By Liang Hua

On April 16, China Construction Bank (CCB) issued its 2006 Annual Report. On the same day, the close for CCB stocks amounted to RMB4.71 yuan per share, more than doubled compared to the price of RMB2.35 yuan per share when CCB was initially listed.

CCB's performance to keep on improving

The year 2006 is the first complete operational year after CCB realized its public listing. On the press briefing, Guo Shuqing, CCB Chairman, and Zhang Jianguo, CCB President, appeared publicly together with Pang Xiusheng, CCB Chief Financial Officer, and Zhu Xiaohuang, CCB's Chief Risk Officer. Guo Shuqing ushered their favorable performance to investors and media by saying that "All indexes are not bad, and it is hard to say that they are unsatisfactory".

 According to information publicly disclosed, up till December 31, 2006, CCB's total assets had increased by 18.81 percent to RMB5.448511 trillion yuan with a year-on-year increment of RMB862.769 billion yuan; the profits before tax that CCB had realized amounted to RMB65.717 billion yuan with a year-on-year increment of RMB10.353 billion yuan and a growth margin of 18.81 percent; the adjusted net profits increased by 18 percent year on year to RMB46.319 billion yuan; the average return on asset was 0.92 percent while the average return on equity was 15.00 percent.

The reporter noticed that according to the annual report, the earnings per share for CCB were only RMB0.21 yuan, a little bit lower than the earnings per share of RMB0.24 yuan last year. Guo Shuqing explained, "Such a fact is resulted from the factor that RMB7.8 billion yuan had been used in tax payment as it could not enjoy any policy on tax exemption and reduction as during the year before last. In the meantime, from the standpoint of the Principle of Prudentiality, CCB's provisions were over RMB 2 billion yuan more than those in former years. " Last year, CCB's consolidated coverage amounted to 110 percent and its non-performing loan ratio decreased by 0.55 percentage points year on year to 3.29 percent.

A figure to Guo Shuqing's satisfaction is that CCB's cost-to-income ratio decreased by 116 points year on year to 43.97 percent last year. "It is not easy for the cost-to-income ratio to decrease so much in case that various expenditures are increasing." Guo Shuqing said that such a fact was a result from CCB's reform of its internal management being advanced in depth, a sustained improvement in the quality of CCB's credit assets, and the improved risk control capacity and cost management capacity.

Another figure to Guo Shuqing's satisfaction is that CCB realized a net earning of RMB13.571 yuan through collecting handling charges and commission charges with its non-interest income increasing by 60 percent. In case that net interest incomes accounted for such an absolute high proportion as 93 percent of the operating revenues, both CCB's speed in responding to the market and its innovative capacity had been evidently improved; thus, the development of intermediate businesses has been accelerated and the rapid increase of non-interest incomes has become a new engine for CCB's incomes.

Loan structure getting optimized

President Zhang Jianguo attributed CCB's favorable performance to CCB's strategic transformations for the all-around improvement of its core competitiveness: its transformation from traditional businesses to both traditional and emerging businesses, its transformation from the dependence on incomes from interest differences to the dependence on both incomes from interest differences and incomes from collecting charges, and its transformation from the domestic market to both the domestic market and the overseas market; thus, CCB had been driven to accelerate the development of its retail businesses, its intermediate businesses, its businesses with small enterprises, and its overseas businesses while maintaining a steady increase in its traditional advantageous businesses so as to realize a rapid development in various businesses. As a foundation had been laid for realizing a comparatively quick increase of operating incomes, effects had been made from strategic transformations. Various operating incomes achieved in 2006 increased by 17.8 percent year on year to RMB151.6 billion yuan, and the net interest incomes realized increased by 20.43 percent on a year-on-year basis to RMB140.368 billion yuan.

Last year, CCB had its loan structure optimized through lending loans prudently according to the macro-control and industry policies in China. The proportion of loans lent to institutional clients with an internal credit rating above (and including) A increased by 5.7 percentage points year on year to 83.56 percent, and the proportion of various loans to individual clients in various loan balances increased by 1.90 percentage points year on year to 20.36 percent. By the end of 2006, bond investment increased by RMB497.576 billion yuan, which had surpassed the increment to loans, to RMB1.899775 trillion yuan with a growth margin of 35.49 percent. The growth margin of CCB's incomes from its intermediate businesses hit a record high in 2006. The net incomes that CCB as a whole realized through collecting handling charges and commission charges during that year increased by 60.51 percent to RMB13.571 billion yuan. The proportion of net income from collecting handling charges and commission charge in the operating incomes of CCB as a whole increased by 2.38 percentage points year on year to 8.95 percent. The growth rate for RMB financing products was as high as 420 percent, and the growth rate of structural foreign exchange products for individual clients amounted to 99 percent.

As shown in reports, new achievements had been made in CCB's strategic cooperation. In 2006, CCB purchased Bank of America (Asia) Limited. When such a merger & acquisition had been completed, CCB's business scale in Hong Kong got doubled soon and the rating of its loans lent to clients improved from No.16 to No. 9 and a platform for the development of CCB's retail banking in Hong Kong and Macao was built up rapidly, thus a favorable foundation was laid for improving CCB's capacity to serve clients in Hong Kong, Macao, and Southeast Asia and its competitiveness in the market.

In 2006, CCB launched its innovations in the risk management system and preliminarily built up an all-around risk management system; thus, a risk management framework in the form of a vertical reporting system from Chief Risk Officer at the CCB Head Office down to Risk General Managers of first-level branches, risk officers of second-level branches and risk managers of sub-branches at the county level came into being. With the establishment of a mechanism consisting of a vertical reporting route for risk management and the "parallel operations" between risk managers and client managers, the optimization and integration launched for the audit system and innovations in management of human resources jointly made it possible to further deepen CCB's internal management reform while the management capacity were improved incessantly.

On the news briefing, Guo Shuqing also announced that in accordance with the Memorandum Of Understanding Between China Construction Bank and Bank of America on Their Cooperation in Terms of Credit Cards ratified by the directorate on February 13, 2006, matters concerned for the cooperation between China Construction Bank and Bank of America in terms of credit card business would be submitted to shareholders for ratification on the annual shareholders' conference to be held; the cooperation in the field of credit cards would be launched as soon as possible so as to improve CCB's core competitiveness in credit card business and accelerate the healthy development of its businesses through a cooperation with other potential partners.