Annual 2011 Bank of China Ltd Analyst Briefing (Mandarin and English)

Thomson Reuters StreetEvents Event Transcript
E D I T E D   V E R S I O N

601988.SS - Bank of China Ltd
Annual 2011 Bank of China Ltd Analyst Briefing (Mandarin and English)
Mar 30, 2012 / 09:30AM GMT 

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Corporate Participants
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   *  Zhang Bingxun
      Bank of China Ltd - Secretary to the Board of Directors
   *  Li Lihui
      Bank of China Ltd - President
   *  Wang Yongli
      Bank of China Ltd - Executive VP

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Conference Call Participants
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   *  Lucy Feng
      Nomura - Analyst
   *  Tracy Yu
      Deutsche Bank - Analyst
   *  Chen Shun
      JP Morgan - Analyst
   *  May Yan
      Barclays Bank - Analyst

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Presentation
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 Zhang Bingxun,  Bank of China Ltd - Secretary to the Board of Directors   [1]
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 Good afternoon, ladies and gentlemen. My name is Xhang Bingxun, Board Secretary of Bank of China Ltd. Welcome to BOC's 2011 annual results presentation. This presentation by our senior management is made in Beijing and will be video linked to our Hong Kong venue to ensure that Hong Kong analysts have equal access to our public disclosures.

 Before we proceed further, please take note of the disclaimer on this slide. This presentation, together with our 2011 annual report is now available on our website for downloading. First of all, I would like to introduce our senior management team here with us today. President, Mr. Li Lihui; Executive VP, Mr. Wang Yongli; Executive VP, Mr. Yue Yi.

 All the financials in our presentations here are prepared according to IFRS unless otherwise stated. There will be a Q&A session at the end of the presentation, during which we will allocate time between Beijing and Hong Kong. Now, I would like to turn the presentation over to President Li.

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 Li Lihui,  Bank of China Ltd - President   [2]
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 Thank you. Analysts, friends, I'm very happy for this opportunity to meet with you. This year marks the centennial anniversary of BOC. Throughout its 100 year history, Bank of China has upheld the spirit of pursuing excellence with adoration to their nation in its soul, integrity as its backbone and reform and innovation as its path forward and people foremost as its guiding principle.

 In face of very complex operating environment in 2011, the Bank continued to optimize a certain liability structure. Actually, I'm now on page six. In 2011 the Bank's after-tax profit reached CNY130.32b, an increase of 18.8% from 2010. Return on assets stood at 1.17%, up by 0.03 percentage points compared with 2010. Due to the dilution effect resulting from our rights issue, return on equity slightly decreased to 18.27%.

 Asset quality continued to improve, which shows an increase of provision coverage ratio. Bank's nonperforming loan ratio decreased by 0.1 percentage point to 1%. The NPL coverage ratio increased by 24 percentage points to 221%. Capital adequacy ratio increased to 12.97%, up by 0.39 percentage points, compared with the prior year end. Core capital adequacy ratio was 10.07%, maintaining at a level.

 At the end of 2011 CNY denominated assets accounted for 76.1% of the Bank's total assets, an increase of 0.28 percentage points compared with the prior year end. The proportion of customer deposits to total liability has reached 79.6%, 0.59 percentage point higher than the prior year end. The proportion of average balance of domestic demand deposit increased by 1.25% to 46.1%. And loan to deposit ratio decreased by 2.95 percentage points to 68.8%.

 Our domestic business achieved steady growth in 2011. Profit before income tax reached CNY133.42b, up by 17.2% year on year. CNY deposits and loans increased by 13.9% and 12.3% on prior year end respectively. Domestic interest income reached CNY201b, up by 17.4%. Non-interest income reached CNY69.3b, up by 35.9%.

 In 2011 we saw many -- seized opportunities of the government growing global strategy and cross border business development. And the total assets of overseas operation reached $440.2b at the end of 2011, up by 25% from prior year end. Profit before income tax reached $5.71b, up by 33.6%. Total assets of overseas operation accounted for 22.4% of the Group total assets, up by 0.93 percentage points. Profit contribution from overseas business reached 21.2%, up by 1.34 percentage points, significantly higher than domestic peers.

