H Share Stock Code : 03968

Offshore Preference Share Stock Code : 04614

2020 Interim Report

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China Merchants Bank

Contents

1

Interim Report 2020

Contents

  1. Important Notice
  2. Definitions
  1. Significant Risk Warning
  2. I Company Information
  1. II Summary of Accounting Data and Financial Indicators
  1. III Report of the Board of Directors

8

3.1

Analysis of Overall Operation

8

3.2

Analysis of Income Statement

15

3.3

Analysis of Balance Sheet

19

3.4

Analysis of Loan Quality

25

3.5

Analysis of Capital Adequacy Ratio

31

3.6

Results of Operating Segments

  1. 3.7 Other Financial Disclosures under the Regulatory Requirements
  2. 3.8 Implementation of Business Development Strategies

36

3.9

Changes in External Environment and Corresponding Measures

48

3.10

Business Operation

69

3.11

Risk Management

76 3.12 Profit Appropriation

77 IV Important Events

82 V Changes in Shares and Information on Shareholders

93 VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure

99 VII Corporate Governance

101 VIII Financial Statements

2 China Merchants Bank Important Notice

Interim Report 2020

Important Notice

  1. The Board of Directors, the Board of Supervisors, Directors, Supervisors and senior management of the Company confirm that the contents in this report are true, accurate, and complete and have no false representations, misleading statements or material omissions, and they will individually and collectively accept legal responsibility for such contents.
  2. The 15th meeting of the Eleventh Session of the Board of Directors of the Company was held by way of voting by correspondence on 28 August 2020. 17 out of 17 eligible Directors attended the meeting in person. The convening of the meeting complied with the relevant provisions of the Company Law of the People's Republic of China and the Articles of Association of China Merchants Bank Co., Ltd..
  3. The Company will not implement the profit appropriation nor will it transfer any capital reserve into share capital for the first half of 2020.
  4. The Company's 2020 interim financial report is unaudited.
  5. Unless otherwise stated, all monetary sums stated in this report are expressed in RMB.
  6. Li Jianhong, Chairman of the Company, Tian Huiyu, President and Chief Executive Officer, Wang Liang, Executive Vice President and Chief Financial Officer, and Li Li, the person in charge of the Finance and Accounting Department, hereby make representations in respect of the truthfulness, accuracy and completeness of the financial statements in this report.
  7. We have included in this report certain forward-looking statements with respect to the financial position, operating results and business development of the Group. We use words such as "will", "may", "expect", "try", "strive", "plan", "anticipate", "aim at", and similar expressions to indicate forward-looking statements. These statements are based on current plans, estimates and projections. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we give no assurance that these expectations will turn into reality or prove to be correct. Therefore they should not be deemed as the Group's commitments. Investors should not place undue reliance on such statements and should pay attention to investment risks. You are cautioned that such forward-looking statements are related to future events or future financial position, business, or other performances of the Group, and are subject to a number of uncertainties which may cause substantial differences from those in the actual results.

China Merchants Bank

Definitions / Significant Risk Warning

3

Interim Report 2020

Definitions

The Company, the Bank, CMB or China Merchants Bank:

China Merchants Bank Co., Ltd.

The Group:

China Merchants Bank and its subsidiaries

CBIRC:

China Banking and Insurance Regulatory Commission

CSRC:

China Securities Regulatory Commission

Hong Kong Stock Exchange or SEHK:

The Stock Exchange of Hong Kong Limited

Hong Kong Listing Rules:

The Rules Governing the Listing of Securities on the SEHK

CMB Wing Lung Bank:

CMB Wing Lung Bank Limited

CMB Wing Lung Group:

CMB Wing Lung Bank and its subsidiaries

CMB Financial Leasing or CMBFL:

CMB Financial Leasing Co., Ltd.

CMB International Capital or CMBIC:

CMB International Capital Holdings Corporation Limited

CMB Wealth Management:

CMB Wealth Management Company Limited

China Merchants Fund or CMFM:

China Merchants Fund Management Co., Ltd.

CIGNA & CMB Life Insurance:

CIGNA & CMB Life Insurance Co., Ltd.

MUCFC:

Merchants Union Consumer Finance Company Limited

CM Securities:

China Merchants Securities Co., Ltd.

MBCloud:

MBCloud Information Tech Co.,Ltd. with 100% equity interest held by the Company indirectly

CMB Network Technology:

China Merchants Bank Network Technology (Shenzhen) Co., Ltd. with 100% equity interest held by the Company indirectly

Deloitte Touche Tohmatsu Certified Public Accountants LLP:

Deloitte Touche Tohmatsu Certified Public Accountants LLP (Special General Partnership)

SFO:

Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

Model Code:

Model Code for Securities Transactions by Directors of Listed Issuers of Hong Kong Stock Exchange

Significant Risk Warning

The Company has disclosed herein the major risks involved in its operations and the proposed risk management measures. Please refer to Chapter III for the details in relation to risk management.

4 China Merchants Bank Chapter I Company Information Interim Report 2020

Company Information

1.1 Company Profile

  1. Registered company name in Chinese: 招商銀行股份有限公司 (Abbreviated Name in Chinese: 招商銀行)
    Registered company name in English: China Merchants Bank Co., Ltd.
  2. Legal representative: Li Jianhong
    Authorised representatives: Tian Huiyu, Liu Jianjun
    Secretary of the board of directors: Liu Jianjun
    Joint company secretaries: Liu Jianjun, Ho Wing Tsz Wendy
    Securities representative: Huo Jianjun
  3. Registered and office address:
    7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China
  4. Mailing address:
    7088 Shennan Boulevard, Futian District, Shenzhen, Guangdong Province, China Postcode: 518040
    Tel: +86 755 8319 8888
    Fax: +86 755 8319 5109
    E-mail: cmb@cmbchina.com
    Website: www.cmbchina.com
    Hotline for complaints on customer service: 95555-7
    Hotline for consumer rights protection: +86 755 8307 7333
  5. Principal place of business in Hong Kong:
    31/F, Three Exchange Square, 8 Connaught Place, Central, Hong Kong
  6. Share listing:
    A Shares: Shanghai Stock Exchange Abbreviated Name of A Shares: CMB Stock Code: 600036

H Shares: SEHK

Abbreviated Name of H Shares: CM BANK

Stock Code: 03968

Domestic preference shares: Shanghai Stock Exchange

Abbreviated Name of Shares: Zhao Yin You 1 (招銀優1)

Stock Code: 360028

Offshore preference shares: SEHK

Abbreviated Name of Shares: CMB 17USDPREF

Stock Code: 04614

1.1.7 Domestic auditor: Deloitte Touche Tohmatsu Certified Public Accountants LLP

Office Address: 30th Floor, Bund Center, 222 Yan'an Road East, Shanghai, China International auditor: Deloitte Touche Tohmatsu

Office Address: 35th Floor, One Pacific Place, 88 Queensway, Hong Kong

China Merchants Bank

Chapter I Company Information

5

Interim Report 2020

  1. Legal advisor as to PRC Law: Jun He Law Offices
    Legal advisor as to Hong Kong Law: Herbert Smith Freehills
  2. Registrar for A Shares: China Securities Depository & Clearing Corporation Ltd., Shanghai Branch
    Share register and transfer office as to H Shares: Computershare Hong Kong Investor Services Ltd.

Shops 1712-1716, 17/F, Hopewell Center, 183 Queen's Road East, Wanchai, Hong Kong

Registrar for domestic preference shares: China Securities Depository & Clearing Corporation Ltd., Shanghai Branch

Registrar and transfer agent for offshore preference shares: The Bank of New York Mellon SA/NV,

Luxembourg Branch

1.1.10 Newspapers and websites designated for information disclosure:

Mainland China: "China Securities Journal", "Securities Times", "Shanghai Securities News" website of Shanghai Stock Exchange (www.sse.com.cn)

website of the Company (www.cmbchina.com)

Hong Kong: website of SEHK (www.hkex.com.hk) website of the Company (www.cmbchina.com)

Place for maintenance of periodic reports: Office of the Board of Directors of the Company

1.2 Corporate Business Overview

Founded in 1987 with its head office in Shenzhen, China, the Company is a national commercial bank with distinctive operating features and brand influence in China. The Company mainly focuses on the market in China. The Company's distribution network primarily covers China's major economic centres such as Guangdong-HongKong-Macao Greater Bay Area, Yangtze River Delta and Bohai Rim, and some large- and medium- cities in other regions. For details, please refer to the sections headed "Distribution Channels" and "Branches and Representative Offices". The Company was listed on Shanghai Stock Exchange in April 2002 and on the SEHK in September 2006.

The Company provides customers with various wholesale and retail banking products and services, and maintains treasury businesses for proprietary purpose and on behalf of customers. Many innovative products and services of the Company, such as "All-in-one Card", a multi-function debit card, "All-in-one Net", a comprehensive online banking service platform, credit cards, the "Sunflower Wealth Management" services and private banking services, CMB APP and CMB Life APP, CMB Corporate APP, transaction banking services and offshore business services, such as global cash management and trade financing, asset management, asset custody, investment banking and other services, have been widely recognised by consumers in China.

In 2020, the Company continued to enhance its brand reputation. On the List of "Top 1,000 World Banks 2020" released by The Banker (UK), the Company ranked 17th, up by 2 places from 2019, and ranked in the Top 20 for three consecutive years. On the list of "2020 Top 500 World Banks" released by The Banker (UK), the Company ranked 9th. In the meantime, the Company received the award of the "Best Bank in China" by Euromoney once again, won the "Best National Joint-Stock Bank" and "Best Technology Innovation Award" at the ceremony for the "2020 Private Bank of China Awards" held by Asiamoney , and won the "Best Credit Card Bank" and "Best Technology Innovation Award" at the ceremony for the "2020 China Retail Bank Awards" held by Asiamoney .

6 China Merchants Bank Chapter II Summary of Accounting Data and Financial Indicators Interim Report 2020

Summary of Accounting Data

and Financial Indicators

2.1 Key Accounting Data and Financial Indicators

January to

January to

Changes

(in millions of RMB, unless otherwise specified)

June 2020

June 2019

+/-%

Operating Results

Net operating income(1)

148,163

138,338

7.10

Profit before tax

62,838

64,873

-3.14

Net profit attributable to shareholders of the Bank

49,788

50,612

-1.63

Per Share (RMB)

Basic earnings attributable to ordinary shareholders of the Bank(2)

1.97

2.01

-1.99

Diluted earnings attributable to ordinary shareholders of the Bank

1.97

2.01

-1.99

30 June

31 December

Changes

(in millions of RMB, unless otherwise specified)

2020

2019

+/-%

Volume Indicators

Total assets

8,031,826

7,417,240

8.29

of which: total loans and advances to customers(3)

4,851,715

4,490,650

8.04

Total liabilities

7,392,805

6,799,533

8.73

of which: total deposits from customers(3)

5,440,050

4,844,422

12.30

Total equity attributable to shareholders of the Bank

632,530

611,301

3.47

Period-end net assets per share attributable to ordinary shareholders

of the Bank (RMB)

23.73

22.89

3.67

Notes:

  1. Net operating income is the sum of net interest income, net fee and commission income, other net income as well as share of profits of associates and joint ventures.
  2. The Company issued non-cumulative preference shares in 2017, but did not pay any dividend on the preference shares during this period. Therefore, when calculating basic earnings per share, return on average equity and net assets per share, dividends on the preference shares were not required to be deducted from "net profit attributable to shareholders of the Bank", while the preference shares were deducted from both the "average equity" and the "net assets".

(3)

In accordance with "Notice on the Revision and Issuance of the Format of the Financial Statements of the Financial Enterprise for 2018" 《( 關

於修訂印發2018年度金融企業財務報表格式的通知》) issued by the Ministry of Finance, the interest on financial instruments accrued based on

the effective interest rate method shall be included in the balance of the relevant financial instruments, and shall be reflected in the relevant items of the financial reports, and the "interest receivable" or "interest payable" item shall no longer be listed separately. The balance of "interest receivable" or "interest payable" listed in the "other assets" or "other liabilities" item is only the interest receivable or payable where the relevant financial instruments have expired but the interest has not yet been received or paid at the balance sheet date. Since the 2018 annual report, the Group has adjusted the financial statements and its accompanying notes in accordance with the above requirements. Unless otherwise stated, the balances of the relevant items herein and set out below do not include the above interest on financial instruments accrued based on the effective interest method.

China Merchants Bank

Chapter II Summary of Accounting Data and Financial Indicators

7

Interim Report 2020

2.2 Supplementary Financial Ratios

January to

January to

Year-on-year

(%)

June 2020

June 2019

changes

Profitability indicators (annualised)

Return on average assets attributable to shareholders

1.29

1.45

Decreased by 0.16

of the Bank

percentage point

Return on average equity attributable to ordinary

16.94

19.47

Decreased by 2.53

shareholders of the Bank

percentage points

Net interest spread(1)

2.42

2.58

Decreased by 0.16

percentage point

Net interest margin(2)

2.50

2.70

Decreased by 0.20

percentage point

As percentage of net operating income

- Net interest income

61.33

63.18

Decreased by 1.85

percentage points

- Net non-interest income

38.67

36.82

Increased by 1.85

percentage points

Cost-to-income ratio(3)

28.25

27.58

Increased by 0.67

percentage point

30 June

31 December

Changes over

(%)

2020

2019

2019 year-end

Capital adequacy indicators under the Advanced

Measurement Approach(4)

Core Tier 1 capital adequacy ratio

11.31

11.95

Decreased by 0.64

percentage point

Tier 1 capital adequacy ratio

11.99

12.69

Decreased by 0.70

percentage point

Capital adequacy ratio

14.90

15.54

Decreased by 0.64

percentage point

Equity to total assets

7.96

8.33

Decreased by 0.37

percentage point

Asset quality indicators

Non-performing loan ratio

1.14

1.16

Decreased by 0.02

percentage point

Allowance coverage ratio of non-performing loans(5)

440.81

426.78

Increased by 14.03

percentage points

Allowance ratio of loans(6)

5.03

4.97

Increased by 0.06

percentage point

Notes:

  1. Net interest spread = average yield of the total interest-earning assets - average cost ratio of total interest-bearing liabilities.
  2. Net interest margin = net interest income/average balance of total interest-earning assets.
  3. Cost-to-incomeratio = operating expenses/net operating income. The numerator does not include taxes and surcharges, provisions for insurance claims and the depreciation charges on fixed assets under operating lease and investment properties.
  4. As at the end of the reporting period, the Group's Core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio under the Weighted Approach were 10.20%, 10.81% and 12.49% respectively.
  5. Allowance coverage ratio of non-performing loans = allowances for impairment losses/balance of non-performing loans.
  6. Allowance ratio of loans = allowances for impairment losses/total loans and advances to customers.

8 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

Report of the Board of Directors

3.1 Analysis of Overall Operation

In the first half of 2020, the Group adhered to the concept of dynamic and balanced development of quality, efficiency and scale, and continued to implement its strategic direction of "Light-operation Bank" and the strategic positioning of "One Body with Two Wings" by carrying out various businesses in a sound manner. Asset quality was generally stable; the scale of assets and liabilities continued to grow, and profitability and capital returns declined slightly.

During the reporting period, the Group realised a net profit attributable to shareholders of the Bank of RMB49.788 billion, representing a year-on-year decrease of 1.63%; the net operating income was RMB148.163 billion, representing a year-on-year increase of 7.10%, among which, the net interest income was RMB90.873 billion, representing a year-on-year increase of 3.97%; the net non-interest income was RMB57.290 billion, representing a year-on-year increase of 12.49%; the return on average asset (ROAA) attributable to shareholders of the Bank and return on average equity (ROAE) attributable to ordinary shareholders of the Bank were 1.29% and 16.94 %, down by 0.16 percentage point and 2.53 percentage points year-on-year, respectively.

As at the end of the reporting period, the Group's total assets amounted to RMB8,031.826 billion, representing an increase of 8.29% as compared with the end of the previous year. The total loans and advances to customers amounted to RMB4,851.715 billion, representing an increase of 8.04% as compared with the end of the previous year. Total liabilities amounted to RMB7,392.805 billion, representing an increase of 8.73% as compared with the end of the previous year. Total deposits from customers amounted to RMB5,440.050 billion, representing an increase of 12.30% as compared with the end of the previous year.

As at the end of the reporting period, the Group had balance of non-performing loans of RMB55.328 billion, representing an increase of RMB3.053 billion as compared with the end of the previous year. The non-performing loan ratio was 1.14%, down by 0.02 percentage point as compared with the end of the previous year. The non-performing loan allowance coverage ratio was 440.81%, representing an increase of 14.03 percentage points as compared with the end of the previous year; the loan allowance ratio was 5.03%, representing an increase of

0.06 percentage point as compared with the end of the previous year.

3.2 Analysis of Income Statement

3.2.1 Financial highlights

During the reporting period, the Group realised a profit before tax of RMB62.838 billion, representing a year-on-year decrease of 3.14%. The effective income tax rate was 20.31%, representing a year-on-year decrease of 1.29 percentage points. The following table sets out the changes in major income/loss items of the Group during the reporting period.

January to

January to

(in millions of RMB)

June 2020

June 2019

Changes

Net interest income

90,873

87,407

3,466

Net fee and commission income

42,269

38,971

3,298

Other net income

13,839

11,252

2,587

Operating expenses

(44,882)

(40,401)

(4,481)

Share of profits of associates and joint ventures

1,182

708

474

Expected credit losses

(40,443)

(33,064)

(7,379)

Profit before tax

62,838

64,873

(2,035)

Income tax

(12,760)

(14,015)

1,255

Net profit

50,078

50,858

(780)

Net profit attributable to shareholders of the Bank

49,788

50,612

(824)

China Merchants Bank

Chapter III Report of the Board of Directors

9

Interim Report 2020

3.2.2 Net operating income

During the reporting period, the net operating income of the Group was RMB148.163 billion, representing an increase of 7.10% as compared with the corresponding period of the previous year. The net interest income accounted for 61.33% of the net operating income, and the net non-interest income accounted for 38.67% of the net operating income, representing a year-on-year increase of 1.85 percentage points.

3.2.3 Interest income

During the reporting period, the Group recorded an interest income of RMB153.685 billion, representing a year-on-year increase of 6.34%, mainly due to the increase in interest-earning assets. Interest income from loans and advances to customers continued to be the biggest component of the interest income of the Group.

Interest income from loans and advances to customers

During the reporting period, the interest income from loans and advances to customers of the Group was RMB118.376 billion, representing a year-on-year increase of 8.52%.

The following table sets forth the average balance (daily average balance, same as below), interest income and average yield of each component of loans and advances to customers of the Group for the periods indicated.

January to June 2020

2019

January to June 2019

Annualised

Annualised

Average

Interest

average

Average

Interest

Average

Average

Interest

average

(in millions of RMB, except for percentages)

balance

income

yield (%)

balance

income

yield (%)

balance

income

yield (%)

Corporate loans

2,023,642

41,687

4.14

1,818,831

78,914

4.34

1,776,755

38,739

4.40

Retail loans

2,399,571

72,824

6.10

2,220,299

134,763

6.07

2,124,449

66,144

6.28

Discounted bills

288,670

3,865

2.69

250,635

8,302

3.31

242,116

4,195

3.49

Loans and advances to customers

4,711,883

118,376

5.05

4,289,765

221,979

5.17

4,143,320

109,078

5.31

In the first half of 2020, from the perspective of the maturity structure of loans and advances to customers of the Company, the average balance of short-term loans was RMB1,766.813 billion with the interest income amounting to RMB50.851 billion, and the annualised average yield reached 5.79%; the average balance of medium-to-long term loans was RMB2,613.958 billion with the interest income amounting to RMB61.294 billion, and the annualised average yield reached 4.72%. The average yield of short-term loans was higher than that of medium-to-long term loans, which was mainly attributable to the higher yield of credit card overdrafts and micro-finance loans in short-term loans.

Interest income from investments

During the reporting period, the interest income from investments of the Group was RMB25.008 billion, representing

  1. year-on-yearincrease of 3.14%. The annualised average yield of investments was 3.52%, representing a year-on-year decrease of 17 basis points, which was mainly attributable to the impact of the falling market interest rates.

Interest income from balances and placements with banks and other financial institutions

During the reporting period, the interest income of the Group from balances and placements with banks and other financial institutions was RMB6.557 billion, representing a year-on-year decrease of 11.22%, and the annualised average yield of balances and placements with banks and other financial institutions was 1.97%, representing a year-on-year decrease of 66 basis points, which was primarily attributable to the decrease in the yield of interbank assets as a result of falling market interest rates.

10 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.2.4 Interest expense

During the reporting period, the interest expense of the Group was RMB62.812 billion, representing a year-on-year increase of 9.98%, which was primarily attributable to the growth of interest-bearing liabilities.

Interest expense on deposits from customers

During the reporting period, the Group's interest expense on deposits from customers was RMB41.916 billion, representing a year-on-year increase of 22.87%, which was mainly due to the increase in the size of deposits as well as the increase in cost ratios of deposits.

The following table sets forth the average balances, interest expenses and average cost ratios of the deposits from corporate and retail customers of the Group for the periods indicated.

January to June 2020

2019

January to June 2019

Annualised

Annualised

average

Average

average

Average

Interest

cost ratio

Average

Interest

cost ratio

Average

Interest

cost ratio

(in millions of RMB, except for percentages)

balance

expense

(%)

balance

expense

(%)

balance

expense

(%)

Deposits from corporate customers

Demand

1,834,517

7,931

0.87

1,607,847

13,245

0.82

1,578,246

6,497

0.83

Time

1,530,528

21,555

2.83

1,363,971

38,900

2.85

1,294,388

17,769

2.77

Subtotal

3,365,045

29,486

1.76

2,971,818

52,145

1.75

2,872,634

24,266

1.70

Deposits from retail customers

Demand

1,201,383

2,091

0.35

1,081,045

3,973

0.37

1,070,921

1,962

0.37

Time

679,709

10,339

3.06

584,104

17,312

2.96

553,001

7,885

2.88

Subtotal

1,881,092

12,430

1.33

1,665,149

21,285

1.28

1,623,922

9,847

1.22

Total

5,246,137

41,916

1.61

4,636,967

73,430

1.58

4,496,556

34,113

1.53

The year-on-year increase in the cost ratio of deposits from customers of the Group was mainly due to the impact of changes in deposit structure. In the second half of 2019, in order to cater for the needs of certain original wealth management customers after the release of the New Regulation on Asset Management, the Company appropriately increased the supply of products such as structured deposits and large-denomination certificates of deposit. In the first half of 2020, the average balance of the above-mentioned deposits as percentage of deposits from customer increased as compared with the corresponding period of the previous year. During the reporting period, the cost ratio of deposits from customers has gradually decreased on a quarterly basis.

Interest expense on deposits and placements from banks and other financial institutions

During the reporting period, the interest expense on deposits and placements from banks and other financial institutions of the Group amounted to RMB7.429 billion, representing a year-on-year decrease of 23.25%, which was primarily due to the decrease in interest rate of funds from financial institutions.

Interest expense on debt securities issued

During the reporting period, the interest expense on debt securities issued of the Group amounted to RMB8.570 billion, representing a year-on-year increase of 4.81%, which was primarily attributable to the increase in the average balances of interbank certificates of deposits and long-term debt securities.

China Merchants Bank

Chapter III Report of the Board of Directors

11

Interim Report 2020

3.2.5 Net interest income

During the reporting period, the Group's net interest income amounted to RMB90.873 billion, representing a year-on-year increase of 3.97%.

The following table sets out the average balances, interest income/interest expense and average yield/cost ratio of assets and liabilities of the Group for the periods indicated.

January to June 2020

2019

January to June 2019

Annualised

Annualised

Average

Interest

average

Average

Interest

Average

Average

Interest

average

(in millions of RMB, except for percentages)

balance

income

yield (%)

balance

income

yield (%)

balance

income

yield (%)

Interest-earning assets

Loans and advances to customers

4,711,883

118,376

5.05

4,289,765

221,979

5.17

4,143,320

109,078

5.31

Investments

1,427,366

25,008

3.52

1,335,247

48,902

3.66

1,325,061

24,246

3.69

Balances with the central bank

488,521

3,744

1.54

493,722

7,759

1.57

484,370

3,807

1.58

Balances and placements with banks

and other financial institutions

670,526

6,557

1.97

570,995

14,354

2.51

566,310

7,386

2.63

Total

7,298,296

153,685

4.23

6,689,729

292,994

4.38

6,519,061

144,517

4.47

Annualised

Annualised

average

Average

average

Average

Interest

cost ratio

Average

Interest

cost ratio

Average

Interest

cost ratio

(in millions of RMB, except for percentages)

balance

expense

(%)

balance

expense

(%)

balance

expense

(%)

Interest-bearing liabilities

Deposits from customers

5,246,137

41,916

1.61

4,636,967

73,430

1.58

4,496,556

34,113

1.53

Deposits and placements from banks

and other financial institutions

889,274

7,429

1.68

843,293

19,079

2.26

833,267

9,679

2.34

Debt securities issued

525,046

8,570

3.28

504,241

17,631

3.50

446,214

8,177

3.70

Borrowings from the central bank

302,886

4,583

3.04

300,662

9,207

3.06

319,099

4,880

3.08

Lease liabilities

15,528

314

4.07

13,605

557

4.09

12,873

261

4.09

Total

6,978,871

62,812

1.81

6,298,768

119,904

1.90

6,108,009

57,110

1.89

Net interest income

╱

90,873

╱

╱

173,090

╱

╱

87,407

╱

Net interest spread

╱

╱

2.42

╱

╱

2.48

╱

╱

2.58

Net interest margin

╱

╱

2.50

╱

╱

2.59

╱

╱

2.70

During the reporting period, the annualised average yield of our interest-earning assets of the Group was 4.23%, representing a year-on-year decrease of 24 basis points; the annualised average cost ratio of our interest-bearing liabilities was 1.81%, representing a year-on-year decrease of 8 basis points; the net interest spread and the net interest margin were 2.42% and 2.50%, representing a year-on-year decrease of 16 and 20 basis points, respectively.

The following table sets forth the breakdown of changes in interest income and interest expenses due to changes in volumes and interest rates of the Group for the periods indicated. Changes in volume were measured by changes in average balances, while changes in interest rate were measured by changes in the average interest rates; the changes in interest income and interest expenses due to changes in both volume and interest rates have been included in the amount of changes in interest income and interest expenses due to changes in volume.

12 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

January to June 2020 compared to

January to June 2019

Increase (decrease) due to

Net increase

(in millions of RMB)

Volume

Interest rate

(decrease)

Interest-earning assets

Loans and advances to customers

14,587

(5,289)

9,298

Investments

1,860

(1,098)

762

Balances with the central bank

42

(105)

(63)

Balances and placements with banks and

other financial institutions

1,040

(1,869)

(829)

Changes in interest income

17,529

(8,361)

9,168

Interest-bearing liabilities

Deposits from customers

6,084

1,719

7,803

Deposits and placements from banks and

other financial institutions

495

(2,745)

(2,250)

Debt securities issued

1,309

(916)

393

Borrowings from the central bank

(232)

(65)

(297)

Lease liabilities

54

(1)

53

Changes in interest expense

7,710

(2,008)

5,702

Changes in net interest income

9,819

(6,353)

3,466

The following table sets out the average balances, interest income/interest expenses and annualised average yields/ cost ratios of assets and liabilities of the Group for the periods indicated.

April to June 2020

January to March 2020

Annualised

Annualised

Average

Interest

average

Average

Interest

average

(in millions of RMB, except for percentages)

balance

income

yield (%)

balance

income

yield (%)

Interest-earning assets

Loans and advances to customers

4,765,730

58,734

4.96

4,658,036

59,642

5.15

Investments

1,493,518

12,740

3.43

1,361,214

12,268

3.62

Balances with the central bank

479,291

1,801

1.51

497,751

1,943

1.57

Balances and placements with banks and

other financial institutions

659,334

2,877

1.75

681,718

3,680

2.17

Total

7,397,873

76,152

4.14

7,198,719

77,533

4.33

Annualised

Annualised

average

average

Average

Interest

cost ratio

Average

Interest

cost ratio

(in millions of RMB, except for percentages)

balance

expense

(%)

balance

expense

(%)

Interest-bearing liabilities

Deposits from customers

5,391,286

21,278

1.59

5,100,988

20,638

1.63

Deposits and placements from banks and

other financial institutions

951,667

3,575

1.51

826,881

3,854

1.87

Debt securities issued

461,937

3,764

3.28

588,155

4,806

3.29

Borrowings from the central bank

298,615

2,254

3.04

307,157

2,329

3.05

Lease liabilities

15,712

164

4.20

15,344

150

3.93

Total

7,119,217

31,035

1.75

6,838,525

31,777

1.87

Net interest income

╱

45,117

╱

╱

45,756

╱

Net interest spread

╱

╱

2.39

╱

╱

2.46

Net interest margin

╱

╱

2.45

╱

╱

2.56

In the second quarter of 2020, the net interest margin of the Group was 2.45%, down by 11 basis points as compared with the first quarter of 2020, and its net interest spread was 2.39%, down by 7 basis points as compared with the first quarter of 2020. The annualised average yield of the interest-earning assets was 4.14%, down by 19 basis points as compared with the first quarter of 2020. The annualised average cost ratio of interest-bearing liabilities was 1.75%, down by 12 basis points as compared with the first quarter of 2020.

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Interim Report 2020

3.2.6 Net non-interest income

During the reporting period, the Group recorded a net non-interest income of RMB57.290 billion, representing a year-on-year increase of 12.49%. The components are as follows:

Net fee and commission income amounted to RMB42.269 billion, representing a year-on-year increase of 8.46%. Among the fee and commission income, income from bank card fees amounted to RMB9.418 billion, representing

  1. year-on-yeardecrease of 2.44%, and income from settlement and clearing fees amounted to RMB6.362 billion, representing a year-on-year decrease of 3.22%, both of which were primarily attributable to the adverse effect of COVID-19 pandemic on consumption; income from agency services fees amounted to RMB10.810 billion, representing a year-on-year increase of 32.35%, which was primarily attributable to the increase in income from agency distribution of funds; the commissions from credit commitment and loan business amounted to RMB3.654 billion, representing a year-on-year increase of 1.47%; the commissions from trust and other fiduciary activities amounted to RMB13.558 billion, representing a year-on-year increase of 10.43%, which was primarily attributable to the increase in income from entrusted wealth management services.

Other net non-interest income amounted to RMB15.021 billion, representing a year-on-year increase of 25.59%, of which, net investment income amounted to RMB10.348 billion, representing a year-on-year increase of 42.53%, mainly due to the increase in dividend of investments in funds and increase in spread income from bills and bonds; other net income amounted to RMB2.870 billion, representing a year-on-year increase of 7.17%, mainly due to the increase in the income from operating leases; net profit from exchange gain amounted to RMB1.789 billion, representing a year-on-year increase of 34.92%, mainly due to the increase in income from foreign currency derivatives instruments; net profit from fair value change amounted to RMB-1.168 billion, representing a year-on-year decrease of RMB1.156 billion, which was mainly due to the decrease in profit or loss of fair value change resulting from dividend of investments in funds.

In terms of business segments, the net non-interest income from retail finance amounted to RMB26.236 billion, representing a year-on-year increase of 0.29% and accounting for 45.80% of the Group's net non-interest income; the net non-interest income from wholesale finance amounted to RMB23.824 billion, representing a year-on-year increase of 31.64% and accounting for 41.58% of the Group's net non-interest income; the net non-interest income from other businesses amounted to RMB7.230 billion, representing a year-on-year increase of 8.35% and accounting for 12.62% of the Group's net non-interest income.

January to

January to

(in millions of RMB)

June 2020

June 2019

Fee and commission income

45,611

42,512

Bank card fees

9,418

9,654

Settlement and clearing fees

6,362

6,574

Agency service fees

10,810

8,168

Commissions from credit commitment and loan business

3,654

3,601

Commissions on trust and fiduciary activities

13,558

12,278

Others

1,809

2,237

Fees and commission expense

(3,342)

(3,541)

Net fee and commission income

42,269

38,971

Other net non-interest income

15,021

11,960

Other net income

13,839

11,252

Net profit from fair value change

(1,168)

(12)

Net investment income

10,348

7,260

Exchange gain

1,789

1,326

Other income

2,870

2,678

Share of profits of associates and joint ventures

1,182

708

Total net non-interest income

57,290

50,931

14 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.2.7 Operating expenses

During the reporting period, the Group's operating expenses amounted to RMB44.882 billion, representing a year-on-year increase of 11.09%, which was mainly because the Company further advanced the exploration of its digital business model, and continuously invested strategic expense resources in respect of various digital operating scenarios in accordance with the strategic positioning of "One Body with Two Wings". During the reporting period, the Group's cost-to-income ratio was 28.25%, representing a year-on-year increase of 0.67 percentage point. The Company's cost-to-income ratio was 28.69%, representing a year-on-year increase of 0.88 percentage point.

