tian Guoli, Chen Siqing, Li Zaohang, Sun Zhijun*, Zhang Xiangdong*, Zhang Qi*, Wang Yong*, Wang Wei*, Liu Xianghui*, Chow Man Yiu, Paul#, Jackson Tai#, Nout Wellink#, Lu Zhengfei# and Leung Cheuk Yan#. * Non-Executive Directors # Independent Non-Executive Directors 1 Bank of China Limited Capital Adequacy Ratio Report of 2014 2 Contents 1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.1 Bank Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.2 Basis of Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.3 Scope of Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2 Capital and Capital Adequacy Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2.1 Internal Capital Adequacy Assessment Method and Process. . . . . . . . . . . . . . . . . . . . . . 8 2.2 Capital Planning and Capital Adequacy Ratio Management Plan . . . . . . . . . . . . . . . . . . 8 2.3 Capital Adequacy Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 2.4 Composition of Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.5 Capital Deduction Limits and Excess Loan Loss Provisions. . . . . . . . . . . . . . . . . . . . . . 12 2.6 Material Capital Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.7 Paid-in Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.1 Risk Management Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 3.2 Significant Changes to the Risk Measurement Approaches. . . . . . . . . . . . . . . . . . . . . . . 15 3.3 Risk-weighted Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4 Credit Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.1 Credit Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.2 Credit Risk Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4.3 Credit Risk Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 4.4 Overdue and Non-performing Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 4.5 Allowance for Impairment Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 5 Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.1 Market Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.2 Market Risk Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 6 Operational Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.1 Operational Risk Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 6.2 Operational Risk Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7 Other Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.1 Asset Securitisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 7.2 Interest Rate Risk in the Banking Book. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 8 Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 8.1 Composition and Authority of the Remuneration Management Committee . . . . . . . . . . 33 8.2 Remuneration Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 8.3 Disclosures of Senior Management Remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Annex 1: Composition of Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Annex 2: Financial and Regulatory Consolidated Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . 40 Annex 3: Reconciliation and Illustration of Balance Sheet Items . . . . . . . . . . . . . . . . . . . . . . . . . 42 Annex 4: Main Attributes of Capital Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 3 1 Introduction 1.1 Bank Profile Bank of China was formally established in February 1912 following the approval of Dr. Sun Yat-sen. From 1912 to 1949, the Bank served consecutively as the country’s central bank, international exchange bank and specialised international trade bank. Fulfilling its commitment to serving the public and developing China’s financial services sector, the Bank rose to a leading position in the Chinese financial industry and developed a good standing in the international financial community, despite many hardships and setbacks. After 1949, with a long history as the state-designated specialised foreign exchange and trade bank, the Bank became responsible for managing China’s foreign exchange operations and provided vital support to the nation’s foreign trade development and economic infrastructure through its offering of international trade settlement, overseas fund transfer and other non-trade foreign exchange services. During China’s reform and opening up period, the Bank seized the historic opportunity presented by the government’s strategy of capitalising on foreign funds and advanced technologies to boost economic development, and became the country’s key foreign financing channel by building up its competitive advantages in foreign exchange business. In 1994, the Bank was transformed into a wholly state-owned commercial bank. In August 2004, Bank of China Limited was incorporated. The Bank was listed on the Hong Kong Stock Exchange and Shanghai Stock Exchange in June and July 2006 respectively, becoming the first Chinese commercial bank to launch an A-Share and H-Share initial public offering and achieve a dual listing in