 In 2011 our overseas operation continued to support financing needs of growing global clients and local key clients and continue to broaden sources of funding. Deposits and loans of overseas commercial banking business increased by 26.1% and 32.4% respectively, to $217.5b and $178.4b. Currently through establishing new overseas branches and launching China business desk, the Bank has continued to expand overseas network, to build global services platform and improve service capability.

 And also BOC Hong Kong recorded transaction volume of CNY550b, 2.8 times of the business volume in 2010. And other overseas institutions recorded total business volume of [CNY420b], 80.3 times of our business volume in 2010.

 In 2011 we have effectively diversified our business and integrated domestic overseas operations and resources and so please look at these figures and you can refer to the charts yourself for information. I won't go into details.

 Next slide point about prudent risk management. We have achieved a lot of great performances in credit risk, market risk, liquidity risk and Basel I and III -- II and III implementation areas. And we have focused on particularly -- in particular strategic areas of risk management. And we just want to send you a message that the CBRC has set up the [Carpol] regulatory requirement system. And you'll see China is the first large commercial bank that has met such a requirement.

 Now, LGFV related risk. I'm sure this is something you've been paying attention to. Towards the end of last year, balance of LGFV loans reached CNY394.9b, accounting for 6.2% of the bank's total loan book. And the balance as well as its proportion to total loans both decreased from the prior year end.

 Loans with full or nearly full cash flow coverage account for 95% of total LGFV loans. Loans granted to provincial level and city level accounted for over 92% of the total. The loan book had a reasonable maturity subject base and a cash flow project NPL balance only 0.35% lower than average NPL ratio of the bank. And also lower than the industry average. And so we believe that the related risk is within control.

 Both the balance and proportion of the Bank's real estate loan was lower than the peers and the asset quality was sound. The bank's domestic property development and land reserve loans amounted to CNY252b representing 4% of total loans. NPL ratio 0.66% down by 0.53 percentage points. Once again, higher than the industry -- or better than industry average. Average LTV ratio was below 50%, with sufficient collateral coverage.

 For loans for small-sized enterprises, we provided a full range of financial services to small-sized enterprises and those include services under the [batch] model (spoken in Chinese) and (spoken in Chinese), which are designed for the high tech cultural innovation and cultural-related small businesses respectively.

 At the end of 2011 the number of small enterprises loan customers reached [38.6 thousand], an increase of 91% compared with the prior year end. Outstanding loans to small enterprises increased by 62% to CNY388.6b. Nonperforming loans amounted to CNY7b and the NPL ratio was 1.8%, an increase of 1 percentage point. So you can see that for the small, medium-sized business sector, indeed that has been worsening in operating environment and yet our portfolio has not worsened because of our prudent management.

 An another area which we'll be concerned about is in the FX bond investment risk. We have been able to effectively reduce it and reflecting the bank's proactive and professional risk management abilities.

 At the end of 2011 the total carrying value of debt securities issued by the European governments and institutions held by the Group was $12.9b of which total carrying value of debt securities issued by UK, Germany, Netherlands, France and Switzerland, the better countries accounted for 96%. The 4% are the higher ranking issuers as well.

 And in particular you would be concerned about debt issues by Greece, Portugal, Ireland, Italy or Spain and we do not hold any debt securities. Not for even one cent. The bank also further decreased US high risk bond investments significantly. So you can see that our management is proactive.

 In terms of construction of channel last year, we have been able to increase our capabilities and we have put in a lot of investment here. And for the physical outlets and also e-channels, e-banking channels, and also net banking and also online banking, telephone banking, etc, we have been making progress. I will not go into the details here.

 Let's go into page 18, in particular about technology driving intelligent service system. The IT blueprint has been completed and we now have a customer-centric service model and we have integrated the unification of data standards and built up a three centers in two regions infrastructure platform. This is very significant for the operation of the Bank.

 And also for the PBOC organized 2011 banking technological development awards, we have received the sole top award. And in the future we'll continue to leverage under this platform to enhance our overall service capabilities.

 As for the 2012 macro economy outlook and key focuses of the Bank. I will not go into the details but just to highlight a couple of things. First of all, we will continue to optimize our structure and our customers' profile. And also we will continue to enforce our technological advancement and sharpen our core competitiveness and also to promote our global service system and achieve integrated development of no -- domestic and overseas business.