The following table sets forth, for the periods indicated, the principal components of the operating expenses of the Group.

January to

January to

(in millions of RMB)

June 2020

June 2019

Staff costs

27,583

24,575

Taxes and surcharges

1,304

1,143

Depreciation of property, equipment and investment properties

3,737

2,924

Amortisation of intangible assets

586

465

Depreciation and amortisation of right-of-use assets

2,208

2,154

Other general and administrative expenses

9,321

9,023

Allowances for insurance claims

143

117

Total operating expenses

44,882

40,401

3.2.8 Expected credit losses

During the reporting period, the expected credit losses of the Group were RMB40.443 billion, representing a year-on-year increase of 22.32%.

The following table sets forth, for the periods indicated, the principal components of expected credit losses of the Group.

January to

January to

(in millions of RMB)

June 2020

June 2019

Loans and advances to customers

36,211

29,512

Financial investments

1,178

1,737

Amounts due from banks and other financial institutions

672

(194)

Expected credit losses relating to financial guarantees and loan commitments

1,923

1,740

Other assets

459

269

Total expected credit losses

40,443

33,064

Expected credit losses of loans and advances to customers were the largest component of expected credit losses. During the reporting period, expected credit losses of loans and advances to customers of the Group were RMB36.211 billion, representing a year-on-year increase of 22.70%, which was mainly because the Group increased allowances for the first half year due to the impact of the COVID-19 pandemic. For details of the allowances for impairment losses on loans, please refer to the section headed "Analysis of Loan Quality" in this chapter.

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Interim Report 2020

3.3 Analysis of Balance Sheet

3.3.1 Assets

As at the end of the reporting period, the total assets of the Group amounted to RMB8,031.826 billion, up by 8.29% from the end of the previous year, which was mainly attributable to the increase in loans and advances to customers and bond investments of the Group.

To maintain the figures comparable, the financial instruments in section "3.3.1 Assets" were still analysed on the statistical calibre excluding interest receivable, except for the table "components of the total assets of the Group", in which interest receivable calculated using the effective interest method was included as required by the Ministry of Finance.

The following table sets forth, as at the dates indicated, the components of the total assets of the Group.

30 June 2020

31 December 2019

Percentage of

Percentage of

(in millions of RMB, except for percentages)

Amount

the total (%)

Amount

the total (%)

Total loans and advances to customers

4,861,984

60.54

4,500,199

60.67

Allowances for impairment losses on loans(1)

(243,880)

(3.04)

(222,899)

(3.00)

Net loans and advances to customers

4,618,104

57.50

4,277,300

57.67

Investment securities and other financial assets

2,096,620

26.10

1,839,440

24.80

Cash, precious metals and balances with the central

bank

503,620

6.27

571,990

7.71

Inter-bank transactions(2)

578,490

7.20

522,507

7.04

Goodwill

9,954

0.12

9,954

0.13

Other assets(3)

225,038

2.81

196,049

2.65

Total assets

8,031,826

100.00

7,417,240

100.00

Notes:

  1. The "allowances for impairment losses on loans" as at the end of the reporting period include the allowances for impairment losses of the principal and interest of the loans and advances to customers measured at amortised cost. The allowances for impairment losses of RMB145 million were not deducted from the carrying values of the loans and advances to customers measured at fair value through other comprehensive income. For details, please refer to Note 16(a) to the financial statements.
  2. Including balances and placements with banks and other financial institutions and amounts held under resale agreements.
  3. Including fixed assets, right-of-use assets, intangible assets, investment properties, deferred tax assets and other assets.

3.3.1.1 Loans and advances to customers

As at the end of the reporting period, total loans and advances to customers of the Group amounted to RMB4,851.715 billion, representing an increase of 8.04% as compared with the end of the previous year; total loans and advances to customers accounted for 60.41% of the total assets, representing a decrease of 0.13 percentage point as compared with the end of the previous year. For details of the loans and advances to customers of the Group, please refer to the section headed "Analysis of Loan Quality" in this chapter.

16 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.3.1.2 Investment securities and other financial assets

The Group's investment securities and other financial assets consist of listed and unlisted financial instruments denominated in RMB and foreign currencies.

The following table sets forth, as at the dates indicated, the components of investment securities and other financial assets of the Group by line items.

30 June 2020

31 December 2019

Percentage of

Percentage of

(in millions of RMB, except for percentages)

Amount

the total (%)

Amount

the total (%)

Derivative financial assets

38,840

1.87

24,219

1.33

Investments at fair value through profit or loss

478,877

23.05

398,276

21.89

- Bond investments

174,116

8.38

123,256

6.77

- Non-standardised credit asset investments

191,693

9.23

199,817

10.98

- Others(note)

113,068

5.44

75,203

4.14

Debt investments at amortised cost

1,033,459

49.77

907,472

49.88

- Bond investments

867,025

41.75

778,170

42.77

- Non-standardised credit asset investments

179,782

8.66

142,733

7.84

- Others

579

0.03

564

0.04

- Less: allowances for impairment losses

(13,927)

(0.67)

(13,995)

(0.77)

Debt investments at fair value through

other comprehensive income

506,559

24.39

472,586

25.97

Equity investments designated at fair value through

other comprehensive income

6,777

0.33

6,077

0.33

Investments in joint ventures and associates

12,389

0.59

10,784

0.60

Total investment securities and

other financial assets

2,076,901

100.00

1,819,414

100.00

Note: Including equity investments, investments in funds, wealth management products, long position in precious metal contracts and others.

Derivative financial instruments

As at the end of the reporting period, the major categories and amount of derivative financial instruments held by the Group are indicated in the following table. For details, please refer to Note 41(f) to the financial statements.

30 June 2020

31 December 2019

Fair value

Fair value

Notional

Notional

(in millions of RMB)

amount

Assets

Liabilities

amount

Assets

Liabilities

Interest rate derivatives

3,998,045

23,830

(23,755)

4,656,569

10,990

(10,724)

Currency derivatives

1,393,642

13,748

(13,889)

1,135,734

12,479

(11,756)

Other derivatives

137,525

1,262

(1,170)

130,219

750

(720)

Total

5,529,212

38,840

(38,814)

5,922,522

24,219

(23,200)

The above table shows the nominal value and fair value of the Group's derivatives by their remaining maturity on each balance sheet date. The nominal value refers only to the volume of the transactions that have not yet been due or completed on the balance sheet date, and does not represent the value at risk.

During the reporting period, RMB exchange rate experienced bilateral fluctuations and the supply & demand of the foreign exchange market maintained an overall equilibrium. However, there was higher volatility in the bond market, leading to customers' increased awareness of eliminating the risks associated with the price fluctuation in various financial assets. Leveraging on its expertise in derivative transactions in the financial market, the Group proactively deployed derivative instruments to hedge market risks, as a result of which the Group achieved relatively rapid growth in the number of customers served and the volume of transactions.

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Interim Report 2020

Investments at fair value through profit or loss

As at the end of the reporting period, the balance of the investments at fair value through profit or loss amounted to RMB478.877 billion, with bond, fund and non-standardised bills investments etc. being the major categories. The investments of which were made by the Group through an analysis of the fundamental aspects of both macro economic and monetary policy so as to obtain investment income by capturing trading opportunities in the market. For details, please refer to Note 17(a) to the financial statements.

Debt investments measured at amortised cost

As at the end of the reporting period, the balance of the Group's debt investments measured at amortised cost amounted to RMB1,033.459 billion. Among them, the bond investments were made mainly in the bonds issued by the PRC government and policy banks. This category of investments was held on a long-term basis for the strategic allocation of assets and liabilities of the Group, based on the requirements of interest rate risk management of bank accounts and liquidity management, while taking into account the benefits and risks. For details, please refer to Note 17(b) to the financial statements.

Debt investments at fair value through other comprehensive income

As at the end of the reporting period, the balance of debt investments at fair value through other comprehensive income amounted to RMB506.559 billion. During the reporting period, interest rates in the RMB bond market fluctuated substantially. Closely keeping abreast with the changes in the market, the Group adjusted the duration of asset portfolio and size of the derivative position in a timely manner based on interest rate fluctuations, conducted flexible range trading operations, increased investment returns while at the same time continuing to optimise the asset allocation structure. With a focus on increasing the amount of higher-value assets such as treasury bonds and local bonds, the Group effectively avoided credit risks and improved the liquidity of the asset portfolio. For details, please refer to Note 17(c) to the financial statements.

Equity investments designated at fair value through other comprehensive income

As at the end of the reporting period, the balance of equity investments designated at fair value through other comprehensive income of the Group amounted to RMB6.777 billion. Such investments were mainly non-trading equity investments held by the Group in the investees over whom the Group had no control, joint control or significant influence. For details, please refer to Note 17(d) to the financial statements.

The composition of the Group's total bond investments classified by the issuing entities

30 June

31 December

(in millions of RMB)

2020

2019

Official authorities(note)

886,799

783,189

Policy banks

331,732

316,241

Commercial banks and other financial institutions

195,130

162,341

Others(note)

134,039

112,241

Total Bond investments

1,547,700

1,374,012

Note: "Official authorities" include the Ministry of Finance of the PRC, local governments and the central bank, etc.; "Others" mainly refer to enterprises.

Investments in joint ventures and associates

As at the end of the reporting period, the investments in joint ventures and associates of the Group amounted to RMB12.389 billion, representing an increase of 14.88% as compared with the end of the previous year. As at the end of the reporting period, the balance of allowances for impairment losses on investments in joint ventures and associates of the Group was zero. For details, please refer to Note 18 and 19 to the financial statements.

3.3.1.3Goodwill

As at the end of the reporting period, the Group had a balance of allowances for impairment losses on goodwill of RMB579 million and the carrying value of goodwill was RMB9.954 billion.

18 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.3.2 Liabilities

As at the end of the reporting period, the total liabilities of the Group amounted to RMB7,392.805 billion, representing an increase of 8.73% as compared with the end of the previous year, which was primarily attributable to the steady growth in deposits from customers as compared with the end of the previous year.

To maintain the figures comparable, the financial instruments in section "3.3.2 Liabilities" were still analysed on the statistical calibre excluding interest payable, except for the table "components of the total liabilities of the Group" in which interest payable calculated using the effective interest method was included as required by the Ministry of Finance.

The following table sets forth, as at the dates indicated, the components of the total liabilities of the Group.

30 June 2020

31 December 2019

Percentage of

Percentage of

(in millions of RMB, except for percentages)

Amount

the total (%)

Amount

the total (%)

Deposits from customers

5,474,392

74.05

4,874,981

71.70

Inter-bank transactions(1)

951,017

12.86

784,735

11.54

Borrowings from the central bank

306,397

4.14

359,175

5.28

Financial liabilities at fair value through profit or loss

and derivative financial liabilities

82,778

1.12

66,634

0.98

Debt securities issued

412,399

5.58

578,191

8.50

Others(2)

165,822

2.25

135,817

2.00

Total liabilities

7,392,805

100.00

6,799,533

100.00

Notes:

  1. Including deposits and placements from banks and other financial institutions and amounts sold under repurchase agreements.
  2. Including salaries and welfare payable, taxes payable, contract liabilities, lease liabilities, expected liabilities, deferred income tax liabilities and other liabilities.

Deposits from customers

As at the end of the reporting period, total deposits from customers of the Group amounted to RMB5,440.050 billion, representing an increase of 12.30% as compared with the end of the previous year. Deposits from customers, accounting for 73.59% of the total liabilities of the Group, was the major funding source of the Group.

The following table sets forth, as at the dates indicated, the deposits from customers of the Group by product type and customer type.

30 June 2020

31 December 2019

Percentage of

Percentage of

(in millions of RMB, except for percentages)

Amount

the total (%)

Amount

the total (%)

Deposits from corporate customers

Demand

2,053,534

37.75

1,692,068

34.93

Time

1,408,019

25.88

1,346,033

27.79

Subtotal

3,461,553

63.63

3,038,101

62.72

Deposits from retail customers

Demand

1,316,773

24.21

1,171,221

24.18

Time

661,724

12.16

635,100

13.10

Subtotal

1,978,497

36.37

1,806,321

37.28

Total deposits from customers

5,440,050

100.00

4,844,422

100.00

As at the end of the reporting period, the percentage of balance of the demand deposits to that of the total deposits from customers of the Group was 61.96%, representing an increase of 2.85 percentage points as compared with the end of the previous year. Among which, the balance of corporate demand deposits accounted for 59.32% of that of the corporate deposits, representing an increase of 3.63 percentage points as compared with the end of the previous year, and the balance of retail demand deposits accounted for 66.55% of that of the retail deposits, representing an increase of 1.71 percentage points as compared with the end of the previous year.

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3.3.3 Shareholders' equity

As at the end of the reporting period, the shareholders' equity of the Group was RMB639.021 billion, representing an increase of 3.45% as compared with the end of the previous year. Among which, retained profits amounted to RMB341.843 billion, representing an increase of 6.29% as compared with the end of the previous year. Investment revaluation reserve amounted to RMB9.917 billion, representing an increase of 11.19% as compared with the end of the previous year, which was mainly due to an increase in the impairment allowances of debt investments measured at fair value through other comprehensive income as compared with the end of the previous year. Exchange difference on translation of financial statements of foreign operations amounted to RMB2.305 billion, representing an increase of 47.66% compared with the end of the previous year, which was mainly due to movements in the exchange rate of RMB to HKD resulting in increased exchange difference on translation of financial statements of foreign operations.

3.4 Analysis of Loan Quality

3.4.1 Distribution of loans by 5-tier loan classification

The following table sets forth the 5-tier loan classification of the Group as at the dates indicated.

30 June 2020

31 December 2019

Percentage of

Percentage of

(in millions of RMB, except for percentages)

Amount

the total (%)

Amount

the total (%)

Normal

4,748,299

97.87

4,385,785

97.67

Special mention

48,088

0.99

52,590

1.17

Substandard

16,165

0.34

15,747

0.35

Doubtful

23,433

0.48

17,383

0.39

Loss

15,730

0.32

19,145

0.42

Total loans and advances to customers

4,851,715

100.00

4,490,650

100.00

Non-performing loans

55,328

1.14

52,275

1.16

Note: Under the 5-tier loan classification system, non-performing loans of the Group are divided into substandard loans, doubtful loans and loss loans.

During the reporting period, the Group insists on strict asset classification to fully expose risks. As at the end of the reporting period, the Group's balance of non-performing loans increased, the non-performing loan ratio decreased, and both the balance and percentage of special-mention loans recorded a decrease. Specifically, the balance of our non-performing loans amounted to RMB55.328 billion, representing an increase of RMB3.053 billion as compared with the end of the previous year, with a non-performing loan ratio of 1.14%, a decrease of 0.02 percentage point as compared with the end of the previous year. The balance of the special-mention loans amounted to RMB48.088 billion, representing a decrease of RMB4.502 billion as compared with the end of the previous year; the percentage of special-mention loans was 0.99%, representing a decrease of 0.18 percentage point as compared with the end of the previous year.

20 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.4.2 Distribution of loans and non-performing loans by product type

30 June 2020

31 December 2019

Non

Non

Loan and

Percentage

Non

performing

Loan and

Percentage

Non

performing

advance

of the

performing

loan ratio

advance

of the

performing

loan ratio

(in millions of RMB, except for percentages)

balance

total (%)

loan

(%)(1)

balance

total (%)

loan

(%)(1)

Corporate loans

2,070,978

42.69

35,104

1.70

1,901,994

42.35

35,070

1.84

Working capital loans

877,822

18.10

24,523

2.79

854,121

19.02

24,925

2.92

Fixed asset loans

673,032

13.87

5,573

0.83

559,580

12.46

4,491

0.80

Trade finance

195,764

4.03

1,196

0.61

192,750

4.29

819

0.42

Others(2)

324,360

6.69

3,812

1.18

295,543

6.58

4,835

1.64

Discounted bills(3)

296,585

6.11

-

-

226,040

5.04

19

0.01

Retail loans

2,484,152

51.20

20,224

0.81

2,362,616

52.61

17,186

0.73

Micro-finance loans

446,505

9.20

2,747

0.62

405,780

9.04

3,284

0.81

Residential mortgage loans

1,200,374

24.74

3,010

0.25

1,108,148

24.68

2,749

0.25

Credit card loans

652,343

13.45

12,065

1.85

671,099

14.94

9,033

1.35

Others(4)

184,930

3.81

2,402

1.30

177,589

3.95

2,120

1.19

Total loans and advances to

customers

4,851,715

100.00

55,328

1.14

4,490,650

100.00

52,275

1.16

Notes:

  1. Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
  2. Consists primarily of other corporate loans such as financial leasing, M&A loans and corporate mortgage loans.
  3. The Company will transfer discounted bills to corporate loans for accounting purposes once overdue.
  4. The "Others" category consists primarily of general consumption loans, commercial housing loans, automobile loans, house decoration loans, education loans and other personal loans secured by monetary assets.

With regard to retail loans, in the first half of 2020, the Group gave priority to supporting micro-finance loans and maintained a reasonable growth of residential mortgage loans, as a result of which, our assets quality of micro-finance loans and residential mortgage loans was stable and controllable. The credit card business was significantly affected by the pandemic, and its scale declined as compared with the end of the previous year. It is currently in a stage of restorative growth. Due to the combined effect of the pandemic and the risk of "joint debts", the non-performing loans recorded an increase. As at the end of the reporting period, the proportion of retail loans was 51.20%, representing a decrease of 1.41 percentage points as compared with the end of the previous year; the balance of non-performing loans amounted to RMB20.224 billion, up by RMB3.038 billion as compared with the end of the previous year; and the non-performing loan ratio was 0.81%, up by 0.08 percentage point as compared with the end of the previous year. Among which, the non-performing credit card loans amounted to RMB12.065 billion, up by RMB3.032 billion as compared with the end of the previous year; and the non-performing ratio of credit card loans was 1.85%, up by 0.50 percentage point as compared with the end of the previous year.

With regard to corporate loans, the Group steadily advanced the development of project financing business, resulting in the quality of corporate loan assets remained relatively stable during the reporting period. As at the end of the reporting period, the percentage of corporate loans was 42.69%, representing an increase of 0.34 percentage point as compared with the end of the previous year; and the percentage of fixed asset loans was 13.87%, representing an increase of 1.41 percentage points as compared with the end of the previous year. The non-performing corporate loans amounted to RMB35.104 billion, up by RMB34 million as compared with the end of the previous year; and the non-performing ratio of corporate loans was 1.70%, down by 0.14 percentage point as compared with the end of the previous year.

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3.4.3 Distribution of loans and non-performing loans by industry

30 June 2020

31 December 2019

Non-

Non-

Loan and

Percentage

Non-

performing

Loan and

Percentage

Non-

performing

advance

of the total

performing

loan ratio

advance

of the total

performing

loan ratio

(in millions of RMB, except for percentages)

balance

(%)

loan

(%)(1)

balance

(%)

loan

(%)(1)

Corporate loans

2,070,978

42.69

35,104

1.70

1,901,994

42.35

35,070

1.84

Property development

412,490

8.50

1,396

0.34

368,377

8.20

1,636

0.44

Transportation, storage and

postal services

421,929

8.70

3,629

0.86

337,209

7.51

2,475

0.73

Manufacturing

261,004

5.38

12,209

4.68

261,711

5.83

15,943

6.09

Wholesale and retail

170,392

3.51

6,125

3.59

162,857

3.63

5,202

3.19

Production and supply of

electric power, heat,

gas and water

166,694

3.44

649

0.39

150,083

3.34

519

0.35

Leasing and commercial services

180,640

3.72

6,412

3.55

173,369

3.86

3,612

2.08

Finance

131,113

2.70

389

0.30

126,706

2.82

229

0.18

Construction

106,036

2.19

1,047

0.99

97,475

2.17

1,270

1.30

Information transmission,

software and IT service

51,843

1.07

1,043

2.01

55,900

1.24

1,034

1.85

Water conservancy,

environment and

public utilities

53,508

1.10

85

0.16

58,263

1.30

270

0.46

Mining

45,526

0.94

1,403

3.08

39,189

0.87

2,084

5.32

Others(2)

69,803

1.44

717

1.03

70,855

1.58

796

1.12

Discounted bills

296,585

6.11

-

-

226,040

5.04

19

0.01

Retail loans

2,484,152

51.20

20,224

0.81

2,362,616

52.61

17,186

0.73

Total loans and advances to

customers

4,851,715

100.00

55,328

1.14

4,490,650

100.00

52,275

1.16

Notes:

  1. Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
  2. Consists primarily of agriculture, forestry, animal husbandry, fishery, accommodation and catering, health and social work, etc.

In the first half of 2020, the Group closely followed the national macro economic policies and industrial policies, unwaveringly supported the development of the real economy, actively planned for investment in incremental assets and optimised the structure of existing assets, prioritised the investment of resources to major infrastructure construction projects as well as the strategic emerging industries, dynamically adjusted its credit strategies in the key areas such as the real estate industry, local government financing platforms, and industries that we have reduced or withdrawn from, and strengthened the management of customers associated with high risks, i.e. those who have high leverage, low efficiency and unsustainable operations. During the reporting period, due to the effect of such factors as the downturn in the macro economy and defaults by certain major corporate customers, an increase in the non-performing loan ratio was recorded in certain industries, such as the leasing and commercial service industry, wholesale and retail, information transmission, software and information technology services, etc..

22 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.4.4 Distribution of loans and non-performing loans by region

30 June 2020

31 December 2019

Non-

Non-

Loan and

Percentage

Non-

performing

Loan and

Percentage

Non-

performing

advance

of the total

performing

loan ratio

advance

of the total

performing

loan ratio

(in millions of RMB, except for percentages)

balance

(%)

loan

(%)(1)

balance

(%)

loan

(%)(1)

Head Office(2)

740,122

15.25

15,799

2.13

740,664

16.49

11,209

1.51

Yangtze River Delta

1,008,509

20.79

7,526

0.75

903,754

20.13

8,574

0.95

Bohai Rim

629,409

12.97

7,921

1.26

567,997

12.65

7,092

1.25

Pearl River Delta and West Side

of Taiwan Strait

848,590

17.49

6,710

0.79

773,445

17.22

7,093

0.92

North-eastern China

155,931

3.21

4,865

3.12

151,587

3.38

5,146

3.39

Central China

486,229

10.02

4,987

1.03

453,128

10.09

3,739

0.83

Western China

494,649

10.20

5,190

1.05

446,520

9.94

7,321

1.64

Overseas

142,903

2.95

415

0.29

139,341

3.10

276

0.20

Subsidiaries

345,373

7.12

1,915

0.55

314,214

7.00

1,825

0.58

Total loans and advances to

customers

4,851,715

100.00

55,328

1.14

4,490,650

100.00

52,275

1.16

Notes:

  1. Represents the percentage of the non-performing loans in a certain category to the total loans of that category.
  2. The Head Office includes Credit Card Center, Offshore Finance Center and Banking Department of the Head Office.

Given the differences in economic patterns and customer bases of various regions, the Group implemented differentiated risk supervisory management by category for branches and sub-branches in different regions. For risk concentrated regions, the Group selectively raised the credit access standard and dynamically adjusted the credit authorisation so as to prevent the occurrence of regional systematic risks. As at the end of the reporting period, the percentage of the balance of loans extended to Yangtze River Delta, Bohai Rim, Pearl River Delta and West Side of Taiwan Strait showed increases. Due to the formation of non-performing loans in certain large-sized corporate customers and the increase of non-performing credit card loans, the non-performing loan ratio of Head Office increased by 0.62 percentage point as compared with the end of the previous year; the non-performing loan ratio also increased slightly in Central China, overseas and Bohai Rim, while the non-performing loan ratio of other regions decreased as compared with the end of the previous year.

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Interim Report 2020

3.4.5 Distribution of loans and non-performing loans by type of guarantees

30 June 2020

31 December 2019

Non-

Non-

Loan and

Percentage

Non-

performing

Loan and

Non-

performing

advance

of the total

performing

loan ratio

advance

Percentage of

performing

loan ratio

(in millions of RMB, except for percentages)

balance

(%)

loan

(%)(note)

balance

the total (%)

loan

(%)(note)

Credit loans

1,664,995

34.32

18,076

1.09

1,535,977

34.20

13,438

0.87

Guaranteed loans

718,866

14.82

17,137

2.38

636,709

14.18

16,755

2.63

Collateralised loans

1,847,733

38.08

13,188

0.71

1,859,500

41.40

15,103

0.81

Pledged loans

323,536

6.67

6,927

2.14

232,424

5.18

6,960

2.99

Discounted bills

296,585

6.11

-

-

226,040

5.04

19.00

0.01

Total loans and advances to

customers

4,851,715

100.00

55,328

1.14

4,490,650

100.00

52,275

1.16

Note: Represents the percentage of the non-performing loans in a certain category to the total loans of that category.

As at the end of the reporting period, the Group's collateralised and pledged loans increased by 3.79% as compared with the end of the previous year; guaranteed loans increased by 12.90% as compared with the end of the previous year, and the credit loans increased by 8.40% as compared with the end of the previous year. The non-performing credit loan ratio increased by 0.22 percentage point as compared with the end of the previous year due to the increase of non-performing credit card loans; while the non-performing ratio of loans with other types of guarantee all decreased.

3.4.6 Loans to the top ten single borrowers

Percentage

Loan and

of net capital

advance

(under the

(in millions of RMB, except for percentages)

balance as at

Advanced

Percentage of

Top ten

30 June

Measurement

total loans and

borrowers

Industry

2020

Approach) (%)

advances (%)

A

Transportation, storage and postal services

33,159

4.44

0.67

B

Transportation, storage and postal services

22,000

2.94

0.45

C

Property development

18,683

2.50

0.39

D

Property development

16,907

2.26

0.35

E

Transportation, storage and postal services

10,221

1.37

0.21

F

Production and supply of electric power,

heating power, gas and water

10,150

1.36

0.21

G

Finance

10,003

1.33

0.21

H

Finance

10,000

1.33

0.21

I

Transportation, storage and postal services

9,550

1.28

0.20

J

Property development

7,608

1.02

0.16

Total

148,281

19.83

3.06

As at the end of the reporting period, the loan balance of the Group's largest single borrower amounted to RMB33.159 billion, representing 4.44% of the Group's net capital under the Advanced Measurement Approach. The loan balance of the top ten single borrowers totalled RMB148.281 billion, representing 19.83% of the Group's net capital under the Advanced Measurement Approach, 21.33% of the Group's net capital under the Weighted Approach, and 3.06% of the Group's total loan and advance balance, respectively.

24 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.4.7 Distribution of loans by overdue term

30 June 2020

31 December 2019

Loan and

Percentage

Loan and

Percentage

advance

of total

advance

of total

(in millions of RMB, except for percentages)

balance

loans (%)

balance

loans (%)

Overdue within 3 months

21,443

0.44

18,899

0.42

Overdue from 3 months up to 1 year

20,018

0.41

20,288

0.45

Overdue from 1 year up to 3 years

18,594

0.38

16,657

0.37

Overdue more than 3 years

5,638

0.12

7,519

0.17

Total overdue loans

65,693

1.35

63,363

1.41

Total loans and advances to customers

4,851,715

100.00

4,490,650

100.00

As at the end of the reporting period, overdue loans of the Group amounted to RMB65.693 billion, up by RMB2.330 billion from the end of the previous year and accounting for 1.35% of its total loans, representing a decrease of

0.06 percentage point as compared with the end of the previous year. Among the overdue loans, collateralised and pledged loans accounted for 33.73%; guaranteed loans accounted for 22.39%; credit loans accounted for 43.88% (the majority of which were overdue loans of credit cards). The Group adopted prudent classification criteria for overdue loans, and the ratio of its non-performing loans to the loans overdue for more than 90 days was 1.25.

3.4.8 Restructured loans

30 June 2020

31 December 2019

Loan and

Percentage

Loan and

Percentage

advance

of total

advance

of total

(in millions of RMB, except for percentages)

balance

loans (%)

balance

loans (%)

Restructured loans(note)

23,949

0.49

25,022

0.56

Of which: restructured loans overdue more than

90 days

18,537

0.38

19,255

0.43

Note: Represents the restructured non-performing loans.

The Group imposed strict and prudent control over loan restructuring. As at the end of the reporting period, the percentage of the Group's restructured loans to total loans was 0.49%, down by 0.07 percentage point as compared with the end of the previous year.

3.4.9 Repossessed assets and impairment allowances

As at the end of the reporting period, the balance of repossessed assets (other than financial instruments) of the Group amounted to RMB803 million. After deducting the impairment allowances of RMB174 million, the net carrying value amounted to RMB629 million. The balance of repossessed financial instruments amounted to RMB1.837 billion.

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3.4.10 Changes in the allowances for impairment losses on loans

The Group adopted the new financial instrument standard to make adequate allowances for credit risk losses by using the expected credit loss model and the risk quantification parameters such as the probability of customer defaults and the loss ratio of defaults, after taking into consideration the adjustments in macro perspectiveness.

The following table sets forth the changes in the allowances for impairment losses on loans and advances of the Group.

January to

(in millions of RMB)

June 2020

2019

Balance as at the end of the previous year

223,097

192,000

Charge/release for the period

36,211

54,214

Unwinding of discount on impaired loans and advances(note)

(98)

(286)

Recovery of loans and advances previously written off

5,042

9,170

Write-offs/disposal for the period

(20,490)

(32,201)

Foreign exchange rate movements

129

200

Balance at the end of the period

243,891

223,097

Note: Represents the interest income accrued on impaired loans as a result of the increase in their present value due to the passage of time.

The Group continued to adopt a stable and prudent policy in respect of making allowances. As at the end of the reporting period, the balance of allowances for impairment losses on loans of the Group amounted to RMB243.891 billion, representing an increase of RMB20.794 billion as compared with the end of the previous year. The non-performing loan allowance coverage ratio was 440.81%, representing an increase of 14.03 percentage points as compared with the end of the previous year; the loan allowance ratio was 5.03%, representing an increase of

0.06 percentage point as compared with the end of the previous year.

3.5 Analysis of Capital Adequacy Ratio

Capital regulatory requirements

The Group continued to optimise its business structure and enhance capital management. During the reporting period, the Group satisfied various capital requirements of the CBIRC. During the reporting period, the capital requirement provided by the CBIRC to the Group and the Company was that: the minimum requirement for each of capital adequacy ratio, the Tier 1 capital adequacy ratio and the core Tier 1 capital adequacy ratio was 8%, 6% and 5% respectively. The Group further made provision for the reserve capital, the counter-cyclical capital and supplementary capital based on the above mentioned minimum capital requirements. Among them, the requirements for reserve capital, counter-cyclical capital and supplementary capital were 2.5%, 0% and 0% respectively, which represented that the capital adequacy ratio, the Tier 1 capital adequacy ratio and the core Tier 1 capital adequacy ratio of the Group and the Company during the reporting period should not be lower than 10.5%, 8.5% and 7.5% respectively.

Scope for calculating capital adequacy ratio

The scope for calculating the Group's capital adequacy ratio includes China Merchants Bank and the financial institutions in which the Company has direct or indirect investments in compliance with the requirements of the "Capital Rules for Commercial Banks (Provisional)". The scope of entities for calculating the capital adequacy ratio of the Company shall include all the domestic and overseas branches and sub-branches of China Merchants Bank. As at the end of the reporting period, the Group's subsidiaries that were within the scope of consolidated statements in respect of the capital adequacy ratio included: CMB Wing Lung Bank, CMB International Capital, CMB Financial Leasing, CMB Wealth Management and China Merchants Fund.

26 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

According to the regulatory requirements, the Group includes neither the industrial and commercial enterprises, nor the companies of the insurance type to the consolidated calculation scope of the capital adequacy ratios. Different types of investees are given different treatments while calculating the consolidated capital adequacy ratios.

No.

Type of investee

Treatment

1

Financial institutions with majority voting

Included in the calculation of consolidated capital

rights or controlling interest (excluding

adequacy ratio.

insurance companies)

2

Insurance companies with majority voting

Excluded from the calculation of consolidated capital

rights or controlling interest

adequacy ratio, deducted corresponding capital

investment from capital at all tiers; deducted the

corresponding capital shortfall, if any.

3Significant minority investments in capital instruments issued by financial institutions

Excluded from the calculation of consolidated capital adequacy ratio, deducted the part of core Tier 1 capital investments exceeding 10% of the Company's net core Tier 1 capital and deducted all of additional Tier 1 and Tier 2 capital investments from corresponding tiers of capital. The part failing to reach the deduction threshold shall be calculated as risk- weighted assets.

4Non-significant minority investments in capital instruments issued by financial institutions

Excluded from the calculation of consolidated capital adequacy ratio and correspondingly deducted the part of total investments exceeding 10% of the Company's net core Tier 1 capital from regulatory capital at all tiers. The part failing to reach the deduction threshold shall be calculated as risk-weighted assets.

5Investments in the equity of industrial and commercial enterprises

Excluded from the calculation of consolidated capital adequacy ratio and calculated as risk-weighted assets.