both markets. In 2014, Bank of China was enrolled again as a Global Systemically Important Bank, becoming the sole financial institution from emerging economies to be enrolled for four consecutive years. As China’s most international and diversified bank, the Bank provides a comprehensive range of financial services to customers across the Chinese mainland, Hong Kong, Macau, Taiwan and 38 countries. The Bank’s core business is commercial banking, including corporate banking, personal banking and financial markets services. BOC International Holdings Limited, a wholly owned subsidiary, is the Bank’s investment banking arm. Bank of China Group Insurance Company Limited and Bank of China Insurance Company Limited, both wholly owned subsidiaries, run the Bank’s insurance business. Bank of China Group Investment Limited, a wholly owned subsidiary, undertakes the Bank’s direct investment and investment management business. Bank of China Investment Management Co., Ltd., a controlled subsidiary, operates the Bank’s fund management business. BOC Aviation Pte. Ltd., a wholly owned subsidiary, is in charge of the Bank’s aircraft leasing business. Bank of China has upheld the spirit of “pursuing excellence” throughout its hundred-year history. With adoration of the nation in its soul, integrity as its backbone, reform and innovation as its path forward and “people first” as its guiding principle, the Bank has built up an excellent brand image that is widely recognised within the industry and by its customers. Faced with new historic opportunities, the Bank will meet its social responsibilities, strive for excellence, and make further contributions to achieving the China Dream and the great rejuvenation of the Chinese nation. 4 1.2 Basis of Disclosure China Banking Regulatory Commission (hereinafter referred as “CBRC”) promulgated the Capital Rules for Commercial Banks (Provisional) (hereinafter referred as the “Capital Rules”) in June 2012. The Bank started to disclose the capital adequacy ratio since 2013 as required by the Capital Rules. CBRC formally approved the Bank’s implementation of advanced capital measurement approaches in April 2014. 1.3 Scope of Consolidation The calculation of the unconsolidated capital adequacy ratio covers all the domestic and overseas branches of the Bank (hereinafter referred as “the Bank”). The scope of the calculation of the consolidated capital adequacy ratio includes the Bank and the financial institutions invested by the Bank directly or indirectly in accordance with the requirements of the Capital Rules (hereinafter referred as “the Group”). 1.3.1 Difference in Scope of Consolidation for Accounting and Regulatory Capital Purposes When calculating the consolidated capital adequacy ratio, Bank of China Group Investment Limited, Bank of China Insurance Company Limited, Bank of China Group Insurance Company Limited and Bank of China Group Life Assurance Company Limited, which are consolidated on accounting consolidation basis, are excluded from the scope of capital consolidation. The investment in Bank of China Group Investment Limited is calculated as risk weighted asset. The investment in Bank of China Insurance Company Limited, Bank of China Group Insurance Company Limited and Bank of China Group Life Assurance Company Limited are deducted from the capital of the Group. 1.3.2 Profile of BOC-invested Institutions According to the requirements of the Capital Rules, the Group takes different methods to calculate consolidated capital adequacy ratio according to different investment types as follows: (cid:129) Financial institutions (excluding insurance companies) whereby the Group has a majority or controlling stake, are included in the scope of regulatory consolidation. (cid:129) Insurance companies, whereby the Group has a majority or controlling stake, are not included in the scope of regulatory consolidation. The corresponding investments are deducted from the capital of the Group. (cid:129) Investments in commercial entities are calculated as a risk-weighted asset, and are not included in the scope of regulatory consolidation. 5 (cid:129) Non-significant minority capital investments in financial institutions are not included in the scope of regulatory consolidation. If the Group’s aggregated capital investments exceed the prescribed materiality level, i.e. 10% of the Group’s common equity tier 1 capital net of regulatory deductions, the portion of investments that exceeds the materiality level is deducted from the respective tiers of capital of the Group. If the Group’s aggregated investments do not exceed the materiality level as stated above, the investments are calculated as risk-weighted assets. (cid:129) Significant minority common equity tier 1 capital investments in financial institutions are not included in the scope of regulatory consolidation. If the Group’s common equity tier 1 capital investments exceed the