 And also we will strengthen our Group management and promote concerted business development. And also to effectively control any risks. And also to increase our productivity, so as to create value for our shareholders. That concludes the highlights for now. Thank you.

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 Zhang Bingxun,  Bank of China Ltd - Secretary to the Board of Directors   [3]
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 Thank you, President Li. Mr. Wang will go through the rest of the presentation.

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 Wang Yongli,  Bank of China Ltd - Executive VP   [4]
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 Yes, I will supplement by providing the financial highlights. In 2011 the Bank's assets and liabilities increased steadily. At the end of 2011 the Group's total assets amounted to CNY11.8 trillion, an increase of CNY1.4 trillion, or 13% from the year prior end.

 The Group's total liabilities amounted to CNY11.1 trillion, an increase of CNY1.3 trillion, or 13% from the year prior. Loans to customers and deposits from customers rose by 12% and 14% respectively.

 And in the year the Group reported profit after tax of CNY130.32b and profit attributable to equity shareholders of CNY124.18b, an increase of 18.8% and 18.9% respectively, compared to the year prior.

 Net interest income rose by 17.6% compared with the prior year. Non-interest income rose by 21.4% compared with the prior year and represents 30.5% of operating income, up by 0.67 percentage points compared with the prior year, maintaining a leading position among our peers.

 Operation efficiency continued to improve. Cost to income ratio was 33.1%, a decrease of 1.09 percentage points, compared with the prior year.

 The Bank realized basic earnings per share of CNY0.44, an increase of CNY0.05 compared with the prior year and proposed a steady increasing dividend of CNY0.115 per year -- per share.

 In 2011, the Bank actively accelerated transformation of corporate banking business and corporate loans amounted to CNY4,725.3b, an increase of 11.3% compared with prior year end. Industry mix of loan book continued to optimize and the proportion of loans granted to local government finance had fallen.. And proportion of loans for small-sized enterprises increased.

 Corporate deposits amounted to CNY4,694.3b, an increase of 15.5% compared with the prior year end. Deposits from government administrative institutions rose by 18.4%. Market share of domestic CNY and ForEx corporate deposits increased 0.16 percentage points and 8.89 percentage points respectively.

 The Bank's international settlement business developed steadily and continued to lead the market. Transaction volume in international settlement business reached $2.43 trillion, an increase of 23% over the last year. Dual factor export factoring volume ranked first in the world for 46 consecutive months.

 In 2011 we continued to increase the number of domestic effective customers. It grew by 17% to 153m, recording a new high growth rate during recent years. Number of middle and high end customers reached 7.35m increasing 85% compared with the prior year end.

 The Bank's bank card business maintained rapid growth and at the end of 2011 the Bank's effective credit card showed up 30.86m, a year on year increase of 42%. And the volume of CNY card merchant acquiring transactions reached CNY1,728.7b, year on year increase of 56%.

 In 2011 the Bank continued to push forward with debt investment of CNY2 trillion, among which CNY-denominated debt investment accounted for 74.8%, an increase of 0.9 percentage points, compared with the prior year end. Average yield reached 2.95%, up by 22 basis points compared with 2010.

 The Bank enjoyed significant market advantage in trading business and maintained number one market share of ForEx purchase and sales as gold trading, two way gold trading volume increased by 125%, which left the bank ranking top in terms of transaction volume on the Shanghai gold exchange.

 The Bank's custody business developed rapidly. At the end of 2011, assets under custody of the Group approached CNY3 trillion, leading its peers.

 In 2011 the Bank net interest margin was 2.12%, an increase of 5 basis points, compared with the prior year. Net interest margin of domestic CNY business was 2.33%, an increase of 6 basis points compared with the prior year. While that of domestic foreign currency business was 1.69%, an increase of 48 basis points compared with the prior year.

 Fourth quarter, the Group's net interest margin increased by 12 basis points Q-on-Q, to 2.2% net interest margin of domestic CNY business was 2.38%, increased by 12% quarter on quarter. Net interest margin of domestic RX -- ForEx business was 1.88%, increased by 17 basis points quarter on quarter.