As at the end of the reporting period, there was no regulatory capital deficiency in the financial institutions in which the majority or controlling interests are held by the Company as measured in accordance with local regulatory requirements. During the reporting period, there was no material restriction on the capital transfer within the Group.

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Interim Report 2020

Information on capital adequacy ratio

As at the end of the reporting period, the core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio of the Group under the Advanced Measurement Approach was 11.31%, 11.99% and 14.90% respectively, representing a decrease of 0.64, 0.70 and 0.64 percentage point respectively, as compared with the end of the previous year. For details of the reasons for the decreases, please refer to section 3.9.1 headed "Capital management".

The Group

Increase/decrease

at the end of the

reporting period as

compared with the

30 June

31 December

end of the previous

(in millions of RMB, except for percentages)

2020

2019

year (%)

Capital adequacy ratios under

the Advanced Measurement Approach(1)

Net core Tier 1 capital

567,462

550,339

3.11

Net Tier 1 capital

601,561

584,436

2.93

Net capital

747,597

715,925

4.42

Risk-weighted assets (without taking into

consideration the floor requirements

during the parallel run period)

4,254,900

3,863,760

10.12

Of which: Credit risk weighted assets

3,718,674

3,347,515

11.09

Market risk weighted assets

86,495

66,514

30.04

Operational risk weighted assets

449,731

449,731

-

Risk-weighted assets (taking into consideration the

floor requirements during the parallel run period)

5,019,059

4,606,786

8.95

Core Tier 1 capital adequacy ratio

Decreased by 0.64

11.31%

11.95%

percentage point

Tier 1 capital adequacy ratio

Decreased by 0.70

11.99%

12.69%

percentage point

Capital adequacy ratio

Decreased by 0.64

14.90%

15.54%

percentage point

Information on leverage ratio(2)

Adjusted balance of on- and off-balance sheet assets

9,225,752

8,604,521

7.22

Leverage ratio

Decreased by 0.27

6.52%

6.79%

percentage point

Notes:

  1. The "Advanced Measurement Approach" refers to the advanced measurement approach set out in the "Capital Rules for Commercial Banks (Provisional)" issued by the former CBRC on 7 June 2012 (same as below). During the parallel run period when the Advanced Measurement Approach for capital measurement is implemented, a commercial bank shall use the capital floor adjustment coefficients to adjust the amount of its risk-weighted assets multiplying the sum of its minimum capital required and reserve capital required, total amount of capital deductions and the allowances for excessive loan loss which can be included into capital. The capital floor adjustment coefficients shall be 95%, 90% and 80% respectively in the first year, the second year, and the third and subsequent years during the parallel run period. 2020 is the sixth year since the implementation of the parallel run period.
  2. The leverage ratio shall be calculated based on the "Measures for Management of the Leverage Ratio of Commercial Banks (Revised)" promulgated by the former CBRC on 12 February 2015. The leverage ratio of the Group was 6.88%, 6.79% and 6.62% respectively as at the end of the first quarter of 2020, the end of 2019 and the end of the third quarter of 2019.

28 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

As at the end of the reporting period, the core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio of the Company under the Advanced Measurement Approach was 10.79%, 11.48% and 14.51% respectively, representing a decrease of 0.69, 0.75 and 0.76 percentage point respectively, as compared with the end of the previous year.

The Company

Increase/decrease

at the end of the

reporting period as

compared with the

30 June

31 December

end of the previous

(in millions of RMB, except for percentages)

2020

2019

year (%)

Capital adequacy ratios under

the Advanced Measurement Approach

Net core Tier 1 capital

489,575

478,083

2.40

Net Tier 1 capital

520,821

509,336

2.25

Net capital

658,165

635,977

3.49

Risk-weighted assets (without taking into

consideration the floor requirements

during the parallel run period)

3,778,643

3,426,517

10.28

Of which: Credit risk weighted assets

3,292,414

2,960,115

11.23

Market risk weighted assets

70,939

51,112

38.79

Operational risk weighted assets

415,290

415,290

-

Risk-weighted assets (taking into consideration the

floor requirements during the parallel run period)

4,537,408

4,163,903

8.97

Core Tier 1 capital adequacy ratio

Decreased by 0.69

10.79%

11.48%

percentage point

Tier 1 capital adequacy ratio

Decreased by 0.75

11.48%

12.23%

percentage point

Capital adequacy ratio

Decreased by 0.76

14.51%

15.27%

percentage point

As at the end of the reporting period, the core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio of the Group under the Weighted Approach was 10.20%, 10.81% and 12.49% respectively, representing a decrease of 0.44, 0.49 and 0.53 percentage point respectively as compared with the end of the previous year.

The Group

Increase/decrease

at the end of the

reporting period as

compared with the

30 June

31 December

end of the previous

(in millions of RMB, except for percentages)

2020

2019

year (%)

Capital adequacy ratios under

the Weighted Approach(note)

Net core Tier 1 capital

567,462

550,339

3.11

Net Tier 1 capital

601,561

584,436

2.93

Net capital

695,028

673,366

3.22

Risk-weighted assets

5,564,432

5,170,500

7.62

Core Tier 1 capital adequacy ratio

Decreased by 0.44

10.20%

10.64%

percentage point

Tier 1 capital adequacy ratio

Decreased by 0.49

10.81%

11.30%

percentage point

Capital adequacy ratio

Decreased by 0.53

12.49%

13.02%

percentage point

Note: The "Weighted Approach" refers to the Weighted Approach for credit risk, the Standardised Measurement Approach for market risk and the Basic Indicator Approach for operational risk in accordance with the relevant provisions of the "Capital Rules for Commercial Banks (Provisional)" issued by the former CBRC on 7 June 2012. Same as below.

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Interim Report 2020

As at the end of the reporting period, the core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and capital adequacy ratio of the Company under the Weighted Approach was 9.63%, 10.24% and 11.91% respectively, representing a decrease of 0.46, 0.51 and 0.62 percentage point respectively as compared with the end of the previous year.

The Company

Increase/decrease

at the end of the

reporting period as

compared with the

30 June

31 December

end of the previous

(in millions of RMB, except for percentages)

2020

2019

year (%)

Capital adequacy ratios under

the Weighted Approach

Net core Tier 1 capital

489,575

478,083

2.40

Net Tier 1 capital

520,821

509,336

2.25

Net capital

605,595

593,418

2.05

Risk-weighted assets

5,086,416

4,737,827

7.36

Core Tier 1 capital adequacy ratio

Decreased by 0.46

9.63%

10.09%

percentage point

Tier 1 capital adequacy ratio

Decreased by 0.51

10.24%

10.75%

percentage point

Capital adequacy ratio

Decreased by 0.62

11.91%

12.53%

percentage point

Measurement of credit risk capital

Balance of credit risk exposures

During the reporting period, the credit risk of the Company under the internal ratings-based approach (IRB approach) was classified into six types of risk exposures: sovereign, financial institution, corporate, retail, shareholding and others. As at the end of the reporting period, the balances of various risk exposures are as follows:

30 June 2020

(in millions of RMB)

Type of risk exposure

Legal person

Group

Portion covered

Financial institution

1,527,663

1,527,663

by the IRB approach

Corporate

2,010,440

2,010,440

Retail

3,190,994

3,190,994

Of which: Residential mortgage exposures

1,192,665

1,192,665

Qualified revolving retail

1,502,879

1,502,879

Other retail

495,450

495,450

Portion not covered

On-balance sheet

2,543,988

2,978,202

by the IRB approach

Off-balance sheet

162,039

174,030

Counterparty

20,624

21,970

30 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

Balance of asset securitisation risk exposures

The Group uses the Standardised Measurement Approach to calculate its capital requirements of asset securitisation risk exposures. Risk weight is determined according to the credit ratings of eligible external rating institutions and the type of asset securitisation. As at the end of the reporting period, the capital requirement of asset securitisation risk exposure of the Group was RMB2.210 billion and the risk-weighted assets were RMB27.626 billion. As at the end of the reporting period, the balance of the asset securitisation risk exposures of the Group was as follows.

Item

30 June 2020

(in millions of RMB)

Traditional

Synthetic

Balance of on-balance sheet asset securitisation risk exposures

13,705

-

Balance of off-balance sheet asset securitisation risk exposures

396

-

Information on credit risk mitigation

The Group generally transfers or lowers credit risk through collaterals and guarantees. As at the end of the reporting period, the risk exposures covered by eligible risk mitigation instruments are as follows.

30 June 2020

Eligible

guarantees

Eligible

Other

and credit

Type of risk exposure

financial

eligible

derivative

(in millions of RMB)

collaterals

collaterals

instruments

Others

On-balance sheet credit risk

107,755

126,380

530,522

-

Off-balance sheet credit risk

37,163

13,721

74,721

-

Counterparty credit risk

9,238

-

-

-

Measurement of market risk capital

The Group uses mixed approaches to calculate its market risk capital. Specifically, it uses the Internal Model-based Approach to calculate the general market risk capital of the Company (excluding overseas branches), and uses the Standardised Measurement Approach to calculate the general market risk capital of overseas branches and affiliated companies of the Company as well as the specific market risk capital of the Company and its affiliated companies. As at the end of the reporting period, the market risk-weighted assets of the Group were RMB86.495 billion, and market risk capital requirement was RMB6.920 billion, of which the general market risk capital requirement calculated under the Internal Model-based Approach was RMB3.826 billion, and the market risk capital requirement calculated under the Standardised Measurement Approach was RMB3.094 billion.

The Group's market risk capital under the Internal Model-based Approach was calculated using the market risk value based on 250 days of historical market data, a confidence coefficient of 99% and a holding period of 10 days. The following table sets forth the market risk value indicators of the Group as at the end of the reporting period:

Distressed

General

market risk

market risk

value during

value during

(in millions of RMB)

the reporting

the reporting

No.

Item

period

period

1

Average value

591

300

2

Maximum value

785

474

3

Minimum value

364

140

4

Value at the end of the period

701

433

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Measurement of operational risk capital

The Group uses the Standardised Measurement Approach to calculate its operational risk capital requirements. By implementing the Standardised Measurement Approach, the Group preliminarily established a complete operational risk management framework, which enabled us to identify, evaluate, monitor, measure, control and mitigate all kinds of operational risks in a regular and systematic manner, and helped the Group to dynamically control the overall circumstance and the development of operational risks of the Group. Furthermore, the Group enhanced its risk resisting capabilities through adopting control measures and making provision for economic capital. As at the end of the reporting period, the operational risk capital requirement of the Group was RMB35.978 billion and the operational risk weighted assets were RMB449.731 billion.

3.6 Results of Operating Segments

The principal business segments of the Group include retail finance and wholesale finance. The following table summarises the operating results of each business segment of the Group for the periods indicated.

January to June 2020

January to June 2019

Profit

before tax

Net

Profit before

Net

Items

by business

operating

tax by business

operating

(in millions of RMB)

segments

income

segments

income

Retail finance

33,878

78,765

38,820

75,348

Wholesale finance

26,268

62,709

23,150

56,240

Other businesses

2,692

6,689

2,903

6,750

Total

62,838

148,163

64,873

138,338

During the reporting period, the percentage of profit from retail finance of the Group decreased due to the impact of the pandemic. Profit before tax amounted to RMB33.878 billion, down by 12.73% year-on-year, accounting for 53.91% of the profit before tax of the Group, representing a year-on-year decrease of 5.93 percentage points; net operating income amounted to RMB78.765 billion, up by 4.53% year-on-year, accounting for 53.16% of the net operating income of the Group, representing a year-on-year decrease of 1.31 percentage points. At the same time, the cost-to-income ratio of retail finance business was 29.26%, representing a year-on-year increase of 1.23 percentage points.

For details of the Group's business and geographical segments, please refer to Note 38 to the financial statements.

3.7 Other Financial Disclosures under the Regulatory Requirements

3.7.1 Balance of off-balance sheet items that may have a material effect on the financial position and operating results and the related information

The Group's off-balance sheet items include derivative financial instruments, commitments and contingent liabilities. Commitments and contingent liabilities include credit commitments, operating leasing commitments, capital expenditure commitments, securities underwriting commitments, bonds redemption commitments, pending litigations and disputes and other contingent liabilities. Among which, the credit commitment is the primary component. As at the end of the reporting period, the balance of credit commitments of the Group was RMB1,905.240 billion. For details of the contingent liabilities and commitments, please refer to Note 39 to the financial statements.

3.7.2 Outstanding overdue debts

As at the end of the reporting period, the Group did not have any outstanding overdue debts.

32 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.8 Implementation of Business Development Strategies

During the reporting period, the Company adhered to the development strategy of "Light-operation Bank" and the strategic positioning of "One Body with Two Wings". While staying current with the pulse of staged development of China's banking industry, focusing on the two main themes of "customers" and "technologies"and with "openness and integration" as the methodology, the Company further advanced the exploration of its digital business model based on the advantages in structure and quality achieved in stage 2.0.

1. Reshape the digital retail finance system under the guidance of the "North Star" Metric MAU.

The first is digital customer acquisition. We used the CMB APP and CMB Life APP as the platforms to explore and build the digital customer acquisition model and secure new growth drivers in customer acquisition through co-branded marketing, linked marketing, scenario marketing, branded advertising marketing, self-media fan marketing and Member Get a Member (MGM) social marketing. As at the end of the reporting period, the aggregate number of users of CMB APP amounted to 129,000,000, with the percentage of debit card customers acquired through digital channel reaching 19.71%; the aggregate number of users of the CMB Life APP amounted to 98,423,700, with the percentage of digital acquisition of credit card customers reaching 62.48%.

The second is digital operation. During the reporting period, despite the impact of the pandemic, the monthly active users (MAU) of the Company's two major APPs, i.e. the CMB APP and CMB Life APP, remained resilient and amounted to 98,915,000, representing a slight decrease of 2.81% compared with the end of the previous year, which made these two APPs our major platforms for customer service. Firstly, we focused on key scenarios and further expanded the boundary of service. During the reporting period, the CMB APP and the CMB Life APP had over 10 million MAUs engaging in 15 scenarios; the use rates of the financial scenario and non-financial scenario1 of the CMB APP were 85.11% and 58.52%, respectively, and the use rates of the financial scenario and non-financial scenario of the CMB Life APP were 76.74% and 72.70%, respectively. As at the end of the reporting period, 73 cities were covered by provident fund service, social security query is available in 56 cities, non-tax payment service is provided in 74 cities and 6,700,000 electronic social security cards were issued. During the reporting period, the MAUs of public services scenario reached 3,900,300, representing a year-on-year increase of 875.24%; and MAUs of utilities fees payment scenario reached 3,159,700, representing a year-on-year increase of 22.17%. Meanwhile, we continuously strengthened the online interaction with our customers. During the reporting period, the number of logins to the CMB APP was 3.111 billion, with a monthly average logins of 11.31. As at the end of the reporting period, 44 of our branches have launched the City Zones (城市專區). The coverage rate of bus and subway rides and transportation card top-up in the cities where such branches are located reached 71%, 56% and 53%, respectively, and 1,544 of our outlets have launched their online stores. Secondly, we further enhanced the efficiency of financial services based on digital operations. During the reporting period, the wealth management transaction via the CMB APP amounted to RMB4.70 trillion, up by 20.20% year-on-year, and accounted for 78.41% of the Bank's wealth management transaction. Wealth management customers using CMB APP amounted to 6,656,200, up by 29.49% year-on-year, and accounted for 93.17% of the Bank's total number of wealth management customers. With a proactive emphasis on exploring effective methods, the Bank focused on serving its retail customers through online and centralised models, covering 4,841,600 Golden Card Holder customers and Sunflower customers and 105,000,000 basic customers. Thirdly, we promoted the improvement of customer service experience by optimising and upgrading the "Wind Chime System", our retail customer experience monitoring system, to version 2.0, which connected 20 internal systems, monitored 1,268 customer experience indicators, and empowered the transformation of customer experience management from "Reactive" to "Proactive". By adopting the "Terminal-to- Terminal Customer Journey Methodology (端到端客戶旅程方法論)", we continuously promoted the improvement of experience of key customer journeys, including digital customer acquisition journey on retail customers, payroll service journey, wealth management product delivery journey and auto installment journey.

The third is digital risk control. We have been continuously strengthening and expanding our intelligent risk control platform known as the "Libra System", with its scope of counterfeit detection covering all online and offline transaction channels, and further optimised reminding and interception of telecom frauds. During the reporting period, the "Libra System" was able to intercept a suspected fraudulent transaction within 30 milliseconds, reducing the ratio of counterfeit and misappropriation by non-cardholders to 5/10,000,000. It intercepted 27,900 telecom fraud transactions with an amount of RMB493 million, adequately safeguarding the capital of our customers.

1 Financial scenario usage = financial scenario de-duplicated MAU/total MAU, non-financial scenario usage = non-financial scenario de-duplicated MAU/total MAU. The same user may use two types of scenarios at the same time. Therefore, the sum of the use rate of the two types of scenarios is greater than 100%.

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2. Reshape the wholesale business specialised service system.

First, we continuously improved the industrial specialised management system. We deepened the understanding of regional markets, advantageous industries and high-quality customers, and accelerated the paces of industrial specialised management of strategic customers, weakness elimination of value customer management and the improvement of quality and efficiency of basic customers. We made classification service stronger, captured the business opportunities in high-qualitystate-owned enterprises, listing companies and new growth-driving customers, and formulated marketing strategies for key customer base, so as to fully improve the customer service experience in terms of credit strategy, product strategy, service strategy, and resource allocation.

Second, we strengthened our professional service capabilities through digital transformation. Firstly, we strengthened the construction of the digital operation platform. We relied on the CMB Corporate APP to build an open all-scenario mobile service platform for corporate users. As at the end of the reporting period, the number of CMB Corporate APP customers amounted to 1,164,500, representing an increase of 16.36% compared with the end of the previous year, with 450,600 MAUs, representing an increase of 5.65% compared with the end of the previous year, and the coverage rate of CMB Corporate APP reached 53.35%, representing an increase of 5.65 percentage points compared with the end of the previous year. We built a unified platform for corporate customers, exploring ways to support the transformation of business models with standardised and modularised services, while promptly responding to customers' needs. We accelerated the iterative development of customer relationship management (CRM), took the CRM system as a carrier to consolidate middle office capabilities, and formed five core functions of customer information center, information and case center, business processing center, marketing support center and team building center, which connected various scenarios. CRM4.0 system, which is an intelligent marketing platform and a digital processing platform based on the business system, is a critical platform for the Company's corporate financial business model transformation, and a platform for the customer service system and the customer management system. Secondly, we achieved the online migration of the wholesale financial products. The online migration of the high-frequency businesses was accelerated and nine of the top ten high-frequency businesses have been migrated online and continued to be optimised and promoted. By supporting the verification of willingness of enterprises to open accounts and remote contract witnessing, the video cloud chain platform served 971 corporate customers. During the reporting period, the business volume of online bill discounting amounted to RMB157.112 billion, representing a year-on-year increase of 18.08%, with 9,570 online bill discounting customers, representing

  1. year-on-yearincrease of 11.77%. Among them, small-, medium- and micro-sized enterprise customers accounted for 92%, indicating a continuous improvement in our digital inclusive financial service capability. Thirdly, we enhanced our digital risk control capabilities. We integrated the internal and external data to build customer-related knowledge graph, while strengthening its risk analysis capabilities for specific scenarios, and establishing the risk characteristic models which included various scenarios. We also built an intelligent pre-warning system based on the machine learning algorithm for corporate customers. As at the end of the reporting period, the accuracy ratio of pre-warnings on the corporate customers with potential risks reached 75.60%. In terms of pre-warning of default risk associated with credit bond, three models including corporate bond model, financial bond model and industrial bond sub-model were established, which covered 58% of the issuers whose bonds were held by the Company during the reporting period, and the ratio of accurate pre-warning is above 85%. We launched the"on-line risk control platform", and further improved the efficiency of online processing of approval in the business systems of "Instant Issuance of Letter of Guarantee (保函閃電開)" and "Tuishui Kuaidai (退稅快貸)", among which the time required for processing a single order of "immediate issuance of letters of guarantee" was shortened from about 5 working days to 0.5 day or less, significantly improving the efficiency of business processing operations. Fourthly, we established a corporate customer experience monitoring system, accessing to 21 systems across the Bank, monitoring 210 customer experience indicators. Through normalised, systematic and automated monitoring, we can readily understand the opinions of corporate customers, quantify customer experience, and guide the interactive upgrade for our products and services.

34 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3. Deepen the openness and integration of "One Body with Two Wings" and build a circular value chain.

We built a circular value chain of "Wealth Management-AssetManagement-Investment Bank" by connecting companies and retail customers through asset management and investment banking. As at the end of the reporting period, the total size of the wealth management products managed by CMB Wealth Management amounted to RMB2.38 trillion, of which the size of the new product that was in compliance with the provision of the New Regulation on Asset Management exceeded RMB1 trillion. The balance of the total assets of our retail customers (AUM) managed by the Company has exceeded RMB8 trillion, representing an increase of 10.26% as compared with the end of the previous year. The scale of custody mutual fund of the Company exceeded RMB1 trillion for the first time, representing an increase of 25.02% as compared with the end of the previous year. By leveraging the advantages of the linked operation between asset allocation and product sales through investment banking business, during the reporting period, the Company realised the sales of corporate wealth management products of RMB1,299.338 billion, representing a year-on-year increase of 16.93%.

We further promoted the across-business-line integration and unblocked the "B2B2C" ecological chain. We unblocked the industry chain from three aspects, i.e. digital operation of the account and payment system, digital financing, and output of Fintech capability. During the reporting period, the comprehensive settlement solution "Cloud Bill" has served 2,191 corporate customers, with a transaction volume of RMB126.500 billion, representing

a year-on-year increase of 94.17%; the aggregated collection business focused on the four major scenarios, i.e. insurance, medicine, education and fast consumption. The number of transactions reached 270 million with a total volume of RMB74.226 billion, representing a year-on-year increase of 21.63%. The number of monthly active projects on Cross-bank Solution for Cash Management (CBS) amounted to 1,185 and the number of companies served reached 84,255, and we consistently provided CBS+ share incentives, CBS+ special bonds and other featured designs according to customer needs. "1+N" supply chain business accomplished breakthroughs, with core customers growing by 75.40%, customer base of upstream and downstream supply chains expanded from core customers increasing by 91.90%, and supply chain financing amounting to RMB176.275 billion, representing a year-on-year increase of 44.63%. We launched the jointly-operated B2C disbursement program, embarking on three major working directions of management integration, team integration and resource integration and improved the strategic positioning of disbursement business, so as to form a market-oriented synergy and promote the overall improvement of joint operation across the Bank. During the reporting period, new effective retail customers of disbursement business as strategic customers of the Head Office increased by 26% year-on-year.

4. Deepen the openness and integration of technologies and construct a future-oriented Fintech base.

The first is to maintain sustainable and stable technology investments. During the reporting period, the information technology expenses of the Company amounted to RMB3.922 billion, representing a year-on-year increase of 7.95%, and the ratio of the information technology expenses to the Company's net operating income was 2.87%. As at the end of the reporting period, the Bank declared a total of 2,451 Fintech innovation projects, with 1,733 projects approved, of which 1,098 projects have been launched and put in use, covering such areas as retail, wholesale, risk, technology and organisational culture transformation, which provided a solid support for exploring the digital business model.

The second is to accelerate the transformation of the system architecture, aiming to create an open IT architecture. We established a large-scale digital infrastructure based on Cloud computing technology, promoted the Cloud Native construction that may facilitate the rapid construction, expansion, openness and iteration of systems and applications, and supported the cloud adoption of new applications of Head Office and branches. As at the end of the reporting period, the Company had 4,015 Cloud Native servers, representing an increase of 100% as compared with the end of the previous year. The storage capacity of Cloud Native reached 29.18PB, representing an increase of 92% as compared with the end of the previous year. The number of Cloud Native containers reached 69,080, representing an increase of 121% as compared with the end of the previous year. The Company improved and developed the open license chain and Blockchain as a Service (BaaS) platform, and conducted a consistent exploration in terms of the application of blockchain and business integration in scenarios such as supply chain finance and clearance and distribution of merchants' funds.

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The third is to enhance technology middle-office and data middle-office construction to strengthen the application of Fintech in middle-office and back-office scenarios. We opened Application Programming Interface (API) to our partners and built the "Open API Platform" for the Bank's unified external services to support secure and fast output of APIs, serve different scenarios such as financial payment, AI, intelligent parking, and intelligent medical care, realising the collection and analysis of API operational data. We promoted connection between corporate customer system and retail customer system by unlocking our internal system and data and turning functional modules into micro-based services and products. The Company upgraded its Big Data Cloud platform to increase the overall capacity of the data lake to 11.22PB, with the data in the lake increasing by 22.41% as compared with the end of the previous year. During the reporting period, the Company launched the Bank's unified data portal of "Zhao Shu" (招數) and established business intelligence platform (BIX) and artificial intelligence platform (AIX) to empower our business by enhancing the convenience and ease of data application. AI technology focused on the promotion of customer service cloud, public opinion cloud and visual cloud construction, and has been applied to over 100 scenarios in the fields of products, marketing, risk control, operation and investment consulting. Among them, the ratio of accurate recognition in the automatic response of intelligent customer service reached 96.7%, and the ratio of OCR's accurate recognition of typewritten text reached 95%. Fintech such as RPA (Robotic Process Automation), OCR, and NLP (Natural Language Processing) has been applied to 24 middle-office and back-office scenarios focusing on verification, entry, and consulting. During the reporting period, the number of alternative businesses reached 11.64 million.

5. Promote the openness and integration of organisations and culture by focusing on removing inherent barriers, empowering frontlines and reducing burden on grassroots.

First, we created an open organisation by establishing integrated task-oriented teams and deepening internal organisation integration. During the reporting period, more than 60% of the workforce in our technology team has teamed up with the business department to form across-business-line and cross-functional integrated teams. We also strengthened talent flows and encouraged cadres to accumulate experiences in different positions, through which we established a multi-level and three-dimensional communication mechanism with connection on grassroots and inherent integration.

Second, we fostered light-operation culture and consolidated the underlying foundation of openness and integration. Relying on the "Egg Shell (蛋殼)" platform of our internal forum, we continued to build a desirable culture and atmosphere of "openness, integration, equality and inclusiveness". Egg Shell (蛋殼) has become an important platform for the Company's internal staff to communicate and put forward suggestions to the Company. Through the special action of "Removing Inherent Barriers, Empowering Frontlines and Alleviating Burden on Grassroots (打 破豎井、賦能減負 )", we rectified the defect of "large-sized enterprises", removed systematic and business barriers, said no to formalism, and empowered frontline employees and alleviated burden on them. We refined the corporate culture into a code of action, continued to promote the "Simple Work Style" proposal, and guided all members to "Do the Right Thing" to form a cultural consensus. Furthermore, we carried out diversified and content-rich cultural construction activities to promote the formation of "light-operation culture".

36 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

3.9 Changes in External Environment and Corresponding Measures

3.9.1 Impacts of changes in operating environment and key business concerns

  1. Net interest margin
    In the first half of 2020, the net interest margin of the Company was 2.57%, representing a decrease of 20 basis points year-on-year and a decrease of 8 basis points as compared with the overall level of the previous year respectively. The year-on-year decrease was mainly due to the reasons as follows: firstly, under the guidance of flexible and moderate monetary policy, market interest rates declined rapidly, the Loan Prime Rate (LPR) lowered from time to time, the interest rates of newly granted loans dropped significantly, and the yields of bill financing, bond investment and financial institutions asset reduced substantially; secondly, affected by the pandemic, the progress of granting of high-yield retail loans significantly slowed down, resulting in a decline in the proportion of high-yield assets; thirdly, during the period of market interest rates cut, the Company actively adjusted its asset allocation strategy and increased the allocation of investments at fair value through profit or loss, which led to the growth of the operating income of the whole bank. However, pursuant to the prevailing accountant standards, income from such investments shall be attributable to non-interest income and its source of funding is mainly from interest-bearing liabilities. Accordingly, the level of net interest margin was reduced in a certain extent.
    Looking forward into the second half of the year, the Company's net interest margin will remain stable. On the one hand, currently, due to the lingering impact of the pandemic, and economic growth at home and abroad can hardly be optimistic. In order to support the recovery of the real economy, the Loan Prime Rate (LPR) may be further reduced, driving loan pricing under considerable downward pressure; on the other hand, benefiting from the significant growth in low-cost deposits and enhanced control over the volume and price of high-cost deposits such as structured deposits and large-denomination certificates of deposit, the Company expects that the cost ratio of deposits will be further downside, which can, to a certain extent, make up for the gap caused by the decrease in the return on assets.
    Looking forward into the whole year, the net interest margin of the Company is expected to be lower than the overall level of the previous year, but the Company will strive to achieve the net interest margin higher than that of the fourth quarter of the previous year. The Company will adopt the following measures to proactively maintain the net interest margin at a higher level in the industry: firstly, the Company will continue to enhance its research and judgment in the macro economy and policies, reinforce the forward-looking evaluation and flexible management of assets and liabilities and constantly optimise the asset-liability structure; secondly, the Company will continue to promote low-cost deposits to grow steadily, intensify the volume and price control of high-cost deposits such as structured deposits and large-denomination certificates of deposit, continue to optimise the deposit structure and guide deposit cost downward; thirdly, the Company will vigorously push forward the restorative growth of high-yield retail loans while keeping risks under control and continue to increase the percentage of high-yield assets.
  2. Net non-interest income
    During the reporting period, the Company realised net non-interest income of RMB48.898 billion, representing a year-on-year increase of 9.24%, which accounted for 35.74% of the net operating income of the Company, up by 1.13 percentage points year-on-year. The operation based on the net non-interest income achieved remarkable results. The growth in net non-interest income was mainly explained by the followings: firstly, in light of the expansion of customer base while seizing opportunities arising from the external market, income from entrusted wealth management services, agency distribution of funds and other businesses recorded a rapid growth; secondly, with the steady improvement of wholesale customer service capabilities, asset allocation capabilities and trading capabilities, income from transaction banking, investment banking, financial market and bills sell-off increased positively; thirdly, through internal integration and coordinated operation, the custody and asset management business structure was optimised, and income from related intermediary businesses also achieved a rapid growth.

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During the reporting period, the Company recorded fee and commission income of RMB42.877 billion, representing

  1. year-on-yearincrease of 9.36%. For key projects, the Company's fee and commission income from wealth management amounted to RMB18.320 billion, representing a year-on-year increase of 46.03% (of which: income from entrusted wealth management services amounted to RMB5.651 billion, up by 122.48% year-on-year, which was mainly driven by the growth in the scale of wealth management products and lower income base due to transformation of assess management during the corresponding period of the previous year; income from agency distribution of funds amounted to RMB4.808 billion, up by 105.03% year-on-year, which was mainly due to the significant growth in the sales of stock-leaning fund driven by capturing the opportunities arising from the capital market; income from agency distribution of insurance policies amounted to RMB4.059 billion, down by 0.42% year-on-year, which was mainly because that the offline insurance sales was affected greatly by the pandemic; income from agency distribution of trust schemes amounted to RMB3.656 billion, up by 3.51% year-on-year; and income from agency distribution of precious metals amounted to RMB146 million, up by 180.77% year-on-year). Income from bank card fees amounted to RMB9.379 billion, down by 2.33% year-on-year, while income from settlement and clearing fees amounted to RMB6.338 billion, down by 3.37% year-on-year, both of which were mainly due to the negative impact to consumption brought by the pandemic; custodian fee income amounted to RMB2.179 billion, up by 13.90% year-on-year, which was mainly due to the increase in custodian scale and constant optimisation of business structure.

Looking forward into the second half of the year, the net non-interest income of the Company is expected to maintain a steady growth. On the one hand, against the background that the net non-interest income has been impacted directly by the pandemic, the Company will accelerate the development of online business capabilities, continue to promote the growth of customer base, seize opportunities from external market such as consumption rebound and capital markets, and accomplish the restorative growth of payment and settlement for retail business and consolidate the leading edge of retail wealth management business. On the other hand, the Company will speed up promoting the online transformation of corporate products by setting up a systematic business model for wholesale customers, products, and risk management. At the same time, the Company will constantly push forward the operation of integrating investment banking and commercial banking, explore the income generation supported by financial services in the full life cycle of enterprises and realise the continuous growth of trading banking, investment banking and asset management business at a steady pace.

3. Deposits from customers

In the first half of 2020, the Company's deposits from customers showed a trend of high-quality growth. As at the end of the reporting period, the Company's balance of deposits from customers was RMB5,195.204 billion, representing an increase of RMB564.516 billion or 12.19% as compared with the end of the previous year. Among them, the balance of demand deposits was RMB3,257.057 billion, representing an increase of RMB472.528 billion as compared with the end of the previous year, and accounting for 62.69% of total deposits from customers, up by 2.56 percentage points as compared with the end of the previous year; the balance of structured deposits was RMB495.137 billion, representing a decrease of RMB20.764 billion or 4.02% as compared with the end of the previous year. The rapid growth of deposits from customers and structural optimisation was due to, on the one hand, benefiting from the rebound in M2 growth in the first half of the year, a favourable external environment for the growth of deposits from customers; on the other hand, the Company made efforts to expand customer base since the beginning of this year, while implementing deposit classification management and driving the growth of low-cost deposits through optimisation of assessment rules, and flexibly controlling the scale and price of high-cost deposits such as structured deposits and large-denomination certificates of deposit to promote the continuous structural optimisation of deposits from customers.