prescribed materiality level, i.e. 10% of the Group’s own common equity tier 1 capital net of regulatory deductions, the portion of investments that exceeds the materiality level is deducted from the Group’s common equity tier 1 capital. If the Group’s common equity tier 1 capital investments do not exceed the materiality level as stated above, the investments are calculated as risk- weighted assets. Significant minority investments in additional tier 1 capital and tier 2 capital are deducted in full amount from the corresponding tiers of capital of the Group. Non-significant minority investments refer to the investments in unconsolidated financial institutions (excluding insurance companies) where the Group owns less than 10% (not inclusive) of the paid-in capital (common shares and premiums) of this financial institution. Significant minority investments refer to the investments in unconsolidated financial institutions (excluding insurance companies) where the Group owns more than 10% (inclusive) of the paid-in capital (common shares and premiums) of this financial institution. 6 Top 10 Invested Institutions Included into the Consolidated Capital Adequacy Ratio Unit: RMB Million (except percentages) Investment Shareholding Place of S/N Name of Invested Institution Industry Balance Ratio Registration BOC Hong Kong (Group) Commercial 1 36,915 100% Hong Kong Limited Bank BOC International Investment 2 3,753 100% Hong Kong Holdings Limited Bank Commercial 3 Bank of China (UK) Limited 3,223 100% United Kingdom Bank Commercial 4 BOC (Thailand) 2,133 100% Thailand Bank Bank of China (Luxemburg) Commercial 5 1,717 100% Luxembourg S.A. Bank Bank of China (Malaysia) Commercial 6 1,541 100% Malaysia Berhad Bank BOC Middle East (Dubai) United Arab Commercial 7 945 100% Limited Emirates Bank BANCO DA China Commercial 8 718 100% Brazil Brazil S.A. Bank Commercial 9 BOC (Canada) 662 100% Canada Bank Commercial 10 BOC (Zambia) 560 100% Zambia Bank Total 52,167 Invested Institutions Deducted from the Group’s Capital Unit: RMB Million (except percentages) Investment Shareholding Place of S/N Name of Invested Institution Industry Balance Ratio Registration Bank of China Group 1 4,509 100% Hong Kong Insurance Insurance Company Limited Bank of China 2 3,498 100% Beijing Insurance Insurance Company Limited Bank of China Group 3 Life Assurance 1,514 51% Hong Kong Insurance Company Limited Total 9,521 1.3.3 Capital Shortfall and Intra-Group Capital Transfer The Group did not experience any capital shortfall nor were there any restrictions on transfer of regulatory capital within the Group during the reporting period. 7 2 Capital and Capital Adequacy Ratio 2.1 Internal Capital Adequacy Assessment Method and Process The Group’s overall framework for the internal capital adequacy assessment process (hereinafter referred as “ICAAP”) includes the governance structure, policy system, major risk assessment, capital planning, stress testing, capital adequacy ratio management plan, monitoring and reporting system and other contents. In September 2008, the Bank initiated the capital assessment and management project, established and refined the ICAAP framework and management flow pursuant to the CBRC’s latest requirements, built and improved the governance structure and management flow for the ICAAP, and defined the matrix of responsibilities of the Board of Directors and the Senior Management as well as the matrix of responsibilities of units and departments under the ICAAP. Pursuant to the overall development strategy, the Bank has built a feasible capital management policy system, improved the internal management mechanisms, and formulated a series of policies and rules relating to capital adequacy ratio management, economic capital management, ICAAP management and other aspects to standardise every procedure of capital management and satisfy the needs of business development and regulatory policies. To date, the Bank has completed the design and implementation of the overall ICAAP program, and established an ICAAP framework that meets the requirements set by the CBRC for the ICAAP of commercial banks, and can ensure adequate identification, measurement or assessment, monitoring and reporting of major risks, ensure the capital level matches major risk levels and risk management levels, and ensure the capital planning matches the operating status, the risk trend and the long-term development strategy. At the same time, the major contents of the program have been accepted, and the Bank has gradually applied the results from the program to ensure compliance as the primary objective, and improve the internal capital management and risk management level with every effort. 