 2011, the Group reported non-interest income of CNY100.2b, an increase of 21.4% compared with the prior year. Non-interest income represented 30.5% of operating income, up by 0.67 percentage points. The Group earned net fee and commission income of CNY64.7b, up by 18.7% among which operation increased 21.8%, compared with the prior year.

 And for cross-border CNY and overseas CNY business they developed robustly and settlement and clearing fees increased by 35.5%. Insurance and fund agency commission fees grew rapidly, driving the growth of domestic agency commission fees by 40%. For the commodities, there is strong demands in the precious metals market and sales and revenue surged by 72.5% over the prior year.

 At the end of 2011, the bank's ratio of nonperforming loans to total loans was 1%, dropped by 0.1 percentage point compared with the prior year as the quality of major industries further improved. We continue to implement a prudent provisions policy and charge provisions according to timely and sufficient principles, enhancing overall risk mitigation capabilities.

 Ratio of loan impairment losses to nonperforming loans was 221%, up 24 percentage points on the prior year. The ratio of provisions to total loans of domestic institutions stood at 2.56%, up by 0.11 percentage points, compared with prior year end.

 2011, adhering to the principle of effective cost control, the Bank achieved a cost to income ratio of 33.1%, a decrease of 1.09 percentage points compared with the prior year. And the operating expenses was 140.8%, an increase of 15% compared with the prior year.

 Market recognition further enhanced in corporate governance, trade finance, foreign exchange, private banking and brand value, we have achieved a number of awards. In November 2011 Standard and Poor's rating agency raised the Bank's counterparty credit rating.

 Outlook for 2012. We will continue to implement development strategy and take various measures to improve operating results. First, we will bring better and higher returns to our shareholders.

 Thank you for the presentation. Next is Q&A. First of all, questions from Beijing.



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Questions and Answers
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Unidentified Audience Member   [1]
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 Thank you and congratulations to you for a very good performance. My question has to do with credit demand and also pricing for loans. Entering 2012 in the market, there has been a market concern that because of economic transformation and because of tightening of property market, credit demand is dropping. So, from your angle, I'd like to know what is your take on this trend?

 Concerning loan pricing, last year we see that loan pricing was increasing against 2012's economic backdrop, while credit is gradually being loosened and so against such an economic backdrop, what do you think it's going to be movement for loan pricing?

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Unidentified Company Representative   [2]
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 Well, concerning demand for credit, at present our credit demand is still rather buoyant compared to 2009. Indeed we are gradually moving back to an even keel in terms of credit demand and so it is our estimate that commercial banks in China, including BOC, when it comes to credit supply and demand, will not be in face of a situation where there is insufficient demand for credit. And we believe that the growth will be around 12%.

 As for loan pricing, your observation is correct. Last year our pricing levels for various loan products have increased, compared to 2010 figures. If you look at 2010's trend, I believe that loan prices will remain more or less stable, comparable to Q4 in 2011. We have not seen any signs that loan prices are coming down significantly. So at least for this year we believe that loan prices will remain stable and comparable to the second half of 2011.

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Unidentified Audience Member   [3]
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 Thank you. I've got two questions. First, about NIM because we see that in Q4 2011, BOC's NIM was rising quite fast. And domestic FX and also domestic CNY savings, NIMs are going up quite fast. And so what do you think is the factors that will drive a NIM further up this year?

 And also what do you think is going to be the movement of your business this year? Do you think your business will continue to grow?

 And also, in Q4, for certain major banks, their NPL ratio rose in Q4, compared to Q3. And so can you let us know the spread of NPL in terms of trade and in terms of geography?

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Unidentified Company Representative   [4]
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 Mr. Wang will answer your question.

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 Wang Yongli,  Bank of China Ltd - Executive VP   [5]
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 Well, you talked about NIM last year. Overall it has increased but not all the quarters are the same for NIM. For Bank of China, it is a global bank. We have domestic business, we have overseas business, we have CNY business; we have ForEx business and so we have to segregate all those.

 For domestic business, for CNY NIM it depends on the basic interest rate and also on the market forces, supply and demand. So when we talk about interest rate fluctuations, and you may not have noticed that for Bank's NIM it was higher in 2008. It is much higher than what it is now. And then after the loosening of the monetary policy the NIM came down.