Looking forward into the second half of the year, the monetary policy may be tightened marginally and the growth of M2 may fall, coupled with the impact of capital market diversion and other factors, the growth of deposits from customers may slow down as compared with the first half of the year. Meanwhile, the competition for deposits in commercial banks will remain fierce and the cost of deposits from customers will be still rigid. Therefore, deposits from customer will face pressure from both growth in scale and cost control. To cope with the above challenges, the Company intends to start from the following aspects: firstly, the Company will continue to promote the growth of low-cost deposits, and constantly optimise the liability structure; secondly, the Company will continuously increase the share of settlement-based deposits through payroll service, withholding tax, cash management and other products, while enhancing customer stickiness and driving the growth of low-cost deposits; thirdly, the Company will continue to strengthen the volume and price control of high-cost deposits such as structured deposits and large- denomination certificates of deposit, and guide the cost of deposits from customers downward.

38 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

4. Transformation of corporate customer services

With the advancement of the transformation toward "Light-operation Bank", in the course of serving corporate customers, the Company fully recognises the limitation of credit support, and is actively thinking about how to effectively amplify the support for corporate customers under limited credit resources. For this purpose, the Company achieved a breakthrough in the operational perspective of traditional commercial banks. Based on the increase of total amount of credit facilities granted to customers, starting from multiple dimensions such as direct investment in equity interest, wealth management funds, proprietary investment, bill financing, bond underwriting and others, the Company provided corporate customers with a three-dimensional, comprehensive and multi-level financing support, facilitated the development of the real economy featuring the service concept of integrating investment banking and commercial banking, accelerated the transformation of services for corporate customers, and made a number of achievements.

As at the end of the reporting period, the Company's balance of aggregate financing products to customers (FPA) was RMB4,196.313 billion, representing an increase of RMB507.394 billion over the beginning of the year, among which, the balance of traditional financing2 was RMB2,271.794 billion, representing an increase of RMB237.386 billion over the beginning of the year; the balance of non-traditional financing3 was RMB1,924.519 billion, representing an increase of RMB270.008 billion over the beginning of the year. The balance of non-traditional financing accounted for 45.86% of the balance of aggregate financing to customers. The Company participated in providing equity financing services for enterprises with new growth engines, such as Contemporary Amperex Technology Ltd.(CATL) and Cambrian, and was superior in the differentiated competitive advantage based on professional judgments to the industry and accurate grasp of customer needs. By expanding cooperation to the entire industry chain, with the evolvement from supporting a core enterprise to supporting the entire industrial chain, the Company explored a series of cooperation models and successful experiences that support the integrated operation of advanced manufacturing, which in turn facilitated the industrial chain to grow faster. The Company continued to focus on innovative growth-orientedhigh-tech small- and medium-sized enterprises by promoting its Qian Ying Zhan Yi (千鷹展翼) plan and provided comprehensive financial services covering the full growth cycle and the entire value chain. The Company, capitalising on the advantages of the integrated management of bill business, provided various enterprises with non-stop service scheme in respect of bill settlement, financing, management and others covering the full life cycle of bills to optimise corporate bill financing channels, activate the bill supply chain ecology, and help revitalise corporate capital needs. Focusing on corporate direct financing, the Company helped enterprises obtain bond financing support at a lower cost, which enabled the Company to rank the first among the lead underwriters of banks in the non-policy financial bonds market, and the second among the banks and financial institutions as the lead underwriter in terms of the amount of corporate credit bonds underwritten in the first half of the year. Centering around the capital market, the Company offered substantive support to the development of the real economy by effecting a number of major mergers and acquisitions including Beijing-Shanghaihigh-speed rail project, privatisation of GLP-Li & Fung and China Resources Asset making offer to Chongqing Gas under the background where the number of transactions in the M&A market in China has dropped significantly and high-quality projects were scarce in 2020.

At present, the openness of the capital market is enhanced, and innovations are emerging one after another, therefore the direct financing channels for high-quality customers are becoming increasingly smooth. Making efforts to enhance the services characterised by integrating investment banking and commercial banking is an inevitable way for the Company's wholesale business forging stronger capabilities to serve core customers, deal with financing disintermediation and open up sources of profit growth in a low interest rate environment. In the future, the Company will continue to establish systems and mechanisms adapting to requirements of services characterised by the integrating investment banking and commercial banking so as to continuously improve customer service experience.

2

3

Traditional financing comprises of general corporate loans and commercial bills discounting (including transfer-out of outstanding bills), acceptance, letters of credit, financial guarantees and non-financial guarantees.

The eight compositions of non-traditional financing include: asset operation, proprietary non-standardised corporate investments, financing wealth management, debt financing instruments with the Company as the lead underwriter, matching transactions, financial leasing, cross-border coordination financing and leading syndicated loans.

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5. Investment of loans

In the first half of 2020, the Company adopted a dynamic and flexible credit management strategy to support various investment of loans. Due to the pandemic, the Company's retail credit business was impacted significantly. As at the end of the reporting period, the balance of the Company's retail loans increased by 5.02% over the end of the previous year, and the year-on-year growth rate slowed down. In terms of corporate loans, due to the higher proportion of the large corporate customers of the Company, the impact to the Company's credit business was relatively limited in the first half of the year. As at the end of the reporting period, the balance of the Company's corporate loans increased by 9.67% over the end of the previous year, and the year-on-year growth rate increased.

During the reporting period, the Company enhanced its sense of social responsibilities, increased its credit support to the real economy, especially to inclusive corporate small-finance loans, and endeavored to reduce corporate financing costs. During the reporting period, the Company newly granted inclusive corporate small-finance loans4 of RMB278.921 billion, representing a year-on-year increase of 12.99%. The newly granted inclusive corporate small- finance loans had an interest rate of 4.62%, representing a year-on-year decrease of 68 basis points. As at the end of the reporting period, the balance of the Company's inclusive corporate small-finance loans was RMB486.915 billion, representing an increase of 7.41% over the end of the previous year. It is expected that by the end of 2020, the increment and growth rate of the Company's inclusive corporate small-finance loans can meet the assessment requirements of regulatory authorities, therefore, the Company will continue to enjoy preferential policies such as the reduction or exemption of some value-added taxes and lower deposit reserve ratios for micro-finance loan business.

During the reporting period, the Company thoroughly implemented the decisions and arrangements of Central Committee of CPC and the State Council on the overall promotion of the prevention and control of the COVID-19 pandemic and economic and social development, earnestly carried out the policy for periodic deferment of repayment of the principal and interest, showed concern on the companies facing difficulties temporarily but still have promising prospects, and took the initiative to help the customers who were actually affected by the pandemic mitigate repayment pressure. During the reporting period, the total loans granted to the customers who applied for deferment of repayment of the principal and interest in the Company were RMB133.211 billion. With the alleviation of the pandemic, production and operation of enterprises gradually recovered, and normal repayment has been initiated. As at the end of the reporting period, the balance of loans granted to the customers who were still at deferment of repayment of the principal and interest was RMB69.532 billion. Given that the policy for deferment of repayment of the principal and interest can be extended up to 31 March 2021, the exposure of risks associated with individual customers will not be ruled out upon expiry of such policy. The Company will continue to dynamically monitor the customers who applied for the deferment of repayment of the principal and interest, and strive to maintain sound risk management and control.

In the second half of the year, the Company will maintain a steady pace of investment of credit assets and constantly optimise the loan structure, so as to ensure the overall stable operation of loan business. In terms of retail loans, with the gradual resumption of work and production of enterprises and individuals in the second quarter, retail loan business generally recovered. In the second half of the year, it is expected that the demand for residential mortgage loans and small and micro-finance loans will further recover. The overall operation of credit card loan business will stabilise gradually and granting of retail loans may speed up. In terms of corporate loans, affected by the continued low terminal interest rates, the corporate customers' intention for direct financing increased, and demand for effective credit facilities declined. The growth rate of corporate loans may slow down over the first half of the year.

4 Refers to the small- and micro-sized enterprise loans + private industrial and commercial business operating loans + small- and micro-sized enterprise operating loans with a single-account credit limit of RMB10 million, according to the appraisal calibre of "increase in both total loans and number of loan customers, and control of both loan quality and overall costs" of CBIRC, which is the full-scale RMB domestic calibre, including bill financing.

40 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

6. Asset management business

Under the "coexistence of three periods" consisting of transition period of New Regulation on Asset Management, start-up period of CMB Wealth Management and aftershock period of pandemic, the asset management business of the Company faced new challenges. Meanwhile, the New Regulation on Asset Management and supporting documents thereof issued by the regulatory authority pointed a direction for the healthy development of asset management industry. The long-term trend featuring the increase of wealth of residents and the proportion of direct financing is conducive to further expanding the development of the industry. In general, despite numerous new challenges, the Company is still confident of achieving a smooth transformation and steady development of its asset management business.

From May to June 2020, the domestic bond market underwent a relatively drastic adjustment. Wealth management products and mutual bond funds that use the market value method for valuation and mainly invest in bonds encountered a drawdown of net-value at various degrees, and certain wealth management products under management by CMB Wealth Management also suffered from such impact, which was a new situation in front of net-value wealth management products after the release of New Regulation on Asset Management. In response, CMB Wealth Management addressed quickly by reducing the duration and leverage of relevant products and hedging risks with treasury bonds and futures and other instruments to ease market volatility. With respect to the products that were just developed or will be launched, the cycle of opening positions shall be lengthened, and other assets shall be replenished first, pending the stabilising sentiment of the bond market and opportunity of pullback. At the same time, CMB Wealth Management actively replied the concerns of customers, cultivated the concept of matching investment risks and returns, conveyed the idea of appropriately taking risks arising from fluctuations in order to obtain long-term returns, and reasonably guided the expectation for net-value products.

On 3 July 2020, the PBOC and other authorities jointly issued the Rules for the Identification of Standardised Debt Assets 《( 標準化債權類資產認定規則》), pursuant to which the scale of CMB Wealth Management's non-standardised assets increased as compared with the previous periods, however, most of the newly confirmed non-standardised assets will expire by the end of 2021, which will have limited impact on the asset side of CMB Wealth Management.

On 31 July 2020, the PBOC issued an announcement in which specified that the transition period of New Regulation on Asset Management would be extended to the end of 2021 and announced that supporting policy arrangements and implementation measures would be extended as well. The Company firmly supported such arrangement and believed that such arrangement which effectively hedged the risks arising from the pandemic and economy downturn and provided assurance of financing availability to the real economy was beneficial to the transformation of asset management business in a compliant manner and would help asset management business develop steadily and achieve long-term success. At the next stage, the Company will continue to be alarming and progressive to fully understand and make good use of relevant supporting policies, and thus make reasonable adjustments to its rectification plan. Meanwhile, the Company will continue to lead and promote the transformation and upgrade of asset management business and increase its support to the real economy under the guideline of New Regulation on Asset Management.

With CMB Wealth Management's business development mode becoming clearer, CMB Wealth Management will continue to resolutely promote transformation of its business through increasing the proportion of new products and duly decreasing the scale of old products, so as to build a comprehensive asset management company step by step.

For other details of the asset management business, please refer to 3.10.2 "Asset management business" in this chapter.

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7. The formation and disposal of non-performing assets

During the reporting period, the Company recorded new non-performing loans formed of RMB27.932 billion, representing a year-on-year increase of RMB4.873 billion, with a formation ratio (annualised) of non-performing loans of 1.29%, up by 0.09 percentage point year-on-year. Benefiting from the constant optimisation of customer structure by the Company, the formation amounts of non-performing corporate loans amounted to RMB7.949 billion, representing a year-on-year decrease of RMB3.725 billion. The current environment brought by the global pandemic remains severe, the impact of which on operational efficiency of businesses will last for a prolonged period of time, and the risk performance of corporate business is lagging behind. Therefore, it is expected that the pressure on corporate business risks will consequentially intensify, and the impact of the pandemic on some industries may be lasting for an extensive period of time is not ruled out. The retail business is more directly and substantially affected by the pandemic, and the risk of credit cards is surging due to the combined impact of the pandemic and "joint-debt" risk, with new non-performing loans formed of RMB15.898 billion, representing a year-on-year increase of RMB7.572 billion. Other retail loans have also experienced a periodical increase in risk, with new non-performing loans formed of RMB4.085 billion, representing a year-on-year increase of RMB1.026 billion. The impact of the pandemic is progressing to the point where individual customers' repayment capability has shrank, leading to the increase in probability of default. Therefore, it is expected that the quality of retail loan assets will be exposed to constant pressure.

From the regional perspective, the formation amounts and formation ratios of non-performing loans in the Head Office, Central China, Bohai Rim and overseas regions increased year-on-year, while those in other regions fell. From the industrial perspective, the formation amounts and formation ratios of non-performing loans in industries such as wholesale and retail, mining, accommodation and catering have increased year-on-year. From the perspective of customer base, the formation amounts and formation ratios of non-performing loans to the large and medium-sized enterprises decreased year-on-year, while those to the small-sized enterprises basically stayed flat compared with those of the corresponding period of the previous year.

The Company has always adhered to prudent and stable customer selection and asset allocation, spurred by its sufficient risk compensation and strong capabilities in the resistance of risks. As at the end of June 2020, the balance of allowances for impairment losses on loans of the Company amounted to RMB237.632 billion, representing an increase of RMB20.689 billion as compared with the end of the previous year. The non-performing loan allowance coverage ratio was 444.90%, representing an increase of 14.88 percentage points as compared with the end of the previous year; the loan allowance ratio was 5.27%, representing an increase of 0.08 percentage point as compared with the end of the previous year; the credit cost ratio (annualised) was 1.66%, representing a year-on-year increase of 0.16 percentage point.

During the reporting period, the Company continued to step up its efforts in strengthening the disposal of non-performing loans, taking various approaches to reduce and dispose of risk assets. During the reporting period, the Company disposed of non-performing loans amounting to RMB25.191 billion, of which RMB15.069 billion was written off in a normal way, RMB4.201 billion was recovered by collection, RMB5.143 billion was securitised as non-performing assets, and RMB778 million was disposed of by repossession, assignment, restructuring, upward migration, remission and other means.

In addition, since the reactivation of the pilot project of debt-to-equity conversion in 2016, in accordance with the "Guidelines on Marketisation of Debt-to-equity Conversion of Banks" issued by the State Council, the Company advanced the market-orienteddebt-to-equity conversion, carefully selected qualified debt-to-equity conversion subjects, reasonably formulated debt-to-equity conversion plans, and actively and steadily promoted the implementation of the debt-to-equity conversion projects.

The current external environment remains severe and complex, which is increasingly shrouded in unstability and uncertainty. The issues and challenges afflicting the economic operation are characterised by their medium- and long-term existence. The Company's asset quality management is expected to remain challenging. In the second half of 2020, on the one hand, the Company will plan ahead for the subsequent significant increase in risk associated with the banking business, with an emphasis on full exposure of risks. On the other hand, it will optimise the credit access standards, reinforce full life cycle process management such as risk pre-warning, effectively dispose of non-performing assets, improve the industry awareness, adjust customer and business structures, strengthen technology empowerment, and strive to maintain relatively stable asset quality.

42 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

8. Asset quality in key areas

With the combined effect of slowdown in macro economic growth and the COVID-19 pandemic, the Company is facing the pressure caused by the declined asset quality.

The following table set forth the quality of loans and advances to customers of the Company by product types as at the dates indicated.

30 June 2020

Balance

Non-

Percentage

Balance of

of non-

performing

Balance of

Percentage of

Balance of

of overdue

loans and

performing

loan ratio

special mention

special mention

overdue

loans

(in millions of RMB, except for percentages)

advances

loans

(%)

loans

loans (%)

loans

(%)

Corporate loans

1,781,383

33,241

1.87

17,295

0.97

30,183

1.69

Discounted bills

280,704

-

-

1

-

-

-

Retail loans

2,444,715

20,172

0.83

27,816

1.14

33,582

1.37

Micro-finance loans

445,109

2,745

0.62

1,998

0.45

3,584

0.81

Residential mortgage loans

1,189,699

3,005

0.25

2,280

0.19

4,223

0.35

Credit card loans

652,197

12,061

1.85

22,607

3.47

22,842

3.50

Consumption loans

131,005

1,880

1.44

776

0.59

2,358

1.80

Others(note)

26,705

481

1.80

155

0.58

575

2.15

Total loans and advances

to customers

4,506,802

53,413

1.19

45,112

1.00

63,765

1.41

31 December 2019

Balance

Non-

Percentage

Balance

of non-

performing

Balance of

Percentage of

Balance of

of overdue

of loans and

performing

loan ratio

special mention

special mention

overdue

loans

(in millions of RMB, except for percentages)

advances

loans

(%)

loans

loans (%)

loans

(%)

Corporate loans

1,624,314

33,377

2.05

21,298

1.31

33,036

2.03

Discounted bills

224,884

19

0.01

544

0.24

-

-

Retail loans

2,327,955

17,054

0.73

27,457

1.18

27,890

1.20

Micro-finance loans

405,149

3,284

0.81

1,326

0.33

3,436

0.85

Residential mortgage loans

1,098,547

2,747

0.25

1,305

0.12

3,667

0.33

Credit card loans

670,921

9,032

1.35

24,147

3.60

18,342

2.73

Consumption loans

123,691

1,461

1.18

552

0.45

1,855

1.50

Others(note)

29,647

530

1.79

127

0.43

590

1.99

Total loans and advances

to customers

4,177,153

50,450

1.21

49,299

1.18

60,926

1.46

Note: The "Others" category consists primarily of commercial housing loans, automobile loans, house decoration loans, education loans and other personal loans secured by monetary assets.

In response to changes in external macro economic situation, the Company proactively strengthened the control of its risks associated with consumer credit business, real estate industry, local government financing platforms, the industries from which our loans should be reduced and withdrawn from and other key areas.

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Risk management and control for consumer credit business

In the first half of 2020, consumer credit business was affected head-on by the pandemic, and asset quality confronted with significant challenges. Adhering to a prudent risk appetite and a stable risk strategy, and based on the management and control model of "classified operation and unified management", the Company comprehensively adopted various risk control measures, aiming to constantly optimise the customer groups and asset structure, proactively advanced the construction of Fintech risk control, and used risk control models to develop differentiated access strategies and post-loanpre-warning and investigation strategies. In face of the impact of the pandemic, the Company promptly responded to the national call and requirement of deferred repayments for principal and interest, made differentiated arrangements for customers afflicted by the pandemic, closely monitored changes in risk trends, and expanded collection resources, enhanced post-loan collection, and increased its efforts in disposal of non-performing assets by way of the securitisation and writing-off. Impacted by the pandemic, overdue cases arising from credit card business increased significantly in the first quarter. Some of uncollectable loans were degraded to non-performing loans, resulting in the increase of formation of non-performing loans associated with credit cards in the second quarter. The risk associated with personal consumption loans has also increased periodically. With the effective control of pandemic in China, leading indicators of consumer credit business have recovered gradually. As at the end of the reporting period, the non-performing loan ratio of credit card loans of the Company was 1.85%, an increase of 0.50 percentage point over the end of the previous year; and the non-performing loan ratio of personal consumption loans was 1.44%, an increase of 0.26 percentage point over the end of the previous year. From a short-term perspective, the downward pressure on the economy may continue to unleash in the second half of 2020. Household employment and income growth remain challenging with significant changes in the market environment. The Company's consumer credit business will still face greater pressure brought by the formation of non-performing loans. From a long-term perspective, the Company has a high-quality customer base, the asset structure is undergoing optimisation, and the asset quality will remain generally stable.

Risk management and control for real estate credit business

The Company attached great importance to the risk prevention in the real estate sector. The Company optimised its internal credit policy in a dynamic manner according to the policies on adjustments to the real estate industry, regulatory requirements and industrial developments in active response to the guidance of national policy in accordance with the overall strategy of "steady granting, structural adjustment, credit limit management". As at the end of the reporting period, the risk exposure of our businesses with domestic real estate enterprises (calculated on the broad statistical calibre) amounted to RMB582.140 billion (including businesses such as actual and contingent credit, bond investments, proprietary trading and investment of wealth management products in non-standardised assets), representing an increase of RMB73.809 billion as compared with the end of the previous year. Included therein was the balance of loans to domestic real estate enterprises which amounted to RMB325.620 billion, representing an increase of RMB41.357 billion as compared with the end of the previous year, accounting for 7.23% of the total loans and advances granted by the Company, up by 0.42 percentage point as compared with the end of the previous year and were mainly granted to the quality strategic customers while putting a strict curb on the grant of any incremental loans to those customers not in the strategic customer list. As at the end of the reporting period, the assets in the domestic real estate enterprises were of good quality with a non-performing loan ratio of 0.21%, down by 0.15 percentage point as compared with the end of the previous year. In the first half of 2020, with the on-going stringent regulatory policies in the real estate sector, coupled with the impact of the pandemic, it has exerted greater cash flow pressure on some small- and medium-sized real estate companies. Looking forward to the second half of the year, the Company will continue to adjust the structure of real estate enterprises and regional asset structure, focused on central cities and strategic customers, and continue to maintain the stability of asset quality in the real estate sector.

44 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

Risk management and control for local government financing platform business

The Company strictly implemented the State's requirements to continue strengthening local governments' debts management, prevent and defuse the risks on local governments' implicit liabilities and further regulate the financing platforms as well as the investment and financing activities conducted by local state-owned enterprises. The Company upheld the overall principle of "supporting preferential clients in selective areas in compliance with regulatory requirements and through credit limit management", carefully selected its business based on the degree of the coverage of its own debts by the operating cash flow of projects and customers, supported the issuance of local government bonds, actively participated in the underwriting of and investment in local government bonds, resolutely get rid of the mindset that the government will guarantee the fallback, and carried out business in accordance with commercial principles. As at the end of the reporting period, the balance of risk exposure of our businesses with local government financing platforms (calculated on the broad statistical calibre) amounted to RMB262.361 billion (including businesses such as actual and contingent credit, bond investments, proprietary investments and fund investments of wealth management products), representing an increase of RMB6.153 billion as compared with the end of the previous year. The balance of loans to domestic companies amounted to RMB109.919 billion, representing an increase of RMB3.744 billion as compared with the end of the previous year, and accounted for 2.44% of the total loans and advances granted by the Company, down by 0.10 percentage point as compared with the end of the previous year. As at the end of the reporting period, there was no non-performing asset for our businesses involving local government financing platforms. Against the backdrop that the national fiscal and financial policies remain stable, it is expected that the quality of the Company's assets granted to local government financing platforms will remain stable in the second half of 2020.

Risk management and control for industries that we have reduced or withdrawn from

For the 16 industries5 that we have reduced or withdrawn from, the Company continued to implement the strategy of customer classification management, raised its entry threshold for customers, focused on supporting leading enterprises in industries and regional quality enterprises closely related to people's livelihood, prioritised loans to satisfy green credit financing needs related to energy conservation and environmental protection and technological upgrading, devoted efforts to reducing and withdrawing from customers associated with significant risks, low-end technology customers or those with overcapacity issues, enterprises with high leverage and "zombie enterprise". As at the end of the reporting period, the business financing exposure to the industries that we have reduced or withdrawn from6 (calculated on the full statistical calibre) amounted to RMB135.270 billion, representing an increase of RMB13.010 billion as compared with the beginning of the year, and was mainly granted to the quality strategic customers and customers on the whitelist at head office and branches. The non-performing loan ratio of industries that we have reduced or withdrawn from was 4.77%, down by 1.23 percentage points as compared with the beginning of the year. Affected by a continued decline in the risk exposure to and the scale of individual major customers, the non-performing loan ratio of 4 industries including nonferrous metal smelting and calendaring, coal chemical, textile chemical fibre and steel trade was higher than that at the beginning of the year, while the non-performing loan ratio of the other 12 industries was lower than that at the beginning of the year. It is expected that the overall risk in these industries is controllable in the second half of 2020.

5

6

The 16 industries refer to coal, coal chemical, coal trade, iron and steel, steel trade, basic chemical, commonly used metal ore mining, nonferrous metal smelting and calendaring, shipbuilding, glass, water transport, textile and chemical fiber, photovoltaic, fertiliser, machine tool and synthetic material manufacturing.

The statistical calibre of the industries that we have reduced or withdrawn from has been changed, and the figures at the beginning of the year have been adjusted with the same calibre.

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9. Capital management

The Company continued to optimise its business structure and enhance capital management. During the reporting period, the Company satisfied the minimum capital requirements of the CBIRC, with relatively adequate capital buffer.

As at the end of the reporting period, the percentage of risk-weighted assets under the Advanced Measurement Approach to total assets was 60.37%, lowered by 7.31 percentage points as compared to that under the Weighted Approach of 67.68%, indicating an effective saving in capital. During the reporting period, the risk-adjusted return on capital (RAROC, before tax) under the Advanced Measurement Approach was 24.59%, significantly higher than the cost of capital.

Since the beginning of this year, in order to offset the negative impact brought by the pandemic, the central bank has comprehensively used a variety of money market policy instruments to guide financial institutions to increase financial support for the real economy. On the one hand, the Company actively responded to the government policy, while on the other hand took measures to reduce the impact on the retail credit business afflicted by the pandemic. Under the premise of controllable risks, the Company stepped up its efforts to appropriately increase corporate loans, which has led to the rapid growth in risk-weighted assets. There were many new businesses not covered by the internal rating-based approach. Meanwhile, the Company continued to adhere to a more prudent and sound risk management strategy and maintained a relatively high level of allowance during the reporting period. As the risk-weighted assets added back by taking into consideration the floor requirements increased by RMB21.4 billion as compared with the end of the previous year, the overall amount of risk-weighted assets under the Advanced Measurement Approach (taking into consideration the floor requirements during the parallel run period) further increased. Besides, the base number of risk-weighted assets under the Advanced Measurement Approach as at the end of last year was relatively low. Such that, as at the end of the reporting period, the growth rate of risk-weighted assets under the Advanced Measurement Approach (taking into consideration the floor requirements during the parallel run period) reached 8.97%, 1.61 percentage points higher than the growth rate of the risk-weighted assets under the Weighted Approach. In addition, the decrease in the net profit year-on-year affected the growth of net assets, the growth rate of net capital at all tiers was lower than the growth rate of risk-weighted assets, resulting in a decrease in the Company's capital adequacy ratios at all tiers under the Advanced Measurement Approach.

The Company adhered to the development strategies of marketisation, branding and internationalisation, and constantly promoted the innovation and development of assets securitisation business to provide room for capital saving. During the reporting period, the Company issued a total of 5 asset securitisation projects in China's inter-bank bond market with a total issue size of RMB18.232 billion. The underlying assets included auto installment loans, personal housing mortgage loans and non-performing credit card loans.

With the approval of the CBIRC and the People's Bank of China, the Company issued Undated Additional Tier 1 Capital Bonds in China's national inter-bank bond market with an issue size of RMB50 billion on 9 July 2020. The funds raised, after deducting the necessary issuance fees, have been used to supplement the Company's additional Tier 1 capital based on applicable laws and regulatory approvals. For details, please refer to the relevant announcements published on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company. Based on the data at the end of the reporting period, the issuance is expected to increase the Company's Tier 1 capital adequacy ratio and capital adequacy ratio by approximately 1 percentage point, and will not have a significant impact on indicators such as the Company's ROE.

In recent years, the "stringent regulatory requirements" of the regulatory authorities have become a norm. Regulatory documents in specific areas such as the New Regulation on Asset Management, the "Guidelines on Improving the Supervision of Systemically Important Financial Institutions 《( 關於完善系統重要性金融機構監管的指 導意見》)" have been issued in succession. The international regulatory reform has continued to advance, and the final reform plan of Basel III will be fully implemented in the next few years. Confronting with the above situation, the Company will continue to enhance the concept of refined capital management, continuously promote the application of the risk-adjusted return on capital (RAROC), the economic value added (EVA) and other valuation indicators, trace the progress of international capital regulatory reform, continue to implement the internal capital adequacy assessment procedures (ICAAP), keep a dynamic balance of supply and demand of capital, stick to the principles in capital supplement that fund generation and accumulation are mainly from internal resources, with capital replenishment through external resources as additional assistance, comprehensively plan the use of various capital instruments and achieve fund-raising through various channels and ways.

46 China Merchants Bank Chapter III Report of the Board of Directors Interim Report 2020

10. Increase in monthly active users (MAU)

In the first half of 2020, the Company continued to take monthly active users (MAU) as the "North Star Metric", focused on the establishment of digital customer acquisition and management system, centered on the improvement of service quality, user experience and customer loyalty, and promoted the steady development of MAU. During the reporting period, the MAU of "CMB" and "CMB Life", two major APPs of the Company did not experience major hiccups, and withstood the test of the COVID-19 pandemic, marking the Company's achievements in digital operations and also demonstrating a differentiated competitive edge.

In the second half of the year, the Company will continue to make efforts in the following aspects to promote MAU's sustainable growth and conversion, thereby achieving customer growth and value creation. The first is to deepen the construction of open banking to enhance customer experience while enriching service capabilities in various scenarios and satisfying the diverse needs of users. The second is to deepen the integration of retail and wholesale business, so as to form the cohesion and combat effectiveness facing the market and customers, further improve the capability of payroll business development and operation, and expand the source of active and valuable customers through internal integration and coordination. The third is to continuously iterate and optimise the "CMB" and "CMB Life" APPs to create a better digital operation and service platform for hundreds of millions of users. Meanwhile, the Company will strengthen empowerment in the aspects such as data, traffic, platform and tool to enhance the coordinated operation capabilities of the two major APPs. The fourth is to carry out data intelligent applications in marketing, risk control, customer service and operation by making full use of Fintech, continuously enhance capabilities in digital operation, and improve user retention, conversion and value realisation in the APP.

3.9.2 Outlook and countermeasures for the second half of 2020

In 2020, the sudden outbreak of the COVID-19 pandemic has plunged the global economy into a "COVID-19 recession". In the first half of the year, the economic growth rates of major countries in the world have fallen sharply. At present, the pandemic is still spreading rapidly overseas. Although major countries in the world have introduced unprecedented easing fiscal policies and easing monetary policies at the same time, the global economic recovery is likely to be slow and will take a long time. This will have a negative impact on the Chinese economy from both external demand and supply chain perspectives. In addition, the trend of Sino-US relationship is still full of uncertainties.

Domestically, China took the lead in pandemic control and resumption of work and production as compared with other countries globally, but it still faces the challenge of the risks associated with imported cases and sporadic new cases in some regions. With the support of counter-cyclical fiscal and monetary policies, the domestic economy has gradually recovered from the low point in the first quarter, and the supply-side restoration has flexibility. However, due to normalised pandemic prevention measures, the recovery of demand is relatively weak, which has restricted the economic rebound to certain extent.

Looking forward into the second half of the year, the Chinese economy is expected to continue with its recovery momentum. On the supply side, production is expected to continue with its upward trend, but due to the weak demand and the uncertainties of the pandemic, the recovery speed will slow down. On the demand side, due to the continued pressure on household income growth under the impact of the pandemic, it is unlikely to see the retaliatory growth in consumption, and the annual growth rate of retail sales of consumer goods may not turn into positive. Investment will become the mainstay of economic recovery. With the continuous implementation of new projects and the gradual availability of funds, the growth rate of infrastructure investment is expected to increase further. Investment in real estate will show resilience, the accumulative year-on-year growth rate is expected to rise further, however the guidance of the policy known as "houses are for living, not for speculation" will restrict its upside potential. Investment in the manufacturing industry is expected to improve with the recovery of end-user demand and the decline in financing costs, but the extent may be relatively limited. In terms of trade, export growth will still be under pressure due to weak external demand, but the resilience of the industrial chain and pandemic prevention materials will support exports. Boosted by factors such as overseas supply restoration and the rebound of commodity prices, imports are expected to bottom out. In terms of prices, affected by factors such as weak demand, increased pork supply and high base numbers, the CPI will continue to decline. Driven by rising international commodity prices and increased infrastructure investment, the PPI will gradually increase, but it is estimated that the year-on-year growth rate is unlikely to turn into positive during the period.

