2 Capital and Capital Adequacy Ratio

51 Pages·2015·2.76 MB·English

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
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Bank of China Limited
Capital Adequacy Ratio Report of 2014
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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
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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.
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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.
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(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.
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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.
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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.
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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.
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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).
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