 So next we will have to look at the monetary policy, what exactly will be the development and trends. So if loan demand increases, but on the other hand supply is insufficient then of course the NIM would go up. However, if the demand is not that great and there is sufficient capital in the market then it will go the other way.

 And there is another question which is deposits. Of course NIM depends on both sides. What about deposits development? Now first of all, it concerns currencies. At the beginning of the year, the authority said for the monetary supply, it is 14% and so we will have to see monetary growth in terms of volume. That will be an indicative trend. Now if it is higher, then perhaps there will be more deposits and also the rates will also go higher. So we will have to look at all these factors.

 As for ForEx, in a period of time the CNY had been revaluating upwards. Whether it is corporate or individuals there is not a lot of willingness to hold onto ForEx and actually very often they will convert it to CNY right away and it goes back to the ForEx reserves of the country. And so the ForEx accumulation had been weak. But exactly because of CNY revaluation, the demand for ForEx had been growing and so for -- the supply and demand imbalance for ForEx it had been growing. So that is to say -- that is the reason why there has been pressure on the pricing. And so that has affected the NIM as well.

 As for Bank of China because we have this global advantage so for absorbing ForEx deposits within China we will also be utilizing our international capabilities. For example, we had a sizeable CB and also we will be looking at policies of certain products, CB, CP and basically the head office mobilizing overseas outlets' capabilities to achieve this.

 As you know a loose monetary policy and overseas euro interest rate policy is all relevant and also the situation overseas is therefore better than the domestic situation. As I have mentioned we will reasonably control the NIM fluctuations. We will optimize our products, our geographical advantages and our returns to our customers and shareholders.

 Now as for the second question, would you answer that second question?

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Unidentified Company Representative   [6]
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 Thank you. For Bank of China, our balance for loans, compared to our peers we have all increased during 2011. It's increased by CNY40b and it is about 3% of the total. That's a 0.41% increase. Compared to our peers it is still at a lower level I would say.

 As for the loans balance, it is in keeping with the economic development and also the regulatory requirements, domestically. The PBOC has very stringent requirements and it is -- it holds a very prudent attitude to raise some of the ratios for loans.

 And in the following industries we have increased our loan exposure. For example, in platform loans, the ratio is basically lower and the cash coverage is lower. It is at about CNY30m which is 6.23% of the total loan portfolio and our coverage is over 90%. But at the same time we are still holding on to a very prudent stand with over CNY10b balance.

 As for property sector, our proportion is about 4% and this is -- among the bigger banks we have the lowest proportion of exposure to property. Again we hold a very prudent stance especially for property sector, which has a very slow and sluggish recollection rate. So we are prudent for this sector. Apart from platform and property sectors, we have manufacturing and industries, especially for some of the industries which we have put more emphasis on them.

 Now the analysis is very clear. The loans are not necessarily NPLs. For domestic corporate loans, our estimated loan rate and also the balance for 2011, the balance had been 0.05% decrease. So for concerned sectors we have -- particular concerned sectors, we have set up with our risk management and therefore we are in a very healthy position.

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Unidentified Company Representative   [7]
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 And we have a question from the Hong Kong side. First row.

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 Lucy Feng,  Nomura - Analyst   [8]
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 Thank you, management, giving me the opportunity. Nomura, Lucy. Concerning deposits and loans, I see that there had been a 14% -- it stood at 14%. However, there has been a fierce competition for --deposits competition and there has been a lot of wealth management products as well among the peers. I would like to know from the management for this quarter, what has been the increase for deposits and also for 2012 what exactly is your target for deposit growth?

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Unidentified Company Representative   [9]
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 Thank you, Lucy. For last year our savings growth actually, it was very fast especially when compared to our peers. But you may have already noticed that wealth management products actually accounted for quite a sizeable proportion of savings growth. And so when you do your analysis you may notice that our NIM improvement lagged behind our peers. So because of our debt structure's idiosyncrasy, that was really the situation.

 And so we continue to widen our customer base and we continue to grow our savings accounts. And it is our hope that there will be a 10% growth in savings and deposits and also the deposit structure will be further optimized.