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Monetary policy is expected to maintain at structural easing: the "monetary-easing" policy for total amount of money may tend to be tightened, but the structural "credit-easing" policy will continue to strengthen its efforts. Since May 2020, under the premise that various economic indicators have shown marginal improvements, in order to prevent arbitrage of idle funds, the monetary policy has been marginally tightened, but this does not mean a complete turnaround. Considering that the pressure of "stabilising growth" and "guaranteeing employment" is still huge, and monetary policy still has the needs for "easing credit" and "lowering cost", the central bank will "guide the broad measure of money supply and the growth rate of social financing to be significantly higher than last year". In terms of quantitative control, RRR cuts may continue to be implemented in the second half of the year. Meanwhile, the central bank will increase the use of structural policy tools, improve the "direct access" of policies, and guide capital to flow to manufacturing, small- and micro-sized enterprises and poverty alleviation. In terms of price control, LPR still has room for downward adjustments. The central bank's preference for guiding the downward trend of LPR may be to reduce point addition and decrease funding cost of the Bank through structural interest rate cuts (decline in relending and bill re-discounting rate).

Fiscal policy will continue with the fundamental tone of "being more proactive (更加積極有為)". In response to the impact of the pandemic, the broad measure of deficit rate in China has increased significantly this year, and the newly invested fiscal funds under broad measure have reached a historical record high. However, due to the impact of the pandemic, the progress of fiscal expenditure in the first half of the year was not as good as that of the previous year. With the acceleration of issuance of various government bonds, the "fiscal-easing" policy is expected to drive the recovery of the manufacturing sector and small- and medium-sized enterprises, and promote further economic recovery. In addition, if the downward pressure on the economy is too high or the situation deteriorates beyond expectation, China's fiscal policy still has room for further exerting its effects in the second half of the year.

For the major categories of assets, it is expected to see strong performance of stocks and weak performance of bonds, and RMB will appreciate steadily. In terms of the stock market, given the advantages in valuation relative to major global stock indexes and the outstanding tenacity for profitability of listed companies, highlights in the future performance of A shares can be expected, which also provides more allocation opportunities in the second half of the year. In terms of the bond market, the risk-free interest rate is moving upwards, and the credit spreads may be narrowed in light of the improvement in earnings and the controllable default risks, resulting in the outperformance of credit bonds over the interest rate bonds. In terms of the exchange rate, China outperformed the world's major economies in recovery, the Sino-US interest rate gap remains high, and China's greater efforts in opening up is expected to further attract capital into the Chinese capital market. In addition, the US dollar has gradually weakened, and RMB is expected to appreciate steadily.

In confrontation of the opportunities and challenges, the Company will maintain its strategic determination and grasp the opportunity to expand its strategic advantages. At the same time, the Company will examine its shortcomings and deficiencies, accelerate the making up of defects, and accelerate the creation of digital business model under the guidance of the "openness and integration" methodology.

Firstly, we will persist in empowerment by open-up and integrated services. By actively integrating into the life circle of retail customers, we will provide customers with more financial and non-financialvalue-added services. We will actively integrate into the business circle of corporate core customers and participate in the process of industrial Internet, so as to achieve the empowerment of corporate customers and their employees and C-terminal clients. Internally, we will break the boundaries of system, data, organisation and business to concentrate internal forces on serving customers and interaction with the market. Based on the cyclic value chain of "wealth management - investment banking - asset management", we will establish more integrated value chains across business lines and customer groups.

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Secondly, we will seize market opportunities and improve professional abilities. We will seize capital market opportunities and residents' demand for preserving and adding value of assets by accelerating digital progress for wealth management of retail business, striving for enhancing asset allocation service capability, retail middle-office capability and online and offline integrated service capabilities, and insisting on creating value for customers. Our wholesale business will continue to focus on the industry-based professional operation to improve the construction of customer service system. Focusing on the two major scenarios of direct financing and capital market, we will unswervingly promote the strategy of integrating investment banking and commercial banking, vigorously develop institutional business and enhance the competitiveness of international business. We will seek both temporary and permanent solutions by consolidating and improving our ability of comprehensive risk management. Meanwhile, we will eliminate blind spots and improve the system, with close attention to risks in key areas.

Thirdly, we will construct a future-oriented Fintech infrastructure. We will accelerate construction of cloud computing capabilities, data middle-office and technology middle-office, and use collaborative office as a breakthrough to accelerate the digital construction of internal management.

Fourthly, we will continuously promote cultural transformation of the organisation. We will promote across-business-line integration of task-oriented project teams, promote multi-position experience for cadres at all levels and stimulate the vitality of the organisation. We will consistently apply "openness and integration" in the standards for evaluation and appointment of cadres, hence building a cadre team with a grand mindset and a strong sense of openness. We will further implement the "Simple Work Style" and promote the light-operation culture of "openness, integration, equality and inclusiveness" to become the belief and code of conduct for all employees of the Bank.

3.10 Business Operation

3.10.1 Retail finance business

Business overview

During the reporting period, the profit before tax from the retail finance business of the Company amounted to RMB33.216 billion, representing a decrease of 13.28% as compared with the corresponding period of the previous year. Net operating income from the retail finance business amounted to RMB77.586 billion, representing an increase of 4.55% as compared with the corresponding period of the previous year and accounting for 56.70% of the net operating income of the Company. Among the income from retail finance, the net interest income amounted to RMB51.783 billion, representing an increase of 7.01% as compared with the corresponding period of the previous year and accounting for 66.74% of the net operating income from retail finance; the net non-interest income amounted to RMB25.803 billion, representing a decrease of 0.06% as compared with the corresponding period of the previous year while accounting for 33.26% of the net operating income from retail finance and 52.77% of the net non-interest income of the Company. During the reporting period, the fee and commission income from retail wealth management of the Company was RMB14.248 billion, representing an increase of 34.09% as compared with the corresponding period of the previous year and accounting for 56.49% of the net fee and commission income from retail finance; the Company recorded a fee income of RMB9.343 billion from retail bank cards, representing a decrease of 2.23% as compared with the corresponding period of the previous year.

Facing the complicated macro environment, as well as multiple challenges such as intensified competition from peer companies and differentiated competition from companies in other industries, as well as interest rate liberalisation, the Company will continue to adhere to the strategy of prioritising retail finance, aim at the goal of creating the "bank offering best customer experience", and continuously improve its professional capabilities while optimising customer base and asset structure and establishing a service system for all customers, all products and all channels. At the same time, the Company will accelerate the promotion of digital transformation, embrace "customers + technology", seize the strategic leading position of future development, and forge new competitive advantages in the era of mobile Internet.

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Retail customers and total assets under management from retail customers

As at the end of the reporting period, the Company had 151 million retail customers (including debit and credit card customers), representing an increase of 4.86% as compared with the end of the previous year, among which, the number of Sunflower-level and above customers (those with minimum daily average total assets of RMB500,000 for each month) reached 2,917,900, representing an increase of 10.21% as compared with the end of the previous year. The balance of total assets under management from our retail customers amounted to RMB8,263.167 billion, representing an increase of 10.26% as compared with the end of the previous year, and the balances of saving deposits, wealth management products, funds, insurance and other categories maintained rapid growth. Among which, the balance of total assets under management from the Sunflower-level and above customers amounted to RMB6,754.994 billion, representing an increase of 11.01% as compared with the end of the previous year, and accounting for 81.75% of the balance of total assets under management from retail customers of the Bank. As at the end of the reporting period, the balance of deposits from retail customers of the Company amounted to RMB1,841.014 billion, representing an increase of 9.96% as compared with the end of the previous year and ranking first among national small- and medium-sized banks according to data released by the PBOC. During the reporting period, the demand deposits accounted for 65.67% of the daily average balance of deposits from retail customers of the Company. As at the end of the reporting period, a total of 155,000,000 All-in-one Cards had been issued by the Company for retail customers, up by 4.73% as compared with the end of the previous year.

The sudden outbreak of the COVID-19 pandemic in the first quarter had certain negative impact on the Company's retail customer acquisition, but with the acceleration of the resumption of work and production, particularly benefited from the strong support of the Company's continuous digital transformation for online services, the financial service demands of retail customers has been efficiently responded and guaranteed. Retail customer acquisition has been improved significantly in the second quarter, and the total assets under management from retail customers have grown rapidly. Facing the adverse impact of the pandemic on offline services, as well as competition from peer companies in the same and other industries, the Company will adhere to the attitude of "openness" and "integration", return to the origin, and focus on the goal of further improving customer experience, while further strengthening customer base expansion and operation, product innovation and refined management capabilities, fully utilising Fintech to support the development and optimisation of online services, so as to consolidate and expand differentiated leading edge.

Wealth management

In the first half of 2020, the Company recorded RMB2,101.486 billion in the balance of retail wealth management products, representing an increase of 11.58% as compared with the end of the previous year. Through seizing opportunities in the capital market and focusing on customer needs, the Company achieved the sales of non-monetary mutual funds of RMB256.709 billion, an increase of 207.03% as compared with the corresponding period of the previous year. The Company recorded RMB210.901 billion in agency distribution of trust schemes, representing an increase of 9.31% as compared with the corresponding period of the previous year; and RMB43.744 billion in premiums from agency distribution of insurance policies, representing a decrease of 10.75% as compared with the corresponding period of the previous year due to the pandemic, but the proportion of transaction volume from the CMB APP channel increased by 18.90 percentage points as compared with the corresponding period of the previous year. In the first half of 2020, the Company recorded a fee and commission income from retail wealth management business of RMB14.248 billion, among which, income from agency distribution of funds amounted to RMB4.785 billion, income from agency distribution of insurance policies amounted to RMB4.059 billion, income from agency distribution of trust schemes amounted to RMB3.310 billion, income from entrusted wealth management amounted to RMB1.948 billion and income from agency distribution of precious metals amounted to RMB146 million. For details of the reasons of changes in fee and commission income from wealth management, please refer to 3.9.1 "Net non-interest income" in this chapter.

During the reporting period, facing the sudden outbreak of the pandemic, the Company further enhanced its leading industrial position and customer service experience through customer segmentation and classification-based management, and creation of a customer wealth product growth system and online companion service, and continued to consolidate and expand its advantages as the ultimate protection shield in wealth management business. Firstly, the Company made continuous promotion of the Sunflower Wealth Planning Service System (金 葵花財富規劃服務體系), and launched the Sunflower Wealth Accumulation Plan (金葵花財富增值規劃) and family trust service system, so as to earnestly cater to customers' need for comprehensive wealth management for their full assets. Secondly, the Company increased the pace of product innovation, made every effort to enhance the allocation capabilities of complex products, and proactively managed existing products. During the reporting period, facing the external challenge of sharp decline of prices in the bond market, the Company rapidly reduced the leverage and duration of the net-value products portfolio, effectively managed risks and strived to control drawdown, and at the same time strengthened investor education to guide them with a rational view on the drawdown of net-value products and long-term holding to secure stable returns. Thirdly, the Company established an online user companion platform, made full use of big data, cloud computing and other Fintech tools to develop and launch "Cai Fu Tong Ping (財富同屏)", so as to realise remote communication between relationship managers and customers, form online-offline integration, and improve operation efficiency of the front line.

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Private banking

As at the end of the reporting period, the Company had 91,034 private banking customers (retail customers of the Company with minimum total daily average assets of RMB10 million per month), representing an increase of 11.46% as compared with the end of the previous year; total assets under management from private banking customers amounted to RMB2,497.394 billion, representing an increase of 11.94% as compared with the end of the previous year; total assets per account amounted to RMB27.4336 million, representing an increase of RMB117,000 as compared with the end of the previous year. As at the end of the reporting period, the Company had 84 private banking centers and 66 wealth management centers in 73 domestic cities and 6 overseas cities, and has established a three-dimensional service network for high-end customer consisting of private banking centers, wealth management centers, "Special Features for Private Banking (私人銀行專區)" in CMB APP and the remote personal assistant team of the Network Operation Service Center.

The Company strived to provide professional, comprehensive, private and confidential private banking financial and non-financial services in areas of investment, taxation, legal affairs, mergers and acquisitions, financing and settlement for high-worth customers at the three levels of individuals, families and enterprises. Always thinking from the perspective of customers and upholding the concept of openness and integration, the Company kept improving its professional capabilities, strengthening the integration of wholesale and retail services, online and offline services, financial and non-financial services and domestic and overseas services, kept strengthening customer expansion, and deepening its comprehensive operation and service to customers, so as to constantly create value for customers. Meanwhile, by deepening the use of Fintech, the Company accelerated its progress of digital empowerment in improving accurate identification of customer needs, offering professional financial solutions, cultivating professional skills of relationship managers, and improving internal operational procedures to promote efficient operation of business and better customer service experience.

Credit cards

As at the end of the reporting period, the Company had issued an aggregate of 96.3873 million active credit cards, representing an increase of 1.14% as compared with the end of the previous year, and there were 65.2673 million active credit card users, representing an increase of 1.18% as compared with the end of the previous year. The balance of credit card loans was RMB652.232 billion, representing a decrease of 2.80% as compared with the end of the previous year. The percentage of revolving balances of credit cards was 23.52%. In the first half of 2020, the credit card transactions of the Company amounted to RMB2,035.657 billion, representing a decrease of 0.12% as compared with the corresponding period of the previous year. Interest income from credit cards amounted to RMB28.376 billion, representing an increase of 4.53% as compared with the corresponding period of the previous year. Non-interest income from credit cards amounted to RMB12.596 billion, representing a decrease of 13.10% as compared with the corresponding period of the previous year.

Affected by the pandemic, and combined with multiple factors such as the domestic macro economy operating at a relative low level and in-depth structural adjustments, the asset quality of credit card loans of the Company showed certain short-term fluctuations. The balance of credit card loans in early overdue stage increased temporarily in the first quarter, and some special mention loans formed non-performing loans in the second quarter. With the effectiveness of pandemic prevention and control domestically, and the support of relevant national corporate relief and work and production resumption policies, leading indicators associated with credit card loans have gradually improved since the second quarter, the collection progress has been stabilised, and the recovery progress has been gradually recovered. As at the end of the reporting period, the non-performing loan ratio of the Company's credit card loans was 1.85%, slightly down by 0.04 percentage point as compared with the end of the first quarter, and up by 0.50 percentage point as compared with the end of the previous year. The Company will continue to pay attention to changes in the macro environment, uphold a prudent risk appetite, a sound risk strategy and a diversified and balanced asset structure to promote the sustainable and healthy development of the credit card business.

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During the reporting period, the Company adhered to an innovation-driven and technology-driven approach to further promote the development of credit card business. Details include: continuous improvement of customer-centric digital customer acquisition capabilities, establishment of a matrix of customer acquisition through social activities, and value creation for more customers in the existing market based on the existing customers; boosting consumption after the pandemic through multiple measures, further upgrading credit card marketing activities, and launching brand activities such as "Little Koi in Each Month (月月小錦鯉)" and "Special Offer for Saturday (週六必享)"; strengthening the product competitiveness of credit cards, launching creative activities such as "Constellation Guardian Credit Card (星座守護信用卡)" and "Customised Card Numbers for Couples on 20 May Anniversary (520雙人紀念日定制卡號)"; adhering to asset structure optimisation by promoting product integration and comprehensively promoting the digital transformation of consumer financial products; deepening service data interaction, improving the efficiency and quality of interactive channels, optimising the construction of AI scenarios, and improving customer service level. In addition, after the release of the CMB Life APP 8.0, with content, e-commerce, automobile and related services as the growth engines, the operating capabilities for users have been further enhanced. For details of the CMB Life APP, please refer to 3.10.3 "Distribution Channels".

Retail loans

As at the end of the reporting period, the total retail loans of the Company amounted to RMB2,444.715 billion, representing an increase of 5.02% as compared with the end of the previous year and accounting for 54.25% of the total loans and advances to customers, down by 1.48 percentage points as compared with the end of the previous year. In particular, total amount of the Company's retail loans (excluding credit card loans) reached RMB1,792.518 billion, representing an increase of 8.18% as compared with the end of the previous year, accounting for 39.77% of total loans and advances to customers of the Company and representing an increase of 0.10 percentage point as compared with the end of the previous year.

As to business development, since the outbreak of the pandemic, the Company has strived to ensure the credit services for small- and micro-sized enterprises and individuals. For micro-finance loan business, the Company actively helped small- and micro-sized enterprises alleviate financing difficulties to support the stabilisation of work and resumption of production. For residential mortgage loan business, the Company strictly implemented local real estate control policies in support of residents' reasonable needs for their own homes. For consumption loan business, the Company strictly controlled the usage of consumption loans and carefully selected quality customers to reasonably satisfy the consumption loan needs. As at the end of the reporting period, the Company recorded a balance of residential mortgage loans of RMB1,189.699 billion, representing an increase of 8.30% as compared with the end of the previous year. The balance of micro-finance loans amounted to RMB445.109 billion, representing an increase of 9.86% as compared with the end of the previous year. The balance of consumption loans amounted to RMB131.005 billion, up by 5.91% as compared with the end of the previous year. As at the end of the reporting period, the Company had 7,202,600 retail loan customers, representing an increase of 12.15% as compared with the end of the previous year. The rapid expansion of customer base was mainly attributable to the light customer acquisition model through online resources.

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As to the quality of assets, the Company managed to maintain a stable asset quality for retail loans by constantly optimising its policies for retail loans and enhancing its risk management capabilities. However, due to the impact of the pandemic, the Company still faces significant uncertainties in the future. As at the end of the reporting period, the balance of the special mention retail loans of the Company amounted to RMB27.816 billion, and its special mention retail loan ratio was 1.14%, down by 0.04 percentage point as compared with the end of the previous year. The balance of non-performing retail loans amounted to RMB20.172 billion, and the non-performing loan ratio was 0.83%, up by 0.10 percentage point as compared with the end of the previous year. Among retail non-performing loan portfolio, the non-performing ratio of micro-finance loans was 0.62%, down by 0.19 percentage point as compared with the end of the previous year due to accelerated disposal of the non-performingmicro-finance loans; the non-performing ratio of consumption loans was 1.44%, up by 0.26 percentage point as compared with the end of the previous year. Excluding credit cards, the mortgage and pledged loans accounted for 75.27% of the new non-performing retail loans formed of the Company during the reporting period, with a mortgage and pledge rate of 35.27%. Given that the vast majority of such new non-performing retail loans were fully secured by collaterals, the final loss was not substantial.

As to risk management, the Company continued to optimise the structure of retail loan customers by strengthening the construction of risk control system and improving the post-loan management capabilities, while taking into account of changes in the external economic situation and the differences in different regions. In respect of strengthening the construction of risk control system, firstly, in terms of risk control model, the Company continuously improved the effect of self-built models, and introduced machine learning algorithms and models to promote the coverage of the risk control models to all processes and all products. Secondly, in terms of customer group selection, the Company insisted on selecting high-quality customers with a job and income in a stable industry as the major source of customer acquisition. Thirdly, in terms of data integration, the Company built a large credit platform by integrating the tags of internal and external customer to enrich risk identification dimensions and form a unified view of customer risks, so as to conduct accurate profiling of the customers. Fourthly, in terms of loan approval strategies, the Company used quantitative risk control technology to strictly set loan approval strategies. Fifthly, in terms of credit limit verification strategies, the Company used monthly mortgage-income and asset-liability models in full consideration of the leverage ratio of customers to reasonably verify the credit limit. In respect of improving post-loan management capabilities, firstly, the Company accelerated the construction of a digital post-loan management system; secondly, the Company inspected customer assets and liabilities, implemented different policies for different categories of customers, strengthened post-loanpre-warning management and accelerated collection and disposal, so as to ensure stable asset quality.

3.10.2 Wholesale finance

Business overview

During the reporting period, the Company achieved profit before tax from wholesale finance of RMB25.348 billion, representing an increase of 14.87% as compared with the corresponding period of the previous year. The net operating income from wholesale finance of the Company was RMB61.540 billion, representing an increase of 12.19% as compared with the corresponding period of the previous year, and accounting for 44.97% of the net operating income of the Company. Among them, net interest income of wholesale finance business amounted to RMB38.228 billion, and accounting for 62.12% of the net operating income of wholesale finance; benefiting from the significant year-on-year increase in operating income from asset management, custody, financial market and investment banking businesses, the net non-interest income of wholesale finance amounted to RMB23.312 billion, representing a year-on-year increase of 30.56%, and accounting for 37.88% of the net operating income of wholesale finance business, and 47.67% of the net non-interest income of the Company.

Wholesale customers

As at the end of the reporting period, the total number of corporate customers of the Company was 2,182,900, up by 4.03% as compared with the end of the previous year. The number of newly acquired corporate depositors during the reporting period was 195,800, contributing daily average deposits of RMB104.464 billion, among them, 13,100 newly acquired corporate depositors contributed daily average deposit of more than RMB500,000, and the proportion of the number of newly acquired corporate depositors that contributing daily average deposits of RMB500,000 and above increased by 0.50 percentage point as compared with the corresponding period of the previous year. The composition of the newly acquired corporate depositors was further optimised.

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The Company has established the corporate customer service system featuring segmentation and classification-based management, as well as professional and dedicated management in respect of strategic customers, institutional customers, small-sized enterprise customers, financial institution customers and offshore customers. With regards to its strategic customers, the Company took advantage of the "Digital Bank" and embedded the relevant services in the capital chain, industrial chain and ecological chain of the enterprises to realise the professional management in the industry and the integrated service for the customers. As at the end of the reporting period, the number of the strategic customers under the Head Office of the Company was 2787; the balance of daily average proprietary deposits amounted to RMB693.401 billion, increasing by 16.70% as compared with the beginning of the year; the balance of general loans amounted to RMB583.838 billion, increasing by 25.13% as compared with the beginning of the year. The Company had 6,1428 branch-level strategic customers. The daily average balance of the proprietary deposits amounted to RMB575.385 billion. The balance of general loans amounted to RMB289.043 billion. With regards to its institutional customers, the Company further deepened the "Head Office-to-Head Office" strategic cooperation with the national ministries and commissions, seized business cooperation opportunities in medical insurance, taxation and other areas, and by using the full-process service and full-cycle system for local governments' special debt as a starting point, the Company drove the full-chain operation of the special debt business covering the whole region. The Company strived to obtain the qualifications of trustee, custodian and investment manager of occupational annuity, and actively participated in the pilot project of developing the third pillar of the pension system. With regards to its expansion of convenient service scenarios, the Company accelerated the launch of the inquiry, withdrawal, and payment functions of provident fund, social insurance and others, and actively opened our Fintech capabilities to institutional customers. During the reporting period, the Company had 39,100 institutional customers, up by 10.45% as compared with the previous year, with an average daily deposit balance of RMB875.766 billion, representing a year-on-year increase of 7.80%. The market coverage rate of local governments' special debts issuance at provincial level increased to 97.22%, making the Company the "Principal Bank" and "First Bank" of special debt business in many provinces and cities. The Company has secured the qualification for offering the occupational annuity trust services in 29 provinces, with entrusted fund amounted to RMB63.5 billion. Moreover, the Company focused on the expansion of these convenience service scenarios of "provident fund, social insurance, taxation, non-taxation, pension, real estate, medical insurance, veterans", and has connected to 546 interfaces of convenient service scenarios to assist the improvement of MAU. With regards to its small-sized enterprise customers, during the reporting period, with the help of Fintech and aiming at "digital, online and smart" services, the Company focused on the three major customer groups of "supply chain, new growth engine of Qian Ying Zhan Yi (千鷹展翼) and basic customer group", and through the establishment of online customer acquisition channels, optimisation of account opening process, digital and centralised management of long-tail customer group, enrichment of online and offline non-stop convenient services for corporates and other measures, the Company established a new service model of "acquisition of customers in batches, centralised operation, online and offline integration" for small-sized enterprises. As at the end of the reporting period, the number of small-sized enterprise customers reached 2,072,600, representing an increase of 4.21% (calculated on the Bank's calibre) as compared with the beginning of this year. There are 26,306 customers of Qian Ying Zhan Yi (千鷹展翼), and the coverage rate of special fund-raising accounts for domestic listed companies during the reporting period was 37.93%, of which the coverage rate of fund-raising special accounts for listed companies on the Science and Technology Innovation Board was 45.65%. With regards to its financial institution customers, the Company subdivided the customer bases into strategic customers and basic customers, continued to carry out in-depth service of strategic financial institution customers under comprehensive service plans and used Fintech methods to quickly access to basic customers, so as to efficiently foster the value of its financial institution customers. As at the end of the reporting period, the numbers of strategic financial institution customers at the Head Office-level and branch-level reached 67 and 196, respectively. With regards to its offshore customers, the Company leveraged on the operating advantages for non-resident accounts, optimised the comprehensive service system for non-resident customers, and enhanced the service capabilities for non-resident customers. At the same time, the Company developed personalised and scenario-basedcross-border financial products and service plans for key customer groups, and comprehensively improved customer experience by using Fintech methods.

7

8

The number of strategic customers at the Head Office level is that of the group customers as the strategic customers at the Head Office level served by the Company during the reporting period.

The number of strategic customers at the branch level is that of the corporate customers as the strategic customers at the branch level served by the Company during the reporting period.

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Corporate loans

As at the end of the reporting period, total corporate loans of the Company amounted to RMB1,781.383 billion, representing an increase of 9.67% as compared with the end of the previous year and accounting for 39.53% of total loans and advances to customers of the Company, and representing an increase of 0.64 percentage point as compared with the end of the previous year. Among them, the balance of the medium- and long-term loans to domestic enterprises amounted to RMB943.276 billion, representing an increase of 16.32% as compared with the end of the previous year and accounting for 57.52% of the total loans to domestic enterprises, and representing an increase of 2.93 percentage points as compared with the end of the previous year. The non-performing loan ratio of our corporate loans was 1.87%, representing a decrease of 0.18 percentage point as compared with the end of the previous year; the weighted average default probability of the risk exposure of the domestic non-defaulting corporate customers was 0.85%, down by 0.14 percentage point as compared with the end of the previous year. The quality of corporate loan assets was relatively stable.

Since the underlying data is subject to adjustment or elimination as a result of change in classification of certain enterprises after they have grown larger in scale at the beginning of the year, the calibre of our large-, medium- and small-sized enterprises business at the beginning of the year was adjusted as compared to the end of the previous year. As at the end of the reporting period, the balance of the Company's loans granted to domestic large-sized enterprises amounted to RMB1,429.409 billion, representing an increase of 11.15% as compared with the beginning of the year, accounting for 87.17% of our total loans granted to domestic enterprises, up by 0.60 percentage point as compared with the beginning of the year; the non-performing loan ratio was 1.84%, down by 0.06 percentage point as compared with the beginning of the year. The balance of the Company's loans granted to domestic medium-sized enterprises amounted to RMB116.953 billion, representing a decrease of 12.19% as compared with the beginning of the year, and accounting for 7.13% of our total loans granted to domestic enterprises, down by

  1. percentage points as compared with the beginning of the year; the non-performing loan ratio was 4.06%, down by 0.63 percentage point as compared with the beginning of the year. The balance of the loans granted to domestic small-sized enterprises amounted to RMB93.538 billion, representing an increase of 41.06% as compared with the beginning of the year, accounting for 5.70% of our total loans granted to domestic enterprises, up by 1.23 percentage points as compared with the beginning of the year; the non-performing loan ratio was 1.96%, down by
  1. percentage points as compared with the beginning of the year.

During the reporting period, the Company steadily promoted granting of corporate loan and actively optimised corporate loan structure at the same time. Focusing on the major infrastructure projects in six core areas including Beijing-Tianjin-Hebei Area, Yangtze River Economic Belt, Xiong'an New District, Guangdong-HongKong-Macau Greater Bay Area, Hainan Province and Yangtze River Delta which were given strong support by the state, the Company enhanced its asset allocation. The Company also vigorously captured business opportunities in the capital market such as the mixed ownership reform of state-owned enterprises and refinancing of listed companies and privatisation, and made adjustment to its granting of loans in sectors such as real estate and local government financing platforms in accordance with regulatory guidance. As at the end of the reporting period, the balance of green loans of the Company was RMB213.376 billion, representing an increase of RMB36.603 billion as compared with the end of the previous year, and accounting for 11.98% of the total corporate loans; the balance of loans to strategic emerging industries was RMB146.016 billion, representing an increase of RMB269 million as compared with the end of the previous year, and accounting for 8.20% of the total corporate loans. For further details of loans extended to the sectors which are subject to the strict regulation of the nation, such as the real estate industry and the local government financing platforms, please refer to section 3.9.1.

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During the reporting period, the Company made overall allocation of resources and set up a service network covering the whole supply chain industry by focusing on core enterprises and their upstream and downstream supply chain customers. At the same time, the Company actively promoted the optimisation of supply chain product system and risk control process, expedited the establishment of supply chain database and smart marketing platforms, and improved digital service capabilities for supply chain customers. The Company developed online financing products for small-sized enterprise customers based on institutional scenarios and established a "3+1" product system featuring "channel, scenario and data" + "product". Centering around the ecosphere of government authorities including fiscal authority, public resource trading center, custom authority and tax authority, the Company laid eyes on various scenarios such as government procurement, public resource trading and export tax rebate, and launched online Zhengcaidai (政採貸) version 2.0, Toubiaodai (投標貸) and Tuishui Kuaidai (退稅快貸) version 2.0. Spotlighting on the financial settlement scenario for small-sized enterprise customers, the Company launched Jiesuan Liuliang Dai (結算流量貸) based on the Interactions between Banks and Taxes (銀稅互動). In light of the complicated problems in the process of conducting credit business confronted by small-sized enterprise customers, including registration, authorisation, rating, assessment and due diligence, the Company promoted process optimisation, enhanced its centalised approval efficiency and continued to optimise customer experience.

The main purpose of the Company's syndicated loan business is to enhance interbank cooperation and information sharing, and to spread the risks associated with large-amount loans. As at the end of the reporting period, the balance of syndicated loans amounted to RMB247.903 billion, up by 8.01% as compared with the end of the previous year.

Bill business

During the reporting period, the Company continued to consolidate the customer base of bill business, optimised business process and accelerated online process, and achieved steady growth in the bill discounting business. During the reporting period, the Company had 80,756 customers of bill business, representing a year-on-year increase of 35.62%, and its bills direct discounting business amounted to RMB665.423 billion, representing a year-on-year increase of 10.36%, ranking second in the market in terms of business volume (data from China Banking Association). Among them, the bills online discounting business amounted to RMB157.112 billion, representing a year-on-year increase of 18.08%. As at the end of the reporting period, the bill discounting balance of the Company amounted to RMB280.704 billion, representing an increase of 24.82% from the end of the previous year.

During the reporting period, the Company actively adhered to the bill rediscounting monetary policy of the central bank. The business volume of bill rediscounting amounted to RMB97.335 billion, representing a year-on-year growth of 3.11%. Affected by the policy that the proportion of bill rediscounting conducted by the PBOC for local legal person financial institutions shall not be less than 50%, the discounted bill balance of the Company temporarily showed a downward trend. As at the end of the reporting period, the bill rediscounting balance of the Company amounted to RMB65.881 billion, representing a decrease of 22.78% from the end of the previous year, but the market share of the Company kept ranking first in the market (data from China Banking Association).

During the reporting period, benefiting from the growth of bill business market, and the increase of transactions regarding discounted bills transferred to other financial institutions, the discounted bills transferred to other financial institutions amounted to RMB592.177 billion, representing a year-on-year growth of 76.86%, ranking second in the market in terms of business volume (data from China Banking Association).

Corporate customer deposits

During the reporting period, the Company realised a high quality growth in corporate deposits through strengthening the comprehensive operation of customers and optimising the liability structure. As at the end of the reporting period, the balance of corporate customer deposits amounted to RMB3,354.190 billion, representing an increase of 13.45% as compared with the end of the previous year; the daily average balance amounted to RMB3,267.604 billion, representing an increase of 12.88% as compared with the previous year; the demand deposits accounted for 55.15% of the balance of the daily average deposits from our corporate customers, up by

0.49 percentage point as compared with the previous year. During the reporting period, the average cost ratio of deposits from corporate customers was 1.78%, up by 0.01 percentage point as compared with the previous whole year.

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Transaction banking business

With respect to the settlement and cash management, the Company accelerated the integration of various collection products and deepened the synergy between corporate and personal businesses. Firstly, the Company developed All-in-one Net Payment (一網通支付), UnionPay Cloud QuickPass (銀聯雲閃付), WeChat Face Recognition Payment (微信人臉識別支付) and other payment channels to diversify the payment channels for corporate aggregated collection products, and continued to develop business in four major industries including insurance, medicine, fast consumption and education, as well as Smart Business District, Smart Industrial Park, Smart Medical Care and other scenarios with the linkage between corporate and personal businesses. During the reporting period, the business volume of corporate aggregated collection was RMB74.226 billion, representing a year-on-year increase of 21.63%. Secondly, the Company provided comprehensive solutions in the management of transaction funds splitting and reconciliation for the transactions entered into on the B2B platforms in vertical fields and new economy platforms in retail section. Thirdly, the Company closely monitored the policies on the supervision of funds from the presale of commercial properties and the supervision of wages of migrant workers, optimised services on fund supervision and payment management, and explored the digitisation, systematisation and convenience of fund supervision. Fourthly, the Company accelerated the upgrade of the treasury management platform and launched a super direct application programming interface (API) service covering all functional scenarios from account management, payment and settlement, billing and deduction to online banking interconnection. As at the end of the reporting period, the Company provided treasury management platform services to 3,796 group customers. The number of companies under the treasury management reached 84,300, and the number of transactions reached 10.2771 million during the reporting period.