2.2 Capital Planning and Capital Adequacy Ratio Management Plan The Group has completed the implementation of the previous capital plan (2010– 2012). To satisfy strategic planning requirements, further enhance capital management, and satisfy regulatory requirements, the Bank formulated the Capital Management Plan of Bank of China for 2013–2016 in accordance with the Group’s business development strategies, the Capital Rules issued by CBRC and other relevant regulations. This plan specifies the targets and principles of strengthening capital management and the main capital management measures. This plan has been implemented after the authorisation of the general meeting of shareholders. The Group has been implementing the capital budget management since 2010. The Group determines annual capital adequacy ratio objective and capital budget scheme according to the medium and long-term capital plan, and breaks down the budget objective to domestic and overseas institutions and business lines in the way of capital limit. The Group brings the capital budget limit into the performance evaluation system, and the Head Office performs periodical monitoring and assessment. 8 From 2013, the Bank started to explore innovative capital budget methods, and designed the endogenous capital drive mechanism. According to the new mechanism, the Bank determined the capital limit of domestic and overseas institutions in full consideration of the profit growth and risk adjusted return on capital (RAROC) and allocated more capital resources to the institutions that maintained higher profit growth rates and RAROC to stimulate the institutions to increase the capital efficiency, and enhance the Group’s endogenous capital accumulation capacity. Judging from the implementation result, the capital budget presented positive effect on capital management reinforcement. For one thing, all the institutions became more aware of capital constraint, and the capital efficiency increased annually. For the other thing, the Head Office’s control on the Group’s capital adequacy ratio indicators upgraded evidently. In 2014, in order to increase capital adequacy level, the Group replenished capital in a proactive and prudent manner and made full use of its dual listing platforms to utilise a variety of supplementary capital financing channels. In 2014, the Group successfully issued approximately USD6.5 billion of preference shares in offshore market on 23 October and RMB32.0 billion of preference shares in domestic market on 21 November, thus became the first domestic commercial bank to issue preference shares in both offshore and domestic markets. The Bank’s issuance of preference shares in offshore market set a number of new records, including the largest ever single issuance of an additional tier 1 capital instrument in offshore market and the largest ever single issuance of a USD fixed-income securities instrument in accordance with Regulation S worldwide. In addition, the Group successfully issued RMB30.0 billion of tier 2 capital instruments in domestic market on 8 August and USD3.0 billion of tier 2 capital instruments in offshore market on 13 November. The recovery in domestic capital market prompted large-scale conversion of Bank’s A-share convertible debt to common shares, which effectively increased the Bank’s common equity tier 1 capital. This capital replenishment has laid a solid foundation for the Bank’s future development. 9 2.3 Capital Adequacy Ratio The Group and the Bank calculate the capital adequacy ratios in accordance with the Capital Rules and the Regulation Governing Capital Adequacy of Commercial Banks respectively as follows.: Unit: RMB Million (except percentages) As at 31 December 2014 As at 31 December 2013 The Group The Bank The Group The Bank Calculated in accordance with the Capital Rules: Net Common Equity Tier 1 1,054,389 929,096 912,948 802,861 Capital Net Tier 1 Capital 1,127,312 1,000,841 913,646 802,861 Net Capital 1,378,026 1,234,879 1,173,347 1,040,740 Common Equity Tier 1 Capital 10.61% 10.48% 9.69% 9.55% Adequacy Ratio Tier 1 Capital Adequacy Ratio 11.35% 11.29% 9.70% 9.55% Capital Adequacy Ratio 13.87% 13.93% 12.46% 12.38% Calculated in accordance with the Regulation Governing Capital Adequacy of Commercial Banks: Core Capital Adequacy Ratio 11.04% 11.20% 10.73% 10.92% Capital Adequacy Ratio 14.38% 14.45% 13.47% 13.43% Note: When calculating the capital adequacy ratio in accordance with the Capital Rules, the Group calculates capital indicators as of 31 December 2014 under the advanced approaches, and the indicators as of 31 December 2013 under non-advanced approaches. The 2014 figures are not directly comparable with those of 2013 (Please refer to section 3.2). 10

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3.2 Significant Changes to the Risk Measurement Approaches Bank of China was formally established in February 1912 following the approval of Dr. Sun . assessment, monitoring and reporting of major risks, ensure the capital level Capital Rules issued by CBRC and other relevant regulations.
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