 In January and February this year, we already have certain information, but we are not in a position to divulge it. And for Q1 our estimate is that our deposit growth should be comparable to last year's growth. Of course we are concerned about the tightening up of liquidity in the market. Basically this has not fundamentally changed. And so fundamentally speaking, deposit growth to what extent can it grow really depends on macroeconomic environment.

 And we want to continue to optimize our deposit structure. For instance, CNY assets proportion already was expanded last year and this year we'll continue to grow our CNY deposits proportion. And also we are increasing the proportion for savings to loans proportion and so in so doing, we will be able to optimize our debt structure and also our deposit structure.

 And we'll continue to work on all these areas this year because we believe that all these efforts are going to contribute to our profitability and our improvement to NIM. But exactly what is going to be the outturn for 2012 apart from our own efforts, macroeconomic environment also plays a role and also changes in the market will also play a role. And we will watch those developments very closely and we are going to adjust our policies and fine-tune our policies according to those changes.

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 Tracy Yu,  Deutsche Bank - Analyst   [10]
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 Thank you, management. I'm from Deutsche Bank. First of all, a word of congratulation to you for performing better than expected.

 I'd like to talk about credit cost. The present credit cost is 16 bps and for the entire year it's 30 bps. For Q4 it was 16 bps. But of course you're very confident in the continuing improvement of market quality. So my question for you is this. Do you believe that the good credit cost environment will continue? And what if the economy for this year slows down? What is going to be your exposure and risk? And also what, as analysts, should we be paying particular attention to and also what is going to be the outlook for 2012 credit cost movement?

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Unidentified Company Representative   [11]
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 It is standing at 0.32%, which is at a very good level. And we will continue to strictly follow international GAAP and also regulatory requirements to prudently and seriously, stringently control our quality of assets and also provide for provisions. The analysts can further analyze our provisions.

 For real NPL provisions, it is very low indeed. In fact this is really out of prudence approach we have provided for some provisions. So this goes to illustrate our prudence.

 And also for 0.5% or around that level is in very good level. And at this level the bank is able to have sufficient profitability. And this also depends on another factor and that is customer structure. For our medium- to small-sized customers we can further develop that more rapidly. If we can add their percentage then we will be able to raise the level even higher, and also because the pricing for these loans from these medium to smaller clients are higher.

 As for this year, for the market trend, it will probably increase the credit cost for all banks in the industry. However, it would not exceed 0.5% or 0.6%. As for Bank of China ourselves, we are confident that for credit cost we are able to control to less than 0.5% or thereabouts. Thank you.

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Unidentified Company Representative   [12]
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 Gentleman in the second row in the middle.

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 Chen Shun,  JP Morgan - Analyst   [13]
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 Thank you, JP Morgan, Chen Shun. Concerning the loans if I'm not wrong, I see second half of last year, ForEx loans had decreased and in fact, the demand I would believe is pretty high for ForEx loans. Why is there this decrease? Is it because of your own compression or because of your source of funds?

 Now Mr. Wang had mentioned just now for ForEx loans pricing it had been going up. I would like to know from the bank for it is LIBOR plus 150 basis points and average how much would be the pricing for ForEx loans. Thank you.

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Unidentified Company Representative   [14]
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 Last year ForEx loans are as follows. In the first half of the year ForEx loans growth was faster than second half. In the second half we made some adjustment and so there was some drop. And so this is because we want to strike a balance in our portfolio. And for BOC in terms of asset/debt management we have to maintain a balance between CNY and foreign currencies as well, domestic and overseas segment. And so we have to exercise prudence in our management so that we do not become lopsided in our portfolio.

 So my answer for you is that we made some conscious adjustment towards the second half of last year. So that was the result of our conscious fine-tuning. As a result our balance became better.

 If you look at foreign currency loans proportion you could see that towards the second half of last year there was some drop. And for this year we want to maintain ForEx loan proportion at a reasonable level. We want to maintain a reasonable growth of our ForEx loans both in the domestic sector and overseas sector. And at the same time we're going to redouble our efforts in order to expand the source of overseas funding, including the issuance of CPs and CBs and also the absorption of foreign deposits and so on and so forth. So this is one side of the story.

 As for ForEx loans pricing because last year foreign currency loans prices have gone up quite significantly. At present ForEx loans for domestic market and also overseas market are in separate categories, I believe that ForEx loans prices should not continue to grow this year. The momentum cannot be maintained. I think basically the prices will stabilize.