In terms of trade finance, the Company was committed to developing a comprehensive supply chain financing service, and actively promoted the online migration of the whole process to improve service efficiency. For the operation of domestic trade financing business, firstly, the Company simultaneously optimised the operation process for the customers and the review process for granting finance loans, and the average time cost for supplier financing was reduced to less than 3 hours; secondly, the Company vigorously promoted the payment agency services under a business model of direct connection between the Bank and enterprises, and verified the business background through direct interaction between the banking system and the customer system. During the reporting period, a total of 696 supplier customers of the Company carried out financing through such model, with a financing amount of RMB4.645 billion; thirdly, the Company innovatively launched the"Instant Issuance of Letter of Guarantee (保 函閃電開)" service domestically to meet the needs of small- and medium-sized enterprises for high-frequency,small-value and complete online issuance service. During the reporting period, the Company offered 1,950 "Instant Issuance of Letter of Guarantee (保函閃電開)" services to more than 1,000 customers, with an amount of RMB746 million; fourthly, as the first batch of pilot banks for the Electronic Letter of Credit Information Exchange System operated by the PBOC, the Company actively promoted the online migration of domestic letter of credit business. During the reporting period, the Company realised the inter-bank issuance of electronic letter of credit in China and the integrated online clearing of large-value payment systems. During the reporting period, the business volume of the Company's domestic trade financing amounted to RMB278.609 billion, representing a year-on-year increase of 36.99%. For the operation of international trade financing business, the Company actively responded to the impact of the pandemic, concerned about the risk exposure of export-oriented enterprises on supply chain management, and provided financial support for import and export enterprises to resume and stabilise production. During the reporting period, the business volume of the Company's international trade financing amounted to USD10.153 billion, representing a year-on-year increase of 27.21%.

With respect to its cross-border finance, the Company accelerated the promotion of the online migration of international business. Firstly, the Company comprehensively optimised the remittance process of online corporate banking, promoted the bulk payment of foreign exchange and the foreign exchange remittance services using electronic bills through online corporate banking, and actively developed paperless and automated remittance services. Secondly, the Company opened a green channel for domestic enterprises to purchase pandemic prevention materials across borders during the pandemic. During the reporting period, the onshore international settlements of the Company for corporate customers amounted to USD108.747 billion, representing a year-on-year increase of 51.31%. Thirdly, the Company cultivated the user habit of "online-focused and mobile-first" for corporate customers, and vigorously promoted the self-service foreign exchange settlement function of CMB Corporate APP. During the reporting period, the number of self-service foreign exchange settlement transactions on CMB Corporate APP was 7,737, representing an increase of 3,821 transactions over the previous year. Fourthly, the Company established a service platform for overseas corporate online banking and overseas cash management, which can provide settlement, financing, foreign exchange settlement and sales and foreign exchange transactions for the companies "going global" so as to help them lay a foundation and conduct ordinary business overseas. During the reporting period, the business volume of foreign exchange settlement and sales amounted to USD63.728 billion, representing a year-on-year increase of 9.97%.

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Offshore banking business

The Company deepened the segmentation-based management of offshore customers, established the three major customer systems of offshore strategy, value and foundation, focused on the strategic customers of the Head Office and branches and the customers with new growth engines, and formulated scenario-based marketing service solutions based on the characteristics of different regions and industries. Focusing on the needs of domestic enterprises listing overseas, the Company gave full play to the advantages of "integrating investment banking and commercial banking" and "integrating domestic and overseas operations" to establish a professional service system covering the full life cycle of red-chip listings, with an aim to build a service brand for the overseas listing of red-chip companies with new growth engines.

In order to strengthen the advantages of offshore licenses, the Company continued to strengthen the overall management of the three types of non-resident accounts. With the intensive introduction of favourable regulatory policies, the Company improved the FT account system and formulated free trade zone service plans to support the construction of Hainan Free Trade Port, Guangdong-HongKong-Macao Greater Bay Area and Shanghai Lingang New Area. The Company actively carried out product innovation. During the reporting period, the Company launched special products such as NRA account negotiated RMB deposits and "full-functioncross-border capital pool", which realised the digital transformation of offshore trade financing business.

At the same time, the Company continued to consolidate anti-money laundering management, strictly implemented the offshore customer acceptance policy and strengthened due diligence on customers to improve the health of the offshore customer base. The Company properly utilised Fintech to strengthen anti-money laundering work. The effectiveness and convenience of anti-money laundering work were improved through technical means such as the offshore account annual inspection system and the dynamic monitoring system for abnormal transactions suspected to be fraudulent, and the key indicators for evaluating offshore anti-money laundering were further optimised.

Investment banking business

During the reporting period, under the complex economic environment at home and abroad, the Company continued to improve its service capabilities of "integrating investment banking and commercial banking" based on the two scenarios of direct financing and capital market. By focusing on the operations of the strategic customers of the Head Office and branches, strengthening the dual engines of asset organising and asset sales, and adhering to the principle of customer first, the Company achieved a rapid growth in investment banking business while building core competitiveness.

With respect to its bonds underwriting business, the Company actively seized opportunities in the direct financing market in the first half of the year, strengthened sales and transaction services, and continued to promote systematic ability building. During the reporting period, the bonds with the Company as the lead underwriter amounted to RMB461.465 billion, representing a year-on-year growth of 60.32%. According to WIND statistics, in the first half of 2020, the Company ranked second in terms of volume of credit bonds (non-policy financial bonds included) with the Company as the lead underwriter. The Company actively participated in the issue of innovative bonds. During the reporting period, the Company successfully led the underwriting of the first batch of bonds for pandemic prevention and control, the first commercial mortgage-backed note (CMBN) for pandemic prevention and control and the first CMBN with a special purpose vehicle (SPV) structure in China.

With respect to its M&A financing business, under the unfavourable external situation, the Company actively changed its thinking, focused on customer experience and in-depth service, closely monitored opportunities in the capital market, promoted the research in key industries, and achieved growth in the M&A financial business amid headwinds. During the reporting period, the Company achieved M&A financing of RMB67.794 billion, and a series of major M&A transactions in the market, such as the privatisations of Beijing-ShanghaiHigh-Speed Rail and Li & Fung were successfully conducted. With regard to M&A financial advisory business, the Company focused on two major customer groups, being state-owned enterprises and listed companies, and provided professional advisory services in the capital market. During the reporting period, the Company led the acquisition of listed companies by Yinchuan SASAC, and its ability in differentiated services was significantly improved.

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With respect to its structural financing business, the Company strived to promote the creation of proprietary non-standardised corporate agency sales products not actively managed by the Company and the development of market-orienteddebt-to-equity conversion business, complied with market demand to grasp the position of asset redirection, adhered to the principle of serving customers and actively innovated business model to broaden cooperative institutions. During the reporting period, the Company realised structural financing of RMB40.053 billion.

With respect to its market transaction business, the Company leveraged on Fintech to continue to promote the update and iteration of the "Zhao Tou Xing (招投星)" system and the "Zhao Tou Xing (招投星)" WeChat applet, making it a two-way trading platform for internal and external funds and assets to promote the rapid development of business. During the reporting period, the financing scale of market transactions (matching services) of the Company amounted to RMB102.942 billion, representing a year-on-year increase of 98.37%.

With respect to its corporate wealth management business, the Company actively grasped market opportunities with sufficient liquidity, continued to strengthen the building of sales system, fully utilised the advantages of the linkage between the asset organising and product sales through the channels of the Company, and promoted the transformation and innovation of corporate wealth management products based on the investment needs of the customers. During the reporting period, the Company achieved sales of corporate wealth management products of RMB1,299.338 billion, representing a year-on-year increase of 16.93%; the number of customers purchasing corporate wealth management products totalled 42,043, representing a year-on-year increase of 11.88%.

Financial institution business

With respect to its financial institutions asset and liability business, the Company continued to strengthen the service of financial institution business and met the liquidity management needs of the whole bank. Meanwhile, the Company formulated a desirable customer list on the basis of conducting the optimisation of internal ratings model in various types of major sub-customer groups such as banks and securities companies, and sought for more high-quality financial institution customers in a targeted way. As of the end of the reporting period, the balance of financial institution deposits of the Company amounted to RMB601.842 billion, representing an increase of 11.46% as compared with the end of the previous year. Among them, the total amount of financial institution demand deposits from fund clearing, settlement and depository service reported a balance of RMB499.304 billion, accounting for 82.96% of the total amount, representing an increase of 2.17 percentage points as compared with the end of the previous year. The Bank maintained a leading position in terms of scale and percentage of demand deposits among the small- and medium-sized banks in China and achieved a better deposit structure.

With respect to its depository service, the Company's security and future margin depository service was in stable operation, with third-party depository services extended to 102 securities companies and 11,313,500 customers secured at the end of the reporting period. In addition, the Company entered into cooperation with 85 securities companies on margin trading and short selling business, securing 426,700 customers at the end of the reporting period. Also, the Company entered into cooperation with 54 securities companies on stock options business, securing 32,800 customers at the end of the reporting period, and entered into cooperation with 129 future companies on fund transfer, securing 197,200 customers at the end of the reporting period.

With respect to interbank clearing, as at the end of the reporting period, the number of the cross-border RMB accounts opened by banks and other financial institutions with the Company accumulated to 265, ranking first among all small- and medium-sized banks in China (according to the data released by the PBOC). There were 220 customers which participated indirectly through the Company in the RMB Cross-border Interbank Payment System (CIPS), ranking second among all small- and medium-sized banks in China and third in the industry (according to the data released by the CIPS).

With respect to the businesses on interbank online service platform, as at the end of the reporting period, the number of financial institutions registered on the "Zhao Ying Tong (招贏通)" platform of the Company reached 2,656, and during the reporting period, the online business volume amounted to RMB649.249 billion.

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Asset management business

As at the end of the reporting period, the balance of wealth management products under management by CMB Wealth Management, a wholly-owned subsidiary of the Company (excluding structured deposits)9 amounted to RMB2.38 trillion, representing an increase of 8.68% as compared with the end of the previous year. Among them, off-balance sheet wealth management products accounted for 98.72%; the balance of the funds raised from off-balance sheet wealth management products ranked second in the market. The balance of new products10 amounted to RMB1.09 trillion, representing an increase of 59.08% as compared with the end of the previous year, accounting for 45.80% of the balance of wealth management products (excluding structured deposits), up by 14.58 percentage points as compared with the end of the previous year.

During the reporting period, the Company made great efforts to support the independent operation of CMB Wealth Management, established and improved various mechanisms through collaboration, and promoted the transformation and upgrading of asset management business in compliance with the New Regulation on Asset Management. The Company's asset management business scored a number of achievements in the following aspects.

Firstly, the Company steadily promoted the independent operation of CMB Wealth Management. The Company initially built the top-level structure for the decision-making system of CMB Wealth Management, and strengthened the strategy formulation and strategy implementation of CMB Wealth Management. The Company continued to strengthen the cooperation with CMB Wealth Management, and accelerated the in-depth integration of collaborative marketing and business linkage based on the reasonable distribution of risks and returns. The official website of CMB Wealth Management has been formally launched, which, together with the WeChat official account of CMB Wealth Management constitutes the main channels for information release. Leveraging on festivals, solar terms and other themes, CMB Wealth Management continued to enjoy brand exposure with high frequency.

Secondly, the Company continued to transform and develop products and sales. During the reporting period, the Company developed 109 new products based on the product system of "Zhao Ying Ruizhi Zhuoyue (招贏睿智卓

越)" subject to the requirements of the New Regulation on Asset Management and supporting policies. Under the premise of a smooth transition, the Company actively promoted the compliance reform of cash management products to accumulate experience for accelerating the subsequent reform of existing products. The Company made more efforts on the issuance and sales of fixed-income plus, equity, multi-assets and other products, which further improved the diversity and return of products and optimised product structure. Facing the challenge of social distancing and quarantine during the pandemic, the Company improved the digital capabilities of customer service and investor education through online marketing and brand promotion methods such as "Wealth Management at Home (宅理財)" and "Wealth Management Lecture Hall (理財大講堂)", and accelerated the transformation of sales models. The Company continued to expand the institutional customer base, broadened the sources of medium- and long-term funds and accelerated the development of "Private Fixed Investment (以募定投)".

Thirdly, the Company flexibly organised assets to improve investment returns. As at the end of the reporting period, wealth management funds invested in the bond market reported a balance of RMB1,851.083 billion, and the proportion of bond assets was 69.84%, rose by 1.89 percentage points as compared with the end of the previous year. The Company made non-standardised credit investments within the credit limit in strict compliance with regulatory guidance. As at the end of the reporting period, the balance of wealth management funds invested in non-standardised assets of the Company amounted to RMB234.038 billion11. By actively grasping the structural opportunities and resolutely increasing positions at the bottom of the equity market, the Company has created good relative returns.

  1. The balance of wealth management products (excluding structured deposits) is the sum of customers' principal in the on- and off-balance sheet wealth management products and the changes in net value of net-value products as at the end of the reporting period.
  2. New products are wealth management products in compliance with the relevant provisions of the New Regulation on Asset Management.
  3. Statistics based on the caliber before the release of the "Rules for the Identification of Standardised Debt Assets 《( 標準化債權類資產認定規則》)".

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Asset custody business

As at the end of the reporting period, the balance of assets under custody of the Company was RMB14.56 trillion, representing an increase of 10.05% compared to the end of the previous year, and ranked second in terms of balance and first in terms of increase in the domestic custody industry (according to the data released by China Banking Association). During the reporting period, the Company realised a custodian fee income of RMB2.179 billion, representing a year-on-year increase of 13.90%. The Company ranked fourth in terms of revenue in the domestic custody industry (according to the data released by China Banking Association).

During the reporting period, the Company dug deep into the business needs from customers in asset custody business, continued to develop business in key product areas, comprehensively improved its capabilities in systematic management, professional service and systematic support, and further enhanced customer experience and market competitiveness. Firstly, the Company transformed the model of asset custody business, organised and coordinated channel sales, investment, supporting services and other resources, and provided customers with a package and comprehensive custody service plan on the basis of one policy for one account. Secondly, the Company continued to optimise the business structure to increase investment for the expansion of business in mutual funds, bank financing, insurance, pensions and other key custody businesses. The custody scale of mutual funds exceeded RMB1 trillion for the first time. During the reporting period, the Company ranked first in terms of the scale of newly issued custody mutual fund in the industry (WIND public data). Thirdly, the Company actively responded to the national call and managed the first batch of charitable trusts for pandemic prevention and control under custody for free during the COVID-19 pandemic. The Company realised "cloud custody" by using Fintech to ensure efficient, stable and continuous operation of custody business. Fourthly, the Company ranked first in the evaluation of the custody banks for basic pension insurance funds by the National Council for Social Security Fund, demonstrating that its professional services were recognised by customers.

Financial markets business

During the reporting period, the situations of the domestic and foreign economies and financial market were relatively complex. Affected by various factors, the interest rate of the bond market fluctuated drastically. The RMB exchange rate first rose and then depreciated, and gradually stabilised to around 7. The Company adjusted the duration, position size and position structure of its asset portfolios in a timely manner, flexibly used multi-strategy tools and actively captured market opportunities to hedge and mitigate the impact of market fluctuations, which achieved good returns. At the same time, the Company actively promoted the in-depth application of Fintech to the investment and trading business in the financial market, and built a quantitative trading system based on algorithm strategies and high-performance systems to facilitate the development of investment and trading business. During the reporting period, the Company implemented a fully automated quantitative market-making trading strategy on the Shanghai Gold Exchange, which realised automatic market-making quotations for financial subjects such as gold and silver, and provided liquidity to the market. The accumulated trading volume exceeded RMB10.0 billion.

With respect to RMB bond investment, through in-depth research and analysis of domestic and foreign macro economic situations and policies, the Company judged market trends in advance to effectively capture market opportunities, manage and control market risks and credit risks. During the reporting period, the Company flexibly adjusted the portfolio duration of RMB bonds investment and actively conducted spread trading through range trading operations. At the same time, under the premise of effectively preventing credit risks, the Company adjusted its position structure according to market conditions to improve the portfolio yields. With respect to foreign currency bonds investment, the Company appropriately adjusted the portfolio duration of foreign currency bonds investment based on the judgment of the international economic situation and market trends. The Company also grasped the opportunities arising from fluctuation in the spread of credit bonds and increased range trading operation to effectively improve portfolio yields.

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With respect to customer transaction business, the Company seized market opportunities in exchange rates and interest rates, customised transaction plans for customers to reduce risks and finance costs, actively promoted the construction of online transactions to help customers realise contactless business processing. Meanwhile, the Company continued to improve the "CMB Hedging (招銀避險)" service system. The "CMB Hedging (招銀避

險)" derivative transaction module of online corporate banking has covered major corporate products such as forwards, swaps and options. Customers can complete entrustment applications and transactions through clicks, which significantly improved transaction efficiency. Thus, the customer experience was enhanced and the number of corporate customers in derivative transactions and the transaction volume increased continuously. Meanwhile, the Company leveraged on Fintech to continue to provide individual customers with precious metal allocation and transaction services, so as to meet the diversified needs of individual customers in investment and transaction.

During the reporting period, the trading volume of RMB exchange rate swaps amounted to USD349.813 billion, representing a year-on-year decrease of 15.47%, which was mainly due to the impact of the pandemic and other factors. The Company modestly controlled the transaction scale based on the liquidity of the foreign exchange market. The trading volume of derivative transaction services to the customers reached USD195.145 billion, representing a year-on-year increase of 44.33%. In addition, the Company actively participated in the two-way opening of the bond market to provide high-quality services to overseas investors, and won the "Bond Connect Top Market Maker" award from Bond Connect Company Limited.

3.10.3 Distribution channels

The Company provides products and services via multiple distribution channels. The distribution channels of the Company mainly consist of physical distribution channels and e-banking channels.

Physical distribution channels

The efficiently operated distribution network of the Company is primarily located in the major economic centers of China such as Yangtze River Delta, Pearl River Delta and Bohai Rim, and certain large- and medium-sized cities in other regions. As at the end of the reporting period, the Company had 141 branches, 1,705 sub-branches, one dedicated branch-level operation center (credit card center), one representative office, 2,943 self-service centers, 8,262 self-service machines and 15,725 visual counters in more than 130 cities of Mainland China. The Company also has a branch in Hong Kong; a branch and a representative office in New York, the United States; a branch in London, the UK; a branch in Singapore; a branch in Luxembourg; a representative office in Taipei and a branch in Sydney, Australia.

E-banking channels

Major retail e-banking channels

During the reporting period, the Company constantly improved the retail e-banking channels and further increased operational efficiency. As at the end of the reporting period, the Company's replacement rate of comprehensive service counters through the retail electronic channels was 98.22%; and the rate of rerouting customers from the service counters to visual counters was 94.85%.

CMB APP

During the reporting period, CMB APP continued to deepen the digital construction of the financial scenarios, created premium services in wealth management and credit, further upgraded the pan-financial scenarios in life and communities, and promoted the organic integration with the financial scenarios. During the fight against the pandemic, CMB APP released ten heart-warming services to quickly respond to the needs of customers for social security, utility payment, livelihood and customer service under physical quarantine. Meanwhile, with the establishment of the digital middle-office system, its advantages have gradually emerged, which not only facilitates the transformation of the retail banking business of the whole Bank, but also provides a better experience for users as many as 100 million.

As at the end of the reporting period, the number of CMB APP users in aggregate was 129 million, with 56,071,800 monthly active users, a total number of 3.111 billion logins and the average monthly logins of 11.31 per user during the reporting period. During the reporting period, CMB APP had 841 million transactions and a total transaction amount of RMB18.56 trillion, up by 5.52% and 11.34% respectively, as compared with the corresponding period of the previous year.

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CMB Life APP for credit card

During the reporting period, based on CMB Life APP 8.0, the Company steadily promoted the construction of content ecosystem, quality e-commerce, life with automobile and other scenarios, continued to expand product dimensions, broadened the scope of cooperation, and maintained technical depth to strengthen the connection with users and merchants. During the fight against the pandemic, the Company used Fintech to launch the "CMB Anti-pandemic Life Circle (小招喵的抗疫生活圈)" on CMB Life APP to provide customers with intelligent customer service, online repayment, online education and other financial and life services at home. The Company initiated the "Forerunners' Alliance (逾越者聯盟)" through CMB Life APP for the merchants to facilitate the recovery of various consumer sectors such as catering, automobiles and e-commerce, taking concrete actions to overcome difficulties with cooperative merchants.

As at the end of the reporting period, the total number of CMB Life APP users was 98,423,700, of which non-credit card users accounted for 33.29%. During the reporting period, the maximum number of daily active users of CMB Life APP reached 8,135,500 and the number of monthly active users was 42,843,200 as at the end of the period. In terms of the number and online activity of users, CMB Life APP continued to outperform other credit card APPs in the banking industry.

Smart service system

As for the smart debit card service system, the Company used "China Merchants Bank" WeChat Official Account as an important channel for its brand promotion and business promotion. On the one hand, it maintained high-quality content output and high-frequency interactive operation, and continued to build a traffic pool with long-term business value. On the other hand, it continued to strengthen channel information service capabilities, and took advantage of the light volume and fast service characteristics of third-party channels to form an organic service ecosystem with strong connections with CMB APP. As at the end of the reporting period, the "China Merchants Bank" WeChat Official Account had accumulated 23,424,000 followers.

As for the smart credit card service system, the Company continued to explore the ecological layout of 1+N services of emerging channels by focusing on CMB Life APP and complementing with third-party channels. During the reporting period, the Company further enhanced the AI service and closed-loop service capabilities of "Xiao Zhao (小

招)", the customer service assistant of CMB Life APP, accelerated the "scenario-based transformation" of the service ecosystem and continued to develop smart service products for our customers. Thus, the smart credit card service system has been improved. As at the end of the reporting period, the Company gained a total of 149 million fans through third-party credit card channels (mainly from WeChat, Alipay service window and official QQ account).

Network operation service

The Company's Network Operation Service Center provides instant, comprehensive, prompt and professional services to its customers through caring methods such as telephone, network and video.

As for telephone customer service, the Company constantly improved its service capability and customer experience. During the reporting period, the manual telephone access ratio reached 98.31%; the percentage of manual telephone responses within 20 seconds reached 94.73%; and the satisfaction ratio of its telephone customer service reached 99.76%. As for network service, the Company conformed to the trend of its customers increasingly moving to the mobile Internet, and improved remote consulting service capabilities such as online text interaction. At the same time, the Company accelerated the pace of evolution into intelligent services, deepened the training and learning of intelligent robots, and enhanced algorithm optimisation. During the reporting period, our online interactive services accounted for 91.54%12 and our intelligent self-services accounted for 76.47%13. As for video service, during the reporting period, our visual counters received an average of 1,649,800 incoming calls per month, with the highest number of single day incoming calls reaching 112,600, showing high replacement effect of in-branchnon-cash transactions.

  1. Referring to the proportion of online text services in various types of remote consulting services.
  2. Referring to the proportion of services undertaken by intelligent robots in various remote consulting services.

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Major wholesale e-banking channels

Online corporate banking

The Company has comprehensively improved the customer service and operating capabilities of the electronic platform, with an aim of building online corporate banking into an open digital platform with multi-channel interoperability and user experience integration. As at the end of the reporting period, the number of online corporate banking customers of the Company reached 2,062,500, representing an increase of 5.53% as compared with the end of the previous year, of which the number of monthly active customers was 1,084,600, representing an increase of 8.05% as compared with the end of the previous year. The total number of online corporate banking transactions of the Company reached 115,482,200 and total value of transactions amounted to RMB59.10 trillion during the reporting period.

CMB Corporate APP

In order to meet the growing demands of customers for mobile finance, the Company built CMB Corporate APP that integrated account management, transaction payment and online foreign exchange services based on financial scenarios and non-financial scenarios. As at the end of the reporting period, the number of customers of CMB Corporate APP reached 1,164,500, representing an increase of 16.36% as compared with the end of the previous year, of which monthly active customers reached 450,600, representing an increase of 5.65% as compared with the end of the previous year. During the reporting period, the number of transactions made by customers through CMB Corporate APP amounted to 3,383,300, with a transaction value of RMB108.326 billion.

3.10.4 IT and R&D

During the reporting period, the Company continued to increase investment in Fintech to build a Fintech infrastructure for the future. Through the building of cloud computing, big data, artificial intelligence, blockchain, mobile Internet and other infrastructure, the relevant labour costs were saved and production capacity increased. The business development of the whole Bank is supported by three software centers in Shenzhen, Hangzhou and Chengdu and two data centers in Shenzhen and Shanghai. The Company has established a team comprised of technical and business staff to quickly respond to customer needs and improve customer service experience.

With respect to infrastructure construction, the Company promoted the construction of an infrastructure based on Cloud Native technology, accelerated the safe migration of applications to the cloud for the whole Bank and subsidiaries, and forged ahead with the migration of key business system applications to the cloud. The Company consolidated the basic platform of big data, promoted the construction of a unified data portal for the whole Bank, and continued to strengthen a middle office with strong data capability and publish high-quality data services for the business development of the whole Bank via the middle office. The Company strove to increase its competitive advantages in artificial intelligence by maintaining its exchange and cooperation with high-quality academic resources at home and abroad, facilitating the application and practice of artificial intelligence technology in product, marketing, risk control, operation, investment consulting and other fields, and promoting three major AI cloud services, being customer service cloud, public opinion cloud and visual cloud services. The Company improved two major platforms, being Blockchain as a Service (BaaS) and Open License Chain, and explored the application of blockchain in financial business, government services, people's livelihood and other fields. The Company established a new generation of data warehouse joint innovation laboratory to accelerate the pace to achieve the relevant research results from the Kunpeng Computing Joint Innovation Lab (鯤鵬計算聯合創新實驗室) and the distributed database joint innovation lab.

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With respect to the development of application systems, the Company quickly responded to the impact of the pandemic and provided real-time pandemic data query, online diagnosis, online courses and other services through the CMB APP. Meanwhile, the Company comprehensively strengthened online and offline operation, and further optimised the functions of CMB APP and CMB Life APP for scenarios such as meal coupons, movie tickets, convenience, travel and aggregated payment. The Company promoted the mobile version of the wealth account manager work platform and the video cloud chain platform to help online marketing services and business processing. With further innovation in supply chain finance, industrial Internet and cash management, the Company provided technological support for the promotion of new infrastructure and businesses with momentum, so as to enhance the digital service capabilities of small-sized enterprise customers and small- and micro-sized enterprises. The Company invested and developed a supervision platform for off-campus training fund, with an aim of creating a comprehensive service platform after taking into account the needs of the training institutions as the business side (B-side) and the parents of the students as the customer side (C-side). The Company optimised its intelligent risk control system to enhance the digital risk control capability, accelerated the online process of high-frequency business and realised the issuance of letter of guarantee for full deposit within 60 seconds through its "Instant Issuance of Letter of Guarantee (保函閃電開)" service.

With respect to overseas support, the Head Office continued to coordinate the management and maintenance of the core business system of overseas branches and strengthened support for the business development of overseas branches to complete the construction of the overseas data middle office.

With respect to security and stability, the Company speeded up the development of capabilities of cloud data centers to improve the level of automation and intelligence. Under the backdrop of rapid growth of system scale and transaction volume, the overall system was on the smooth side, and the availability of core accounting system and backbone networks remained its leading position among industry peers.

3.10.5 Overseas branches

Hong Kong Branch

Established in 2002, the Hong Kong Branch is the first branch duly established overseas by the Company. As a full-licensed bank and a registered institution with the Securities and Futures Commission, the Hong Kong Branch may engage in comprehensive commercial banking businesses, including wholesale banking and retail banking. With regard to wholesale banking, the Hong Kong Branch provides enterprises located in Hong Kong with diversified corporate banking products and services, such as deposits, settlement, trade financing, bilateral loans, syndicated loans, cross-border M&A portfolio solutions, asset management and asset custody, and engages in transaction of funds, bond trading and foreign exchange trading with financial institutions, and conducts funds clearing and asset transfer with financial institution customers. With respect to retail banking, the Hong Kong Branch proactively develops featured retail banking services and provides cross-border personal banking services and private wealth management services for individual customers in Hong Kong and Mainland China. Featured products include "Hong Kong All-in-one Card" and "Hong Kong Bank-Securities Express".

In the first half of 2020, the Hong Kong Branch focused on the opportunities such as "The Belt and Road" initiative, RMB internationalisation and the construction of Guangdong-HongKong-Macao Greater Bay Area, greatly promoted cross-border business coordination, continuously developed the local customer base, constantly expanded its market share, and provided customers with strong financial support. Meanwhile, the Hong Kong Branch further strengthened risk compliance and internal basis management, constantly improved and innovated its product and service systems and strove to explore the asset operation model. As a result, all its businesses achieved stable development. During the reporting period, the Hong Kong Branch realised an operating income of HK$1.360 billion and a profit before tax of HK$968 million.

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New York Branch

Established in 2008, the New York Branch of the Company is the first branch of Chinese banks approved in the U.S. since the US Foreign Bank Supervision Enhancement Act in 1991. The New York Branch is located in the global financial center and is committed to establishing a cross-border financial platform characterised by coordination between China and the U.S., so as to offer diversified and all-round banking services for the companies and high-net-value private banking customers in China and the U.S..

In the first half of 2020, our New York Branch adhered to the principle of "taking compliance as a priority and maintaining steady operation" and aimed to improve the comprehensive service capabilities of the featured cross-border financial platform. Great progress was achieved in expanding Sino-US bilateral investment and trade related business, enhancing strategic customer management and strengthening compliance management. During the reporting period, our New York Branch realised an operating income of USD36,296,600 and a profit before tax of USD19,721,600.

Singapore Branch

Established in 2013, the Singapore Branch of the Company is positioned as a significant cross-border financial platform in Southeast Asia. Based in Singapore and expanding to Southeast Asia, the Singapore Branch strives to provide all-roundnon-stop solutions for cross-border finance to the Chinese companies "going global" and the companies "brought in" located in Singapore and other Southeast Asian countries. Its major services and products include: funds settlement, deposit service, foreign exchange trading, coordination financing, trade financing, M&A loans, syndicated loans, real estate trust leveraged financing and delisting financing. Meanwhile, Singapore Branch also provides private banking products and value-added services with integrated investment and financing solutions, such as cash management, asset allocation and heritage of wealth to high-net-value customers.

In the first half of 2020, the Singapore Branch continued to adhere to the "Chinese element" and engaged in business related to China. With cross-border finance and wealth management as the core, the Singapore Branch focused on the strategic customers of the Head Office and branches as well as the private banking customers, and created differentiated competitive advantages. During the reporting period, the Singapore Branch realised a net operating income of USD9,637,400 and a profit before tax of USD4,383,900.

Luxembourg Branch

Established in 2015, the Luxembourg Branch of the Company is positioned as an important cross-border financial platform in European continent. It provides diversified services including corporate deposits, corporate loans, project financing, trade financing, M&A financing, M&A advisory, bond underwriting and asset management for the Chinese enterprises "going global" and the enterprises "brought in" from Europe. It is committed to establishing an operational platform of the Company in Europe on the basis of the superior businesses of the parent bank combined with the special advantages of Luxembourg.

In the first half of 2020, the Luxembourg Branch adjusted its development strategy in a timely manner to adapt itself to market changes, strengthened its cooperation with local financial institutions, and strove to expand financing channels and reduce capital costs. The Company achieved steady business growth through close cooperation with other banks and financial institutions at home and abroad. During the reporting period, our Luxembourg Branch realised an operating income of €6,825,200 and a profit before tax of €316,100.

London Branch

Established in 2016, the London Branch of the Company is the first branch approved to be established in the United Kingdom among all the PRC joint-stock commercial banks and also the first branch established in the United Kingdom directly by a bank in Mainland China since the founding of the PRC. It currently conducts corporate banking business and private banking business. With respect to corporate banking business, it provides customers with diversified corporate banking products and services, such as deposits, loans (including bilateral loans, syndicated loans and cross-border M&A financing) and trade finance products, such as making payments on behalf of customers (代付) and forfeiting (福費廷). It also engages in interbank transaction of funds, bonds and foreign exchange trading, and conducts funds clearing and asset transfer with other financial institution customers. The private banking business was approved by the competent financial regulatory authority in the United Kingdom in January 2020. It currently provides basic services such as settlement, fixed deposit, foreign exchange transactions, mortgage loans and insurance referrals to meet the needs of our high-net-value customers for cross-border business and value-added services.

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In the first half of 2020, the London Branch returned to its origin, continued to optimise its customer structure, consolidated the development of cross-border service products, focused on the strategic customers of the Head Office and branches and achieved the steady development of various businesses. At the same time, the private banking license was approved at the beginning of the year, which complemented the key sectors of "One Body with Two Wings". During the reporting period, the London Branch realised an operating income of USD9,832,100 and a profit before tax of USD4,449,900.