 And so ForEx loans our proportion may come down. Because we are only in the third month of the year and so we do not yet have a very accurate take on the overall trend for this year. We hope that in Q2 or even Q3, we hope that we are in a better position to discuss with you this particular point.

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Unidentified Company Representative   [15]
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 The gentlemen in the back.

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Unidentified Audience Member   [16]
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 Thank you. My question is about income. Now if you look at the four major banks, your service is most comprehensive and your fee increase during last year was slower, relatively speaking. And so because your IT master plan is completed and so in the coming few years your fee increase momentum is going to pick up again and go back to the normal level.

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Unidentified Company Representative   [17]
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 For non-interest income, in fact for BOC compared to our international peers, our increase is actually at a pretty high level -- our increased growth both domestically and internationally. Our international increase had been some 35%. Domestically it had been almost 20%, relatively high levels.

 But at the same time also we have noticed that compared to our peers our non-interest income had not been as fast as some of our peers. And you have also noticed that for the regulatory bodies and the China Banking Commission, they have made more stringent the operations of the banking industry. And also the different levels of banks are also abiding by these new regulations and policies.

 So for this particular source of revenue I would believe in the coming year -- personally speaking I would believe it would not be growing as much as in the past years. It will grow but on the other hand, the margin of growth will not be as rapid as the past few years.

 And we have also noticed that for the first few months, for non-interest income of our peers it had come down a little bit. Now as for Bank of China I think we are doing well and for fee business. And for this year for our non-interest income we believe would be still on the increase, but averagely speaking whether it will be as high as that of last year we will have to wait and see.

 Now where are the sectors of growth? First of all, I think we have to leverage on our advantage. For example, in investment banking business, insurance business, we have very comprehensive services. In these operations, we will have to leverage on our existing advantage. And also last year we had come up with a more aggressive development strategy and this will also add to our non-interest income.

 And thirdly, for our overseas business, this is our traditional advantage and leverage. We will continue to build on that advantage to provide better and more varied service for our clients. And also cross-border CNY business, offshore CNY business we want to introduce more products in order to increase our revenues.

 And also for non-interest revenue for domestic CNY clearing or settlement business we are rather small in terms of the market share there. And analysts would have noticed that last year for CNY settlement intermediary business in non-interest income our income had been higher than our peers in terms of increase. And this year we will continue.

 Now non-interest income also depends on the capital markets development in terms of insurance, agency business, funds business. All these will depend on the development of the market itself. So it is difficult to judge going forward what the -- China's capital markets will bring in terms of business opportunities. But for our bank in capital markets and the financial markets we have our advantages. Our headquarters provide services to the clients in terms of intermediary service and agency business and we are in a very competitive position. And we would want to build on that figure but we will be able to delve further into this as time goes on.

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Unidentified Company Representative   [18]
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 Other questions? The last question please. Second row, the lady in the middle.

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 May Yan,  Barclays Bank - Analyst   [19]
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 Thank you for providing me this opportunity. Yan May [Chu] from Barclays Bank. Concerning deposits, I notice from the Annual Report the re-categorization of deposits and there are some structural deposits which have been re-categorized as clients' deposits. And how is this treated and what exactly is the reasons behind the re-categorization?

 And also in the wealth management and its contribution to the Bank of China's revenue it is rather high. And what exactly will be the trend in the future? What exactly will be the proportion of deposits from these wealth products? And also what is the interest rate for these wealth products.

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Unidentified Company Representative   [20]
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 First of all, about structure of deposits, in our financial report, which is done in accordance with traditional method and the media and the analysts may not be too familiar with the operating situation. So when it comes to the important parameters of savings to loans ratio, they may not have a very good grasp of it.

 And in order to enable the public to understand better about this particular benchmark in accordance with People's Bank requirement we re-categorized our deposits. For instance, tabulated wealth management products would be accounted towards deposits and also businesses such as financial companies and also insurance companies deposits will be accounted towards deposits. And so this is for benchmarking and also for standardization. And this is actually to facilitate your analysis and also facilitate your understanding.

 And secondly, last year in terms of increase in our overall deposits, in new deposits, tabulated wealth management accounts showed a slight increase. And these products actually are products that are born as a result of marketization of the interest market and they are going to be longstanding products. At this point in time it is difficult for us to say exactly what price structure it will be subject to. During the past several months it's between 4% to 5%. And so they are fluctuating within this range at different times.

 In terms of pricing, if you analyze further you will notice that wealth management products, both tabulated and non-tabulated or scheduled and non-scheduled are actually priced at a medium level. And our cost is also at a medium level and we don't want our costs to rise too high. And also for scheduled products and the proportion against the whole, we hope that the proportion will go up as a result of further marketization of the market. And this will also happen to other major banks.

 But in any case other factors that are in play include market liquidity and also macroeconomic environment. And if liquidity is loose, then scheduled products proportion will come down. But if it's the other way around then the proportion will go up. And in future, I hope that there will be a further opportunities for us to discuss this further.

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Unidentified Company Representative   [21]
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 Next we revert back to the Beijing venue, Beijing analysts.

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Unidentified Audience Member   [22]
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 Thank you. I've got two questions. Number one, for non-scheduled you have management products. I'd like to know what is its share and also in terms of volume of transaction what was the figure.

 And also to what extent would your own in-house profitability be able to replenish your internal capital?

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Unidentified Company Representative   [23]
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 First of all on your first question, for Bank of China our wealth management products, whether tabulated, whether they are from a total volume and the proportions, I would say of the total it is lower than our peer banks. And in this year we will continue to develop this kind of business. So for 2012, we hope that for the business, under the premises of complying with the regulations we would want to further develop this business.

 Well, actually it is a securitization product. So for the investors, for the corporates, for the banks, they would be able to bring on positive effects also. However the government would want to and regulatory bodies would want to be able to control and regulate the risks involved. And we will have to tell our investors very clearly as to the choice of products and we have to sell it to the right type of client and also comply with the regulatory -- requirements of the regulatory body. And so for this kind of wealth products there will be increase. However, the actual numbers it is not [convenient] for me to disclose anything here.

 Now as for capital supplement, Mr. Wang.

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 Wang Yongli,  Bank of China Ltd - Executive VP   [24]
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 Now I think you were talking about self-replenishment of capital. And in 2011, it was CNY120b plus and our dividend was 35% and the rest of it would go into our capital for the bank for this year. I don't know whether I've answered your question.

 As for capital supplements, this is something that we are of course concerned about because the CAR is a core index of our operations. And our analysis is that one, of course we have to comply with regulatory requirements and secondly we will have to support the development of our business going forward.

 And thirdly, it is not that the higher the CAR the better. So it has balance with other considerations such as future development. And we have to analyze our business growth capabilities and how do we get to the capital. And that would include after-tax profits, after dividend payout the rest is capital replenishment and also accessing the financial market, that's second. And also there are other capital sources or further capitalization channels that we have to explore.

 But apart from replenishing capital, optimizing the management of our assets and also lowering our capital usage for example in re-categorizing and fine-tuning the risk levels of our exposure and also optimizing their structure to lower the capital usage and that also fits into the requirement of better utilization of our capital.

 So in the next period of time, especially when Bank of China is already one of the systematically important banks globally we will rationally approach our capital replenishment approach.

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Unidentified Company Representative   [25]
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 I would like to supplement. For the dividend payout, the Board has decided on 35% and that has to be approved by the shareholders meeting. And we will decide on a 30% to 35% payout ratio in the future and this has to be recognized and rectified by the shareholders so as to have sufficient channel for replenishment of capital.

 And also we have to access the capital markets. In 2012 we do not have any plans for rights issue or equity issue. But we will be looking at regulatory requirements as well as our growth necessities to look at financing possibilities perhaps starting from next year, that is the year after whether we will be going into the -- accessing the capital markets. And also we will be utilizing a light on capital type of approach of development. We will be utilizing our capital in the most optimized manner. Thank you.

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Unidentified Company Representative   [26]
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 Thank you, analysts, for coming to the meeting. Thank you very much for your participation. Thank you, gentlemen, for your presentation. Thank you.

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Editor   [27]
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 Speaker statements on this transcript were Interpreted on the conference call by an Interpreter present on the live call. The Interpreter was provided by the Company sponsoring this Event.






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