Sydney Branch

Established in 2017, the Sydney Branch of the Company is the first branch approved to be established in Australia among all the PRC joint-stock commercial banks. It proactively participates in Sino-Australiancross-border investment and financing services, trade financing and settlement, exploitation of mineral resources and the development of quality infrastructure projects, and provides supporting services for "going-global" customers to lay out in Australia and New Zealand and for "brought-in" foreign leading enterprises to develop in China. At the same time, it steadily carried out private banking business in compliance with laws and regulations, and met the private banking customers' needs for global service and the cross-bordernon-financialvalue-added service. The establishment of the Sydney Branch further expanded and improved the Company's global presence, forming a global service network across four continents: Asia, Europe, America and Australia.

In the first half of 2020, by staying focused, patient and sharp and adhering to the business strategy of "Laying a foundation with characteristics", the Sydney Branch endeavoured to facilitate the development of various businesses, which resulted in a good operating situation with stable business, controllable risks and increased revenue. During the reporting period, the Sydney Branch realised an operating income of AUD11,014,500 and a profit before tax of AUD5,280,600.

3.10.6 CMB Wing Lung Group

Founded in 1933, CMB Wing Lung Bank has a registered capital of HK$1.161 billion, and is a wholly-owned subsidiary of the Company in Hong Kong. The principal operations of CMB Wing Lung Bank and its subsidiaries comprise deposit-taking, lending, private banking and wealth management, investment, securities, credit cards, NET banking, "CMB WLB Wintech (招商永隆銀行一點通)" mobile banking, global cash management, syndicated loans, corporate financing, documentary bills, leasing and hire purchase loans, foreign exchange, insurance agency, mandatory provident fund, insurance brokerage and general insurance underwriting, property management and trustee, nominee and asset management services. At present, CMB Wing Lung Bank has one head office, 33 branches and private banking centers in Hong Kong, four branches and sub-branches in Mainland China, one branch in Macau, and two branches located respectively in Los Angeles and San Francisco, the United States.

During the reporting period, CMB Wing Lung Group realised an attributable profit to shareholders of HK$1.771 billion and a net operating income of HK$3.246 billion, of which net interest income was HK$2.069 billion and net non-interest income was HK$1.177 billion. The cost-to-income ratio was 35.37%.

As at the end of the reporting period, the total assets of CMB Wing Lung Group amounted to HK$371.542 billion. Total equity attributable to shareholders amounted to HK$40.302 billion. Total loans and advances to customers (including trade bills) amounted to HK$193.972 billion. Deposits from customers amounted to HK$273.457 billion. The loan-to-deposit ratio was 64.52%. The non-performing loan ratio (including trade bills) was 0.41%.

For detailed financial information on CMB Wing Lung Group, please refer to the 2020 interim results of CMB Wing Lung Bank, which is published on the website of CMB Wing Lung Bank (www.cmbwinglungbank.com).

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3.10.7 CMB Financial Leasing

CMB Financial Leasing is one of the five pilot bank-affiliated financial leasing firms approved by the State Council. It was established in 2008 and wholly owned by the Company with a registered capital of RMB6.0 billion. CMB Financial Leasing has adhered to its operation and development strategy of "professionalisation, digitalisation and internationalisation", carried out the mission of "supporting national strategy, serving the real economy and promoting industrial upgrading", and launched the financial solutions for the ten industries of aviation, shipping, energy, infrastructure, equipment manufacturing, environment, health industry and cultural tourism, public transportation, smart interconnection & logistics and leasing. It satisfies the lessees' different needs in respect of equipment procurement, sales promotion, asset revitalisation, balancing of tax liabilities and improvement of financial structure.

As at the end of the reporting period, the total assets of CMB Financial Leasing amounted to RMB196.052 billion, and its net assets amounted to RMB21.796 billion. It realised a net profit of RMB1.436 billion during the reporting period.

3.10.8 CMB International Capital

Established in 1993, CMB International Capital is a wholly-owned subsidiary of the Company in Hong Kong, with a registered capital of HK$4.129 billion. At present, the business scope of CMB International Capital and its subsidiaries mainly covers corporate finance, asset management, wealth management, stocks and structured finance.

As at the end of the reporting period, the total assets of CMB International Capital amounted to HK$36.698 billion, and its net assets amounted to HK$9.455 billion. During the reporting period, it realised a net profit of HK$699 million. During the reporting period, CMB International Capital gained 8.20% of underwriting services in the Hong Kong IPO market, ranking first in the Hong Kong capital market.

3.10.9 CMB Wealth Management

CMB Wealth Management was established and wholly owned by the Company with a registered capital of RMB5.0 billion, and was officially launched in November 2019.

CMB Wealth Management is based in the headquarter in Shenzhen. It upholds the values of "professionalism, conscientiousness, innovation, and coordination" and the brand appeal of "providing better answers to the future", and is committed to gradually establish an all-round asset management business model which focuses on fixed income investments with equity and alternative asset investments as the supplements, and provides customers with cross-market,multi-category wealth management product portfolios and asset management service options, so as to meet their diversified needs for asset management and their needs in preserving and increasing their wealth.

As at the end of the reporting period, the total assets of CMB Wealth Management amounted to RMB7.054 billion, and its net assets amounted to RMB6.522 billion. During the reporting period, it realised a net profit of RMB1.500 billion.

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3.10.10 China Merchants Fund

Established in 2002, China Merchants Fund had a registered capital of RMB1.31 billion. As at the end of the reporting period, the Company held 55% of China Merchants Fund's shares. The business scope of China Merchants Fund covers fund establishment, fund management and other operations approved by the CSRC.

As at the end of the reporting period, the total assets of China Merchants Fund amounted to RMB7.552 billion, and its net assets amounted to RMB5.468 billion. The total size of the asset management business (including China Merchants Fund and its subsidiaries) amounted to RMB958.761 billion. It realised a net profit of RMB448 million during the reporting period.

3.10.11 CIGNA & CMB Life Insurance

CIGNA & CMB Life Insurance, a joint venture of the Company, was established in Shenzhen in 2003, and it is the first Sino-foreign joint venture life insurance company established after China's entry into the World Trade Organisation (WTO), with a registered capital of RMB2.8 billion. As at the end of the reporting period, the Company held 50% of CIGNA & CMB Life Insurance's shares. CIGNA & CMB Life Insurance is mainly engaged in insurance businesses such as life insurance, health insurance and accident injury insurance, as well as the reinsurance of the above insurances.

As at the end of the reporting period, the total assets of CIGNA & CMB Life Insurance amounted to RMB70.333 billion, and its net assets amounted to RMB8.627 billion. During the reporting period, CIGNA & CMB Life Insurance realised a net profit of RMB683 million.

3.10.12 Merchants Union Consumer Finance

Merchants Union Consumer Finance, a joint venture of the Company, was established in Shenzhen in 2015, and it is the first consumer finance company in China established under the framework of the Closer Economic Partnership Arrangement (CEPA), with a registered capital of RMB3.869 billion. As at the end of the reporting period, the Company and its wholly-owned subsidiary, CMB Wing Lung Bank, jointly hold 50% of equity interest in Merchants Union Consumer Finance. Merchants Union Consumer Finance is mainly engaged in the granting of personal consumption loans.

As at the end of the reporting period, the total assets of Merchants Union Consumer Finance amounted to RMB92.076 billion, and its net assets amounted to RMB9.938 billion. During the reporting period, Merchants Union Consumer Finance realised a net profit of RMB578 million. As at the end of the reporting period, Merchants Union Consumer Finance ranked first among the licensed consumer finance companies in terms of the volume of loans, and its asset quality was better than the average level of other licensed consumer finance companies.

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3.11 Risk Management

The Company stepped up the construction of a risk management system focusing on risk-adjusted value creation under the principles of "Comprehensive, Professional, Independent and Balanced Management". The Risk and Compliance Management Committee of the Head Office is responsible for reviewing and determining the most significant bank-wide risk management policies on risk preferences, strategies, policies and authorisations approved by the Board of Directors.

During the reporting period, against the backdrop of complicated and volatile economic environment at home and abroad and the increasing risk in bank operations, the Company continued to improve its overall risk management system while proactively overcoming and preventing all kinds of risk.

3.11.1 Credit risk management

Credit risk refers to the risk arising from a bank's borrowers or counterparties failing to perform its obligations as agreed. Adhering to its management philosophy of "Quality Goes First Based on Compliance and Risk Control (合 規為根、風險為本、質量為先)", and with the goal of "fostering a leading risk management bank", the Company promoted the risk management culture of "staying healthy, rational, proactive and comprehensive (穩健、理性、 主動、全員)", stuck to the concept of balanced returns and risks and the prudent business strategy in which risks can ultimately be covered by capital, implemented a unified credit risk preference, optimised the life-cycle credit risk management processes, improved credit risk management tools, and fully improved risk management capabilities, so as to prevent and reduce credit risk loss.

During the reporting period, the Company closely followed the macro economic and financial situations, strictly abided by the bottom line, was open-minded and took various measures to root out potential risks, thereby effectively keeping asset quality stable. Firstly, the Company confronted the difficulties and dealt with the impact of the pandemic on asset quality. The Company conducted a comprehensive survey on industries and customers that were significantly affected by the pandemic, as well as key risks and hidden dangers, and deployed the control measure of "a specific policy for a specific customer". Also, the Company overcame unfavorable factors such as the pandemic, and accelerated the recovery of collection capabilities. It carried out multiple rounds of stress testing on the impact of the pandemic, and formulated emergency plan in advance. Secondly, the Company focused on openness, integration and value creation with risk management. The Company accelerated the research for the new growth engine industries, deepened industrial awareness, and promoted the organisation of new growth engine assets. By closely following the national economic regional strategy, the Company strengthened the economic research for Yangtze River Delta and other regions, improved regional credit policies, and led the Company to secure the leading position in both business development and risk management in Yangtze River Delta and other regions. The Company dynamically optimised the list of strategic customers, optimised the risk management system such as credit policies, systems and procedures for the strategic customers of the Head Office and branches, strengthened the research and risk management of listed companies, and established a comprehensive evaluation system for listed companies. Thirdly, the Company built a strong foundation and promoted the capacity building for risk systemisation. The Company established a credit risk rating model for financial institution customers, optimised credit access standards and pre-warning mechanisms, and continuously improved the systematic capability of risk management. Fourthly, the Company increased the channels for disposal of non-performing assets while effectively disposing of non-performing assets. The Company intensified the recovery of non-performing assets by cash collection while continuously promoting the write-off of non-performing assets and securitisation of assets. The Company proactively explored debt-to-equity conversion, made use of a number of methods to mitigate risk assets and achieved the effective and efficient disposal of non-performing assets based on compliance regulations. Fifthly, the Company strengthened scientific and technological empowerment and improved risk management efficiency. The Company improved the online risk control platform and established risk control models, so as to provide support for risk control decisions. Moreover, the Company continued to monitor the results of the intelligent rating models of non-financial companies and the intelligent risk pre-warning models, thereby further deepening the application of Fintech achievements.

For more information about the Company's credit risk management, please refer to Note 41(a) to the financial statements.

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3.11.2 Management of large-scale risk exposure

In accordance with the "Management Measures for Large-Scale Risk Exposure of Commercial Banks" (CBIRC Order 2018 No. 1) 《( 商業銀行大額風險暴露管理辦法》(銀保監會2018年1號令)) issued by the CBIRC, large-scale risk exposure refers to the credit risk exposure (including various credit risk exposures in the banking book and trading book) to a single customer or a group of related customers of a commercial bank that exceeds 2.5% of its net Tier 1 capital. The Company has incorporated large-scale risk exposure management into its overall risk management system, and measured and dynamically monitored changes in large-scale risk exposure, so as to effectively controlled customer concentration risks. As at the end of the reporting period, other than customers with regulatory exemption, single non-financial institution customers, group non-financial institution customers, single financial institution customers and group financial institution customers of the Company that reached the standards of large-scale risk exposure were all in compliance with the regulatory requirements.

3.11.3 Country risk management

Country risks represent the risks of economic, political and social changes or developments in a country or region that may cause borrowers or debtors in that country or region to be unable or unwilling to fulfil their obligations to banks, or incur loss to commercial presences of the Company in that country or region, or other loss to the Company in that country or region. Country risk may arise from deteriorating economic conditions, political and social upheavals, nationalisation or expropriation of assets, and government repudiation of external indebtedness, foreign exchange controls and currency depreciation in a country or region.

Following the principles of soundness and prudence, the Company established a country risk management system compatible with strategic objectives, risk profile and complexity, and incorporated country risk management into its overall risk management system so as to promptly identify, measure, evaluate, monitor, report, control and mitigate country risks, assess the country risk ratings in a regular manner and implement limit management, while guiding business to tilt in favour of low-risk countries. Under the background of spreading pandemic overseas and constant international trade frictions, risks in some countries and regions have increased. Therefore, the Company strengthened risk monitoring and management in priority countries, dynamically updated country risk ratings based on risk changes, and strictly restricted business growth in high-risk countries. As at the end of the reporting period, the Company has made adequate allowances for country risks in accordance with the regulatory requirements. As a result, the country risks will not have material effect on the operations of the Company.

3.11.4 Market risk management

The Company's market risk arises from trading book and banking book, and the interest rate risk and exchange rate risk are the major market risks faced by the Company.

Interest rate risk management

Trading book

The Company uses various risk indicators, including volume indicators, market risk value indicators (VaR, covering interest rate risk factors of various currencies and durations relating to trading book business), interest rate stress testing loss indicators, interest-rate-sensitive indicators and accumulative loss indicators, to measure, monitor and manage the interest rate risk of trading book. The interest rate risk factors used for risk measurement cover all businesses under the trading book, and are comprised of around 140 interest rate indicators or bond yield curves. VaR includes general VaR and stressed VaR, which are both calculated using the historical simulation method and adopt a confidence coefficient of 99%, an observation period of 250 days and a holding period of 10 days. The interest rate stress testing scenarios include the parallel move, steep move and twisted change of interest rates at various degrees and various unfavorable market scenarios designed on the characteristics of investment portfolios. Among which, the extreme interest rate scenario may move up to 300 basis points and cover the extremely unfavorable conditions of the market. Major interest rate sensibility indicator reflects the duration of bonds and the change in the market value of bonds and interest rate derivatives PV01 (when an interest rate fluctuates unfavorably by 1 basis point). As for daily risk management, the annual scope of authorisation and the market risk limits for the interest rate risk businesses under the trading book are set in accordance with the risk appetite, operation plan and risk prediction of the Board of Directors at the beginning of the year for which the Market Risk Management Department is responsible for daily monitoring and continuous reporting.

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In the first half of 2020, under the impact of the COVID-19 pandemic, the global financial market saw the most violent turbulence since the 2008 financial crisis, resulting in increasing frequency of the "Black Swan" events in the financial market, and collapse of the US stock market triggering the circuit breaker four times and the settlement price of crude oil futures dipping negative for the first time in the history, and experienced frequent switching from risk-off,risk-on to risk-off, which was fueled by the continued spread of pandemic overseas as the main trigger. Central banks in various countries generally stabilise the market by adopting loose monetary policies. The Federal Reserve cut its interest rates in a successive and prompt manner, which led to the yield of 10-year USD bonds hitting a record low of 0.3%. The total amount of RMB bonds in issue recorded a year-on-year increase, and interest rates in the bond market showed an overall downward trend. As at the end of the reporting period, the yield of 1-year treasury bonds dropped 19 basis points to 2.18% as compared with the end of the previous year, and the yield of 10-year treasury bonds dropped 31 basis points to 2.82% as compared with the end of the previous year. Since May, thanks to the improvement of economic data and upturn of macro fundamentals, the market expectations have shifted, and the yield curve of treasury bonds moved upward. The yield of 1-year treasury bonds and 10-year treasury bonds increased by 49 basis points and 23 basis points, respectively, in the second quarter.

The investment scope of the trading book of the Company focused on RMB bonds. During the pandemic, prudent investment strategies and targeted risk control measures were adopted by the Company to ensure that all interest rate risk indicators of the trading book fall within the target range.

Banking book

The Company mainly adopts the re-pricing gap analysis, duration analysis, benchmark-correlated analysis, scenario simulation and other methods to measure and analyse the interest rate risk of banking book on a monthly basis. The re-pricing gap analysis mainly monitors the distribution of re-pricing duration and mismatch of assets and liabilities; the duration analysis monitors the duration of major product types and the change in the duration gap of assets and liabilities of the whole Bank; the benchmark-correlated analysis assesses the benchmark risk existing between different pricing benchmark interest rate curves, as well as between the different duration points on each of such curves based on the benchmark-correlated coefficients calculated using our internal models; the scenario simulation is the major approach for the Company to conduct interest rate risk analysis and measurement, which comprises a number of ordinary scenarios and stress scenarios, including the interest rate benchmark impact, the parallel move and the change in the shape of yield curves, the extreme changes in interest rates in history, and the most possible changes in interest rates in the future as judged by experts and other scenarios. The net interest income (NII) for the future one year and the changes in economic value (EVE) indicator are calculated through simulation of the scenario of changes in interest rates. The NII fluctuation ratio and the EVE fluctuation ratio of certain scenarios are included into the interest rate risk limit system of the whole Bank. In addition, the internal limit indicator system is included into the standardised measurement indicators set out in the Guidelines on the Management of Interest Rate Risk of Banking Book of Commercial Banks (Revised) issued by the CBIRC.

During the reporting period, the Company paid close attention to changes in the external environment and internal interest rate risk exposure structure, made prediction and analysis of the trend of credit and market interest rates based on the macro quantitative model, and flexibly adjusted the active management strategy for interest rate risk. The Company, through the adjustments to the structure of on-balance sheet assets and liabilities and off-balance sheet interest rate derivatives, hedged against the rise in interest rate risk as a result of the switch of existing loan interest rates and the decline in LPR. As at the end of the reporting period, various on- and off-balance sheet management measures were implemented as scheduled, and the interest rate risks were under control within the annual interest rate risk management and control target range of the Company. The results of stress test also showed that various indicators still stayed within the limits and pre-warning values of the Company, and the interest rate risk of the banking book was generally controllable.

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Exchange rate risk management

Trading book

The Company uses the risk indicators such as risk exposure indicator, market risk value indicator (VaR, covering foreign exchange rate risk factors of various currencies related to transactions on the trading book), the exchange loss indicator under stress test, option-sensitive indicator and accumulated loss indicator to conduct risk measurement and monitoring management. As for risk measurement, the selected exchange rate risk factor is applied on spot prices, forward prices and volatilities in all transaction currencies under the trading book. Market value risk indicators comprise general market value at risk and stress market value at risk, and are calculated using historical simulation based on a confidence coefficient of 99%, an observation period of 250 days and a holding period of 10 days. Exchange rate stress test scenarios cover 5%, 10%, 15% or more adverse changes in every transaction currency against RMB, and changed volatility of foreign exchange options. Major option-sensitive indicators include Delta, Gamma, Vega and other indicators. For daily management, we set annual limits on authority associated with exchange rate risks under the trading book and relevant market exposure at the beginning of the year according to the risk appetite, business planning and risk forecast of the Board of Directors, and delegated the Market Risk Management Department to perform daily monitoring and on-going reporting.

In the first half of 2020, the RMB exchange rate has been steady and fluctuated up and down within a reasonable range. Compared with the violent fluctuations of the USD and other foreign currencies, the RMB exchange rate kept the flexibility in two-way fluctuation, and the price of the USD to the RMB remained stable in the range of 6.96-7.18. Affected by the COVID-19 pandemic, economic environment at home and abroad was hit and the USD to the RMB encountered a relatively rapid upward trend, reaching a peak of 7.15. However, the pandemic prevention and control in China has been improved, in addition to the sufficient and stable foreign exchange reserve, which supported the positive economic fundamental in the long run, resulting in the USD to RMB gradually dropping below 7.1.

Under this background, the Company mainly obtained spread income through foreign exchange trading business on behalf of customers, and utilised system modules to dynamically monitor the exposure of proprietary trading, and adopted the stringent internal control and management during the pandemic and closely monitored the indicators such as sensitivity index and stop-loss. As at the end of the reporting period, all exchange rate risk indicators of trading book of the Company were within the target range.

Banking book

The data for measurement of exchange rate risk of banking book of the Company was derived mainly from database, and the Company mainly uses foreign exchange exposure analysis, scenario simulation analysis, stress test, and other methods for measurement and analysis. The foreign exchange exposure measurement uses the short-sided method, the correlation approach and the aggregation approach; scenario simulation and stress test analysis are two important exchange rate risk management tools of the Company for managing foreign exchange rate risk in respect of fluctuation of all currency exchange rates, including the standard scenario, historical scenario, forward scenario and stress scenario. Based on the forward exchange rate fluctuation and the scenario of historical extreme fluctuations, each scenario could simulate the impact on the Company's profit or loss. The effects of certain scenarios on the profit and loss and its percentage to net capital as a limit indicator are taken as reference in the daily management. The Company conducts back-testing and assessment on relevant model parameters on a regular basis to verify the effectiveness of measurement models.

The Company regularly measures and analyses foreign exchange exposure of banking book and scenario simulation results, monitors and reports exchange rate risk on a monthly basis under its quota limit framework, and adjusts its foreign exchange exposure accordingly based on the trend of foreign exchange movements, so as to mitigate the relevant foreign exchange risk of banking book. The Audit Department of the Company is responsible for overall auditing of our exchange rate risk.

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During the reporting period, the Company paid close attention to exchange rate movements, took initiative to analyse the impact of exchange rate changes in light of the macro economic conditions at home and abroad, and proposed a balance sheet optimisation program as a scientific reference for the management's decision-making. In the first half of 2020, the RMB exchange rate experienced a vehement two-way fluctuation due to the volatility of economic fundamentals, USD liquidity, financial market fluctuations and uncertainty in the trading environment under the impact of the pandemic. The Company increased its efforts to monitor and analyse of foreign exchange exposure and imposed a stringent control over the scale of foreign exchange risk exposure. The Company was prudent about the exchange rate risk. As of the end of the reporting period, the size of the banking book of the Company's foreign exchange exposure was at a relatively low level. The exchange rate risk of the Company is generally stable with all the core limit indicators, general scenarios and stress testing results satisfying the regulatory limit requirement.

For more information about the Company's market risk management, please refer to Note 41(b) to the financial statements.

3.11.5 Operational risk management

Operational risk refers to the risk of loss arising from inappropriate or failed internal procedures, incompetent personnel or IT systems, or external events. In view of the various aspects and wide range of operational risks, the Company's operational risk management will, based on the principles of cost-revenue matching and input-output balance, vigorously strengthen the establishment of operational risk management system, implement internal control system, continue to carry out various businesses steadily and reduce or prevent operational risk losses with a certain level of cost. In the process of operational risk management, within the risk limits set by the Board of Directors, the Company will, through measures such as further improving the risk management mechanism, strengthening risk prevention and control in key areas, conducting risk monitoring and pre-warning, improving assessment and evaluation mechanism, and cultivating operational risk prevention culture, so as to further improve operational risk management capabilities and effectiveness, and prevent and reduce operational risk losses.

During the reporting period, in order to prevent loss arising from systematic operational risk and material operational risk, the Company continued to improve its operational risk management system. Firstly, the Company strengthened the management of risks associated with collaborative businesses and cooperative institutions, and developed risk management and control work program for collaborative businesses. Secondly, the Company intensified the risk management and control of business with "low credit risk" and prepared risk cases for publicity. Thirdly, the Company reinforced risk prevention and control in key areas and continued to carry out risk screening on stakeholder business, P2P, private equity funds, settlement facilitation, and electronic discounted business bills and other areas and made corresponding response. Fourthly, the Company made efforts to enhance the outsourcing-related risk management, review new outsourcing product offering in a prudent way, and launch outsourcing-risk screening. Fifthly, the Company deepened operational risk management requirements, formulated and issued operational risk guideline regarding key work and consolidated management, and further defined operational risk management requirements. Sixthly, the Company comprehensively strengthened IT risk and business continuity management, promptly deliver risk reminders in light of internal and external risk conditions and organised special assessments thereof, and completed annual business continuity plan, business continuity management work guideline and business continuity report under the influence of public opinion.

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3.11.6 Liquidity risk management

Liquidity risk refers to the risk that the Company's unable to obtain sufficient funds at a reasonable cost in a timely manner to grow its assets, pay maturing debts and perform other payment obligations. The liquidity risk management of the Company is based on the principles of prudence, foresight and comprehensiveness, which is more appropriate for the current development stage of the Company. The current liquidity risk management policies and systems of the Company have basically satisfied the regulatory requirements and its own management needs.

Based on the principle of separating policy-making, strategy implementation and supervision of liquidity risk management, the Company puts in place a governing framework under which the roles, responsibilities and reporting lines of the Board of Directors, the Risk and Capital Management Committee, the Board of Supervisors, senior management, designated committees and relevant departments are segregated to ensure the effectiveness of liquidity risk management.

In the first half of 2020, the central bank maintained a prudent monetary policy and reasonably adequate liquidity. In response to the market environment and the liquidity profile of the Company, the Company implemented the following measures to enhance liquidity management. Firstly, the Company continued to promote the growth of deposits from customers, through measures such as strengthening the guiding of marketing strategies for key customer groups, strengthened the control of key timings, promoted the steady growth of low-cost deposits through various measures and guided the further decrease of liabilities and costs. Secondly, the Company dynamically controlled the exposure of credit assets, and continued to optimise the asset structure, in order to achieve balanced development of assets and liabilities. Thirdly, the Company strengthened active liability management in all aspects and channels, enhanced cooperation with counterparties, expanded diversified financing channels, and improved the financing capability of our treasury. Fourthly, the Company conducted in-depth refined forward-looking liquidity risk management. By using quantitative modeling and dynamic measurement and calculation, the Company enhanced its research and judgment in macro-economy and the dynamic prediction on the liquidity of the whole Bank, flexibly conducted short term and medium- to long-term active liability taking according to its own liquidity profile and market interest rate trend, so as to improve the proactive risk management of the liquidity risk. Fifthly, the Company moderately increased its investments in qualified high-quality bonds, maintained sufficient liquidity reserve, and further enhanced the ability to mitigate liquidity risk. Sixthly, the Company strengthened liquidity risk management of business lines. Specifically, as for standalone business lines such as bills business, wealth management business and offshore banking business, the Company set separate liquidity risk limit and enhanced the duration matching management of its assets and liabilities. Seventhly, the Company tested and improved the liquidity contingency plan and emergency plan, and effectively improved the ability to respond to liquidity risk events through regular liquidity risk emergency drills.

The Company has satisfied the relevant requirements of the "Administrative Measures on Liquidity Risk of Commercial Banks" issued by the CBIRC in May 2018. As at the end of the reporting period, the Company's liquidity coverage ratio was 138.34%, higher by 38.34 percentage points than the minimum requirement of the CBIRC. The net stable funding ratio was 119.98%, higher by 19.98 percentage points than the minimum requirement of the CBIRC; the liquidity ratio was 45.85%, higher by 20.85 percentage points than the minimum requirement of the CBIRC; and the liquidity matching ratio was 145.85%, higher by 45.85 percentage points than the minimum requirement of the CBIRC, indicating that the Company had sufficient funding sources to meet the needs of sustainable and healthy development of the business. 9% of the Company's total RMB deposits and 5% of the Company's total foreign currency deposits were required to be placed with the PBOC. In summary, the Company's liquidity indicators remained at healthy levels. Deposits maintained steady growth. Liquidity reserves were sufficient and overall liquidity was at a safe level.

For more information about the Company's liquidity risk management, please refer to Note 41(c) to the financial statements.

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3.11.7 Reputational risk management

Reputational risk refers to the risk that the Company might be negatively evaluated by relevant stakeholders due to the Company's operations, management and other activities or external incidents. Reputational risk management is an important part of the corporate governance and the overall risk management system of the Company, covering all activities, operations and businesses undertaken by the Company and its subsidiaries. The Company established the reputational risk management system and formulated relevant requirements and took initiatives to effectively prevent the reputational risk and respond to any reputational incidents, so as to reduce loss and negative impact to the greatest extent.

During the reporting period, the Company continued to improve its reputational risk management capability through enhancing its pre-management capability of reputational risk under the overall risk management system and refining the risk alert mechanism to actively prevent reputational risk; and made respondence to public opinions in a timely manner, while speeding up the handling of negative public opinions and taking various risk mitigation measures to reduce negative impact to the greatest extent. During the reporting period, there was no material reputational risk event in the Company and the reputational risk across the whole Bank was controllable.

3.11.8 Compliance risk management

Compliance risk refers to the risk of being subject to legal sanctions, regulatory punishments, material financial losses, and reputational loss as a result of the failure to observe the laws, rules and standards. The Board of Directors of the Company is ultimately responsible for the compliance of the operating activities, and delegates the Risk and Capital Management Committee under the Board of Directors to supervise the compliance risk management. The Risk and Compliance Management Committee of the Head Office is the organisation to manage compliance risk of the whole company under the senior management. The Company set up three lines of defence for compliance risk management and the double-line reporting mechanism through the establishment of organisational management structure comprising the risk and compliance management committees, compliance supervisors, compliance officers and legal and compliance departments under the Head Office and its branches as well as compliance supervisors at branch and sub-branch levels, continuously improved risk management techniques and management procedures and established a complete and effective compliance risk management system to achieve effective control of compliance risks.

During the reporting period, the Company rigorously implemented regulatory policies, fulfilled requirements and comprehensively improved the systematic capability of compliance management by adopting the following measures: firstly, formulating and issuing the "Guidelines on Internal Control and Compliance Work of the Bank in 2020", mapping out plans for the management of compliance on internal control throughout the Bank; secondly, further deepening the rectification of market disorders in accordance with the requirements of the CBIRC and the Company's specific arrangements, thoroughly carrying out self-examination and self-correction by focusing on the major issues of market disorder in the banking industry and the key areas of regulation and inspection, which has continued to improve the long-term mechanism of compliance management; thirdly, strengthening the understanding and the circulation and delivery of new regulatory requirements, revising and improving relevant internal regulations according to new regulatory requirements in a timely manner and effectively implementing the system based on the practice, identifying and assessing the compliance risks associated with new products, new businesses and major projects, ensuring the business models are in line with regulatory orientation; fourthly, strengthening compliance education for employees, organising the leaders, compliance officers and compliance supervisors of each entity to conduct compliance seminars and warning case studies in an effort to continuously enhance employees' awareness on compliant operation and create an atmosphere of compliance for all employees; fifthly, improving employee behavior management system, revising the Administrative Measures on Employees' Abnormal Behaviors of China Merchants Bank, developing an employee behavior management system, while increasing its efforts to apply employees' behavior management tools such as keeping a list of minor violation points and name list of violating employees and conducting due diligence investigation on termination of employment to effectively implement employee behavior management; sixthly, setting up three lines of defense and an efficient and coordinated supervision and inspection mechanism on the basis of strengthening overall management, and integrating various inspections of business departments, risk departments, compliance departments and audit departments into joint inspections with unified organisation, unified entry and unified standard, and opening up the cooperation channel for inspection resources between the three lines of defense, so as to comprehensively improve the quality and efficiency of internal supervision and inspection; and seventhly, developing a "legal compliance portal" system, integrating internal control and compliance data resources, and building internal control and compliance data marts, so as to improve the capability of internal control and compliance data analysis, and promote the digital transformation of internal control and compliance management throughout the Bank.

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3.11.9 Anti-money laundering management

The Company has established a relatively sound anti-money laundering internal control system. The Company has formulated a full set of anti-money laundering management system based on the requirements of relevant laws and regulations on anti-money laundering and its own actual conditions. It has also developed and launched

  1. comparatively complete anti-money laundering monitoring system, established an anti-money laundering organisational system, and had a dedicated anti-money laundering team to ensure the sound operation of business throughout the Bank.

During the reporting period, the Company fulfilled its anti-money laundering obligations and took various measures to ensure the compliance and effectiveness of its anti-money laundering. These measures included but were not limited to: further improving the internal control system for anti-money laundering of the Company in accordance with the requirements of the "Guidelines for Risk Management of Money Laundering and Terrorism Financing for Legal Entities of Financial Institutions (Trial)", "Administrative Measures for Anti-Money Laundering and Anti-Terrorism Financing in Banking and Financial Institutions" and other regulatory documents as well as the actual risk profile of the Company. The Company completed the assessment of money laundering and sanctions risk of the Company for 2019, strengthened the assessment of money laundering risks associated with its businesses and products, and effectively embedded anti-money laundering compliance requirements into business processes and systems. The Company further carried out various risk screening and case re-investigations to prevent various money laundering risks, further promoted the application of AI in anti-money laundering to enhance the accuracy in identification of suspicious customers and the quality and efficiency of monitoring and analysis of suspicious cases, which enabled the recognition rate of high-risk transactions associated with money laundering to reach 95%, continuously optimised and promoted the customer due diligence platform for anti-money laundering and improved the customer due diligence processes. The Company continuously optimised the anti-money laundering monitoring systems, the name list management system for anti-money laundering and the risk rating systems to improve the effectiveness of anti-money laundering throughout the Bank. The Company further promoted and implemented the "Notice of the People's Bank of China on Strengthening the Identification of Anti-Money Laundering Customers" and other regulatory requirements, and continued to carry out beneficiary identification, suspicious transactions reporting, subsequent risk control and the management of customers associated with high risks.

3.12 Profit Appropriation

The profit appropriation plan for 2019

The profit appropriation plan of the Company for 2019 was considered and approved at its 2019 Annual General Meeting held on 23 June 2020.

10% of the audited net profit of the Company for 2019 of RMB86.085 billion, equivalent to RMB8.609 billion, was allocated to the statutory surplus reserve by the Company, while 1.5% of the total balance of the risk assets, equivalent to RMB10.002 billion, was appropriated to the general reserve. Based on the total share capital of A Shares and H Shares on the record date for implementation of the profit appropriation, the Company proposed to declare a cash dividend of RMB1.20 (tax included) for every share to all shareholders of the Company whose names appear on the register, payable in Renminbi for holders of A Shares and in Hong Kong Dollars for holders of H Shares. The retained profits will be carried forward to the next year. In 2019, the Company did not transfer any capital reserve into share capital.

The Board of Directors of the Company has already implemented the above-mentioned dividend appropriation plan. For further information, please refer to the relevant announcement(s) published by the Company on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company, respectively.

Interim dividend appropriation for 2020

The Company would not distribute interim dividends for the first half of 2020, nor would it transfer any capital reserve into share capital (for January-June 2019: nil).

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Important Events

4.1 Purchase, Sale or Redemption of Listed Shares of the Company

Neither the Company nor its subsidiaries had purchased, sold or redeemed any of the Company's listed shares during the reporting period.

4.2 Disciplinary Actions Imposed on the Company, Directors, Supervisors or Senior Management

During the reporting period, none of the Company, its Directors, Supervisors or senior management was subject to investigation by relevant authorities or to mandatory measures imposed by judicial organs or disciplinary inspection authorities. None of them had been referred or handed over to judicial authorities or prosecuted for criminal liability, under investigation or administrative sanction by the CSRC, nor had they been prohibited from engagement in the securities markets, determined as unqualified, or been publicly censured by any stock exchange. The Company has not been penalised by other regulatory bodies which have significant impact on the business of the Company.

4.3 Explanation About the Integrity Profile of the Company

There has not been any significant court judgment with which the Company has not complied, nor has there been any outstanding debt of significant amount during the reporting period.

4.4 Significant Connected Transactions14

4.4.1 Overview of connected transactions

A majority of the continuing connected transactions of the Company met the de minimis exemption and the non-exempt continuing connected transactions fulfilled the reporting and announcement requirements under the Hong Kong Listing Rules.

4.4.2 Non-exempt continuing connected transactions

Pursuant to Chapter 14A of the Hong Kong Listing Rules, the non-exempt continuing connected transactions of the Company were those conducted by the Company with CMFM and its associates (hereinafter referred to as "CMFM Group"), and CM Securities and its associates (hereinafter referred to as "CM Securities Group"), respectively.

With the approval of the Board of Directors of the Company, on 3 December 2019, the Company announced that the annual caps for the continuing connected transactions with CMFM Group for the years of 2020, 2021 and 2022 were RMB1.4 billion, RMB1.6 billion and RMB1.8 billion, respectively. On 27 March 2018, the Company announced that the annual caps for the continuing connected transactions with CM Securities Group for the years of 2018, 2019 and 2020 were RMB500 million. For details of the above continuing connected transactions, please refer to the relevant announcements of the Company dated 3 December 2019 and 27 March 2018, respectively.

14 "Connected Transaction(s)" and "Connected Parties" in this section are the terms of the Hong Kong Listing Rules.

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CMFM Group

At the end of the reporting period, the Company and CM Securities held 55% and 45% of the equity interest in CMFM, respectively. Therefore, CMFM Group is a connected person of the Company under the Hong Kong Listing Rules. The fund distribution agency service provided by the Company to CMFM Group constituted the continuing connected transactions of the Company under the Hong Kong Listing Rules.

On 3 December 2019, the Company entered into a Business Co-operation Agreement with CMFM for a term commencing on 1 January 2020 and expiring on 31 December 2022. The agreement was entered into on an arm's length basis and calculated on normal commercial terms. CMFM Group shall calculate fees based on the rates specified in the fund offering documents and/or the offering prospectuses, and pay agency service fees to the Company in accordance with the agreement.

The annual cap for the continuing connected transactions between the Company and CMFM Group for 2020 was RMB1.4 billion, in respect of which the relevant percentage ratios calculated in accordance with Rule 14.07 of the Hong Kong Listing Rules were not more than 5%. Therefore, these transactions would only be subject to the reporting, announcement and annual review requirements under the Hong Kong Listing Rules, and exempt from the independent shareholders' approval requirement.

During the reporting period, the continuing connected transactions between the Company and CMFM Group amounted to RMB508 million (unaudited).

CM Securities Group

At the end of the reporting period, China Merchants Group Ltd. indirectly held 29.97% of the equity interest in the Company (by way of equity interests held, right of control or relationship of parties acting in concert) and also held 44.09% of the equity interest in CM Securities. Therefore, CM Securities Group is a connected person of the Company under the Hong Kong Listing Rules. The third-party custodian accounts, sales of funds, account custodian, the agency sales for wealth management products and collective investment products and other services provided by the Company to CM Securities Group constituted the continuing connected transactions of the Company under the Hong Kong Listing Rules.

On 27 March 2018, the Company entered into a Business Co-operation Agreement with CM Securities for a term commencing on 1 January 2018 and expiring on 31 December 2020. The agreement was entered into on normal commercial principles after an arm's length negotiation, pursuant to which CM Securities Group shall pay the service fees to the Company at the normal market prices.

The annual cap for the continuing connected transactions between the Company and CM Securities Group for 2020 was RMB500 million, in respect of which the relevant percentage ratios calculated in accordance with Rule 14.07 of the Hong Kong Listing Rules were not more than 5%. Therefore, these transactions would only be subject to the reporting, announcement and annual review requirements, and exempt from the independent shareholders' approval requirement under the Hong Kong Listing Rules.

During the reporting period, the continuing connected transactions between the Company and CM Securities Group amounted to RMB111 million (unaudited).

4.5 Material Litigations and Arbitrations

Several litigations were filed during the daily operation of the Company, most of which were filed proactively for the purpose of recovering non-performing loans. As at the end of the reporting period, there were 189 pending cases (including litigations and arbitrations) in which the Company was involved, with an aggregate of principal and interest of RMB1.293 billion. The Company believes that none of the above litigation and arbitration cases would have a significant adverse impact on the financial position or operating results of the Company.

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4.6 Material Contracts and Their Performance

Significant events in respect of holding in custody, contracting, hiring or leasing of assets

During the reporting period, none of the material contracts of the Company involving holding in custody, contracting or hiring or leasing of any assets of other companies by the Company or vice versa was entered into beyond the normal business scope of banks.

Significant guarantees

Guarantee business falls within the Company's ordinary course of business. During the reporting period, save for the financial guarantees entered into in our normal business scope approved by the CBIRC, the Company did not have any other significant discloseable guarantees.

4.7 Use of Funds by Related Parties

During the reporting period, neither the substantial shareholders of the Company nor their related parties had used any funds of the Company for non-operating purposes, and none of them had used the funds of the Company through (among others) any related transactions not entered into on an arm's length basis.

4.8 The Engagement of Accounting Firms for 2020

Upon the approval at the 2019 Annual General Meeting of the Company, the Company engaged Deloitte Touche Tohmatsu Certified Public Accountants LLP as the domestic accounting firm of the Company and its domestic subsidiaries for 2020 and engaged Deloitte Touche Tohmatsu, an overseas member of Deloitte Touche Tohmatsu Certified Public Accountants LLP as the international accounting firm of the Company and its overseas subsidiaries for 2020. The term of the engagement is one year. For further details, please refer to the documents for 2019 Annual General Meeting and relevant announcements regarding the resolutions of the Company.

4.9 Social Responsibility

Adhering to its social responsibility philosophy of "striving for sustainable finance, enhancing sustainable value and contributing to sustainable development", the Company continued to improve its social responsibility management mechanism while actively communicating with its stakeholders, fulfilling its corporate social responsibility and making contributions to the sustainable development of the economy and the society. During the reporting period, the Company actively advocated the "Popularization of Financial Knowledge", "Prevention of Illegal Fund-raising", "Prevention of Illegal Foreign Exchange Margin Trading" and other promotional activities and strengthened the education on financial security for the financial consumers. It also constantly advocated the idea of "Monthly Donation" and "Happy Donation", promoted public charity for everybody, and explored the path of sustainable public charity activities.

Faced with the COVID-19 pandemic, the Company has united efforts to help Wuhan. The Company made a donation of RMB200 million to Wuhan Charity Federation immediately after the outbreak of the pandemic. Our employees also donated RMB6.9112 million (including both financial and non-financial donations). Meanwhile, the Company used its quality financial services to help fight the pandemic. While ensuring the safety of customers and employees, the Company provided quality financial services via online and offline channels. Moreover, fast-track approval was in position to increase the credit support for enterprises related to pandemic prevention. The Company also vigorously helped the resumption of work and production of enterprises, working together to tide over difficult times.

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Environment information

During the reporting period, the Company adapted to the national policy orientation and followed the trend of domestic economic transformation while promoting green finance from the strategic perspective of the Bank, continuously improving the green credit policy, allocating credit resources towards environmental protection causes, and creating green value. For details of the granting of green loans of the Company, please refer to "Wholesale finance - Corporate loans" in Section 3.10.2. Meanwhile, the Company vigorously promoted the "paperless" operation process, made efforts to save energy and reduce emission, and constantly tried its best to reduce consumption of the resources and energy generated by the environment; the Company encouraged its employees to use office supplies in an environment-friendly manner and foster a low-carbon office culture; it continuously sponsored environment protection activities to arouse public awareness on environmental protection.

Targeted poverty alleviation

The Company resolutely implemented the decisions and arrangements of the Central Committee of CPC and the State Council on poverty alleviation, and regarded accurate and targeted poverty alleviation as its key political tasks, for which it has put together a leading group headed by the Secretary of the Party Committee and the President for coordinating the cross-division poverty alleviation efforts under the leadership of the Party Committee of the Company. The Company optimised poverty alleviation mechanism, focused on the difficulties of poverty alleviation, continuously increased the assistance and carried out innovation of poverty alleviation products to reinforce the accurate and targeted poverty alleviation efforts and fight the battle of accurate poverty alleviation in the financial sector by centering around the basic poverty alleviation standards known as "two no-worries and three guarantees (no worry about food and no worry about clothes, and guarantee of compulsory education, guarantee of basic medical care and guarantee of safe housing)" and adhering to the guideline of "really conducting poverty alleviation and helping the people really in need".

During the reporting period, the Company invested supporting funds of RMB44.1635 million and helped raising financial assistance of RMB1.7692 million in Wuding County and Yongren County, trained 485 grassroots officials and 1,608 technicians for them, purchased agricultural products worth RMB1.2018 million from poverty-stricken areas, and helped poverty-stricken areas to sell agricultural products worth RMB1.4149 million. The Company carried out projects to alleviate poverty through education, cultural development, industrial support, consumption, professional expertise and job creation, used the "party-building mechanism" to promote poverty alleviation and particularly focused on safe housing, healthcare and drinking water safety. During the reporting period, the Company granted accurate poverty alleviation loans amounting to RMB3.721 billion on a national scale, including RMB1.875 billion of individual loans and RMB1.846 billion of corporate loans.

Protecting the consumer interests

With the great attention from the Board of Directors and senior management, the Company conscientiously implemented the relevant laws, regulations and regulatory requirements for the protection of consumer interests, continued to deepen its efforts and understanding, actively implemented the responsibilities of protecting consumer interests in the operation, management and business processes throughout the Bank, safeguarded the legitimate rights and interests of consumers, and advanced the standardisation, specialisation and normalisation of its efforts in protecting the rights and interests of consumers.

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In terms of system building, the Company continued to improve the system for the protection of consumer interests, promoted the improvement of the management system for the protection of consumer interests that integrating the entire process before, during and after the event, and established a system for the protection of consumer interests with the working procedures of the Consumer Rights Protection Committee as the upper structure design, the management measures for the protection of interests of consumers as the main body, and supplemented by a series of supporting systems and working mechanisms. In terms of full-process management and control, the Company actively integrated the concepts and requirements of protection of interests of consumers into the design and development of financial products and services, fully initiated the review of protection of interests of consumers for financial products and services, through the formulation of special systems, the development of review systems, the establishment of work lists and other measures, to effectively implement various regulatory requirements in the design, development, promotion, and sales of products and services, so as to ensure business operations are carried out in compliance with laws and regulations under the regulatory framework. In terms of internal education and training, the Company continued to carry out education and training of protection of interests of consumers for employees, with the trainees covering all middle-level and senior management members and grassroots business personnel related to the protection of interests of consumers. In terms of external education and publicity, the Company attached great importance to the publicity and education of financial knowledge. Leveraging on its official website, official accounts, video accounts, Weibo and other communication channels, the Company established a publicity system of "Internet + financial knowledge publicity and education", and constantly launched financial knowledge publicity and education contents in the forms of comics, graphics and micro movies, thereby becoming the first bank in the industry with an independent financial education brand and platform. In terms of technological innovation, the Company continued to explore the use of Fintech, was courageous to be the pioneer to introduce cutting-edge Fintech, and successfully completed the development of a consumer complaint management system. Through big data analysis, natural language processing and other technologies, the system successfully realised cross-system data docking, consolidation of complaint information, automatic classification of work orders, visualised chart presentation and real-time docking with regulatory systems, initially realised the refined management and standardised classification of consumer complaints, and further promoted the intelligent construction of complaint management.

4.10 Review of Interim Results

Deloitte Touche Tohmatsu, our external auditor, has reviewed the interim financial statements of the Company prepared in accordance with the International Accounting Standards and the disclosure requirements of the Hong Kong Listing Rules. In addition, the Audit Committee under the Board of Directors of the Company has reviewed and agreed with the financial results and financial statements of the Company for the period ended 30 June 2020.

4.11 Publication of Interim Report

The Company prepared the interim report in both English and Chinese versions in accordance with the International Accounting Standards and the Hong Kong Listing Rules. These reports are available on the websites of Hong Kong Stock Exchange and the Company. In the event of any discrepancies in interpretation between the English and Chinese versions, the Chinese version shall prevail.

The Company also prepared the interim report in Chinese version in accordance with the PRC Generally Accepted Accounting Principles and the preparation rules for interim reports of the CSRC. The report is available on the websites of Shanghai Stock Exchange and the Company.

82 China Merchants Bank Chapter V Changes in Shares and Information on Shareholders Interim Report 2020

Changes in Shares and Information on Shareholders

5.1 Changes in Ordinary Shares of the Company During the Reporting Period

Changes in the

31 December 2019

No. of shares

30 June 2020

during the

Percentage

reporting period

Percentage

No. of shares

(%)

No. of shares

No. of shares

(%)

1.

Shares subject to trading

moratorium

-

-

-

-

-

2. Shares not subject to trading

moratorium

25,219,845,601

100.00

-

25,219,845,601

100.00

(1)

Ordinary shares in RMB

(A Shares)

20,628,944,429

81.80

-

20,628,944,429

81.80

(2)

Foreign shares listed domestically

-

-

-

-

-

(3)

Foreign shares listed overseas

(H Shares)

4,590,901,172

18.20

-

4,590,901,172

18.20

(4)

Others

-

-

-

-

-

3.

Total shares

25,219,845,601

100.00

-

25,219,845,601

100.00

As at the end of the reporting period, the Company had a total of 386,864 ordinary shareholders, including 354,507 holders of A Shares and 32,357 holders of H Shares. Neither the holders of A Shares nor the holders of H Shares are subject to trading moratorium.

Based on the publicly available information and so far as the Directors of the Company were aware, as at the end of the reporting period, the Company had met the public float requirement of the Hong Kong Listing Rules.

5.2 Top Ten Holders of Ordinary Shares and Top Ten Holders of Ordinary Shares Whose Shareholdings Are Not Subject to Trading Moratorium

Number

of shares

Percentage

subject to

Shares

Shares held at

of the total

Changes in

trading

pledged

Type of

the end of the

share

the reporting

moratorium

or frozen

Serial No.

Name of shareholders

shareholders

period (share)

capital (%)

Type of shares

period (share)

(share)

(share)

1

HKSCC Nominees Ltd.

Overseas legal

4,548,951,759

18.04

H Shares not

673,405

-

Unknown

person

subject to trading

moratorium

2

China Merchants Steam Navigation

State-owned

3,289,470,337

13.04

A Shares not

-

-

-

Co., Ltd.

legal person

subject to trading

moratorium

China Merchants Bank

Chapter V Changes in Shares and Information on Shareholders

83

Interim Report 2020

Number

of shares

Percentage

subject to

Shares

Shares held at

of the total

Changes in

trading

pledged

Type of

the end of the

share

the reporting

moratorium

or frozen

Serial No.

Name of shareholders

shareholders

period (share)

capital (%)

Type of shares

period (share)

(share)

(share)

3

China Ocean Shipping Company

State-owned

1,574,729,111

6.24

A Shares not

-

-

-

Limited

legal person

subject to trading

moratorium

4

Hexie Health Insurance Co., Ltd. -

Domestic legal

1,258,949,171

4.99

A Shares not

-

-

-

Traditional - Ordinary insurance

person

subject to trading

products

moratorium

5

Dajia Life Insurance Co., Ltd. -

Domestic legal

1,258,949,100

4.99

A Shares not

-

-

-

Universal products

person

subject to trading

moratorium

6

Shenzhen Yan Qing Investment and

State-owned

1,258,542,349

4.99

A Shares not

-

-

-

Development Company Ltd.

legal person

subject to trading

moratorium

7

China Merchants Finance Investment

State-owned

1,147,377,415

4.55

A Shares not

-

-

-

Holdings Co., Ltd.

legal person

subject to trading

moratorium

8

Shenzhen Chu Yuan Investment and

State-owned

944,013,171

3.74

A Shares not

-

-

-

Development Company Ltd.

legal person

subject to trading

moratorium

9

Hong Kong Securities Clearing

Overseas legal

943,914,888

3.74

A Shares not

-73,411,273

-

-

Company Limited

person

subject to trading

moratorium

10

China Securities Finance Corporation

Domestic legal

754,798,622

2.99

A Shares not

-

-

-

Limited

person

subject to trading

moratorium

Notes:

  1. Shares held by HKSCC Nominees Ltd. are the total shares in the accounts of holders of H Shares of China Merchants Bank trading on the transaction platform of HKSCC Nominees Ltd.. Hong Kong Securities Clearing Company Limited is an institution designated by others to hold shares on behalf of them as a nominal holder, and the shares held by it are the shares of China Merchants Bank acquired by investors through Shanghai-Hong Kong Stock Connect.
  2. Pursuant to the approval by CBIRC, Anbang Life Insurance Co., Ltd. has been renamed as Dajia Life Insurance Co., Ltd. and its controlling shareholder has been changed from Anbang Insurance Group Co., Ltd. to Dajia Insurance Group Co., Ltd.. For details, please refer to the announcement of the Company dated 28 August 2019. During the reporting period, the change of the names of its shareholders' accounts was completed at China Securities Depository & Clearing Corporation Ltd., Shanghai Branch.
  3. As at the end of the reporting period, of the aforesaid top 10 shareholders, HKSCC Nominees Ltd. is a wholly-owned subsidiary of Hong Kong Securities Clearing Company Limited; China Merchants Steam Navigation Co., Ltd., Shenzhen Yan Qing Investment and Development Company Ltd., China Merchants Finance Investment Holdings Co., Ltd. and Shenzhen Chu Yuan Investment and Development Company Ltd. are all subsidiaries of China Merchants Group Ltd.. According to the announcement of the Company dated 23 March 2020, Hexie Health Insurance Co., Ltd. and Dajia Life Insurance Co., Ltd. ceased to constitute the relationship of acting in concert. The Company is not aware of any affiliated relationship or action in concert among other shareholders.
  4. The above holders of A Shares did not hold the shares of the Company through credit securities accounts.

84 China Merchants Bank Chapter V Changes in Shares and Information on Shareholders Interim Report 2020

5.3 Information on Substantial Ordinary Shareholders

5.3.1 Information on the Company's largest shareholder

As at the end of the reporting period, China Merchants Group Ltd., through its subsidiaries, namely China Merchants Steam Navigation Co., Ltd., China Merchants Finance Investment Holdings Co., Ltd., Shenzhen Yan Qing Investment and Development Company Ltd., Shenzhen Chu Yuan Investment and Development Company Ltd., China Merchants Union (BVI) Limited, Best Winner Investment Limited and China Merchants Industry Development (Shenzhen) Limited, indirectly held an aggregate of 29.97% shares in the Company. There was no pledge of the shares of the Company. Specifically, China Merchants Steam Navigation Co., Ltd. (招商局輪船有限公司) directly held 13.04% shares in the Company, and is the largest shareholder of the Company (its predecessor, China Merchants Steam Navigation Co., Ltd. (招商局輪船股份有限公司), was founded on 11 October 1948). China Merchants Steam Navigation Co., Ltd. (招商局輪船有限公司) was incorporated in Beijing on 22 February 1992 with a registered capital of RMB7.0 billion, and its legal representative is Li Jianhong. It mainly engages in passenger and cargo shipping businesses; dockyard, warehouse and vehicle transportation; sale, purchase and supply of various transportation equipment, spare parts and materials; ship and passenger/goods shipping agency, international maritime cargo, etc.; as well as investment and management of transportation-related financial businesses including banking, securities and insurance.

China Merchants Group Ltd. directly holds 100% equity interests in China Merchants Steam Navigation Co., Ltd. and is the controlling shareholder of the Company's largest shareholder, with a registered capital of RMB16.9 billion. Its legal representative is Miao Jianmin. China Merchants Group Ltd. is a state-owned enterprise under the direct control of State-owned Assets Supervision and Administration Commission of the State Council. Its predecessor, China Merchants Steam Navigation Company, was founded in 1872, when China was in its late Qing Dynasty and was undergoing the Westernisation Movement. It was one of the enterprises which played a significant role in promoting the modernisation of China's national industries and commerce at that time. Nowadays, it has developed into a diversified conglomerate, with its businesses focusing on three core industries, namely integrated transportation, featured finance and comprehensive development of cities and industrial zones. It is realising the transformation from three main businesses to three major platforms of industrial operation, financial services, investment and capital operation.

The Company did not have any controlling shareholder and de facto controller. As at the end of the reporting period, the equity relationship among the Company, its largest shareholder and the controlling shareholder of its largest shareholder is illustrated as follows (in this report, any discrepancies between the total shown and the sum of the amounts listed are due to rounding):

China Merchants Group Ltd.

100%

China Merchants

Steam Navigation Co., Ltd.

100%

100%

China Merchants Holdings (Hong Kong) Company Limited

China Merchants Finance

Investment Holdings Co. Ltd.

100%

51%

27.59%

49%

China Merchants International

Shenzhen Yan Qing Investment

China Merchants China

and Development Company Ltd.

Finance Company Limited

Direct Investments Limited

50%

100%

50%

50%

100%

China Merchants

Best Winner

Shenzhen Chu Yuan Investment

China Merchants Industry

Union (BVI) Limited

Investment Limited

and Development Company Ltd.

Development (Shenzhen) Limited

1.89%

1.53%

13.04%

4.55%

3.74%

4.99%

China Merchants Bank Co., Ltd.

0.22%

China Merchants Bank

Chapter V Changes in Shares and Information on Shareholders

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Interim Report 2020

5.3.2 Information on other shareholders holding more than 5% shares of the Company

As at the end of the reporting period, China COSCO Shipping Corporation Limited indirectly held an aggregate of 9.97% shares in the Company through its subsidiaries, namely China Ocean Shipping Company Limited, COSCO Shipping (Guangzhou) Co., Ltd., Guangzhou Haining Maritime Technology Consulting Co., Ltd. (廣州海寧海務技術諮 詢有限公司), COSCO Shipping (Shanghai) Co., Ltd. (中遠海運（上海) 有限公司), COSCO Shipping Investment Holdings Co., Limited and Sanding Oil Transportation Co., Ltd. (三鼎油品運輸有限公司). There was no pledge of the shares of the Company. Specifically, China Ocean Shipping Company Limited held 6.24% shares in the Company. China Ocean Shipping (Group) Company (the predecessor of China Ocean Shipping Company Limited) was established on 22 October 1983, with a registered capital of RMB16.191 billion. Its legal representative is Xu Lirong. The scope of its businesses includes: international shipping; ancillary business in international maritime transportation; acceptance of space booking, voyage charter and time charter from cargo owners at home and abroad; leasing, construction, trading and maintenance of vessels and containers and manufacture of related facilities; ship escrowing business; provision of ship materials, spare parts and communications services relating to shipping business at home and abroad; management of enterprises engaging in vessel and cargo agency business and seafarer assignment business.

China COSCO Shipping Corporation Limited held 100% equity interests in China Ocean Shipping Company Limited and is its controlling shareholder. Its de facto controller is the State-owned Assets Supervision and Administration Commission of the State Council. China COSCO Shipping Corporation Limited was established on 5 February 2016, with a registered capital of RMB11.0 billion. Its legal representative is Xu Lirong. The scope of its businesses includes: international shipping; ancillary business in international maritime transportation; imports and exports of goods and technology; marine, land, aviation international freight forwarding business; ship leasing; sales of ships, containers and steel products; offshore engineering equipment design; terminal and port investment; communication equipment sales, information and technical services; warehousing (except hazardous chemicals); engaged in technology development, technology transfer, technical consulting, technical services and equity investment funds in the field of shipping and spare parts.

5.3.3 Other substantial shareholders under the regulatory calibre

1. As at the end of the reporting period, Dajia Life Insurance Co., Ltd. held 4.99% shares in the Company, and is a shareholder which has appointed a Director in the Company. There was no pledge of the shares of the Company. The controlling shareholder of Dajia Life Insurance Co., Ltd. is Dajia Insurance Group Co., Ltd.. The controlling shareholder of Dajia Insurance Group Co., Ltd. is China Insurance Security Fund Co., Ltd. and the controlling shareholder of China Insurance Security Fund Co., Ltd. is the Ministry of Finance. Dajia Insurance Group Co., Ltd. was established on 25 June 2019, with a registered capital of RMB20.36 billion, and its legal representative is He Xiaofeng. The scope of its businesses includes: investments in and holding of the shares of insurance enterprises and other financial institutions; supervision and management of various domestic and international businesses of the invested enterprises under its control; the investment business and insurance fund utilisation business permitted under the PRC laws and regulations; the insurance business permitted by the CBIRC; and other businesses approved by the CBIRC and other relevant authorities of the PRC.

86 China Merchants Bank Chapter V Changes in Shares and Information on Shareholders Interim Report 2020

  1. As at the end of the reporting period, China Communications Construction Group (Limited) through its subsidiaries, namely China Communications Construction Company Limited, CCCC Guangzhou Dredging Co., Ltd., CCCC Fourth Harbor Engineering Co., Ltd., CCCC Shanghai Dredging Co., Ltd., Zhen Hua (Shenzhen) Engineering Co., Ltd. and CCCC Third Harbor Consultants Co., Ltd. indirectly held an aggregate of 1.68% shares in the Company, and is a shareholder which has appointed a Supervisor in the Company. There was no pledge of the shares of the Company. China Communications Construction Group (Limited) was established on 8 December 2005, with a registered capital of RMB7.274 billion, and its legal representative is Liu Qitao. Its de facto controller is the State-owned Assets Supervision and Administration Commission of the State Council.
  2. As at the end of the reporting period, SAIC Motor Corporation Limited held 1.23% shares in the Company and is a shareholder which has appointed a Supervisor in the Company. There was no pledge of the shares of the Company. SAIC Motor Corporation Limited was established on 16 April 1984, with a registered capital of RMB11.683 billion, and its legal representative is Chen Hong. Its de facto controller is the State-owned Assets Supervision and Administration Commission of Shanghai City.
  3. As at the end of the reporting period, Hebei Port Group Co., Ltd. held 1.17% shares in the Company and is a shareholder which has appointed a Supervisor in the Company. There was no pledge of the shares of the Company. Hebei Port Group Co., Ltd. was established on 28 August 2002, with a registered capital of RMB8.0 billion. Its legal representative is Cao Ziyu and its de facto controller is the State-owned Assets Supervision and Administration Commission of Hebei Province.

5.4 Issuance and Listing of Securities

During the reporting period, the Company did not issue any new ordinary shares.

For details of the issuance and listing of preference shares of the Company, please refer to the section headed "Preference Shares" of this chapter.

During the reporting period, the Company did not have any corporate bonds listed on a stock exchange by way of public issuance.

For the issuance of other bonds of the Company and its subsidiaries, please refer to Note 32 to the financial statements.

The Company did not issue any internal staff shares.

China Merchants Bank

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Interim Report 2020

5.5 Substantial Shareholders' Interests and Short Positions in the Company under Hong Kong Laws and Regulations

As at 30 June 2020, substantial shareholders had interests and short positions in the shares of the Company under Hong Kong laws and regulations as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO (in this report, any discrepancies between the total shown and the sum of the amounts listed are due to rounding):

Percentage

Percentage

of the

of the total

relevant class

issued

Name of Substantial

Class of

Long/short

No. of shares

of shares in

ordinary

Shareholder

shares

position

Capacity

(shares)

Notes

issue (%)

shares (%)

China Merchants Group Ltd.

A

Long

Interest of controlled

6,697,550,412

corporation

Long

Others

55,196,540

6,752,746,952

1

32.73

26.78

H

Long

Interest of controlled

806,680,423

1

17.57

3.20

corporation

China Merchants Steam

A

Long

Beneficial Owner

3,289,470,337

Navigation Co., Ltd.

Long

Interest of controlled

3,408,080,075

corporation

Long

Other

55,196,540

6,752,746,952

1

32.73

26.78

H

Long

Interest of controlled

806,680,423

1

17.57

3.20

corporation

China Merchants Finance

A

Long

Beneficial Owner

1,147,377,415

Investment Holdings Co., Ltd.

Long

Interest of controlled

2,202,555,520

corporation

Long

Other

55,196,540

16.51

3,405,129,475

1

13.50

Best Winner Investment Limited

A

Long

Beneficial Owner

58,147,140

1

0.28

0.23

H

Long

Beneficial Owner

328,776,923

1

7.16

1.30

Shenzhen Yan Qing Investment

A

Long

Beneficial Owner

1,258,542,349

and Development Company

Long

Interest of controlled

944,013,171

Ltd.

corporation

2,202,555,520

1

10.68

8.73

Hexie Health Insurance Co.,Ltd.

A

Long

Beneficial Owner

1,258,949,171

6.10

4.99

Dajia Life Insurance Co., Ltd.

A

Long

Beneficial Owner

1,258,949,100

6.10

4.99

88 China Merchants Bank Chapter V Changes in Shares and Information on Shareholders Interim Report 2020

Percentage

Percentage

of the

of the total

relevant class

issued

Name of Substantial

Class of

Long/short

No. of shares

of shares in

ordinary

Shareholder

shares

position

Capacity

(shares)

Notes

issue (%)

shares (%)

Dajia Insurance Group Co., Ltd.

A

Long

Interest of controlled

1,258,949,100

6.10

4.99

corporation

China Ocean Shipping Company

A

Long

Beneficial Owner

1,574,729,111

7.63

6.24

Limited

Pagoda Tree Investment

H

Long

Interest of controlled

477,903,500

2

10.41

1.89

Company Limited (中國華馨

corporation

投資有限公司)

Compass Investment Company

H

Long

Interest of controlled

477,903,500

2

10.41

1.89

Limited

corporation

CNIC Corporation Limited

H

Long

Interest of controlled

477,903,500

2

10.41

1.89

corporation

Verise Holdings Company Limited

H

Long

Interest of controlled

477,903,500

2

10.41

1.89

corporation

China Merchants Union (BVI)

H

Long

Beneficial Owner

477,903,500

2

10.41

1.89

Limited

Citigroup Inc.

H

Long

Interest of controlled

27,769,980

corporation

Long

Approved lending agent

344,911,305

372,681,285

3

8.11

1.48

Short

Interest of controlled

4,001,119

3

0.08

0.02

corporation

UBS Group AG

H

Long

Interest of controlled

279,243,812

4

6.08

1.11

corporation

JPMorgan Chase & Co.

H

Long

Interest of controlled

19,703,101

corporation

Long

Investment manager

138,868,132

Long

Person having a security

413,657

interest in shares

Long

Trustee

24,235

Long

Approved lending agent

117,979,541

276,988,666

5

6.03

1.10

Short

Interest of controlled

13,166,774

5

0.28

0.05

corporation

China Merchants Bank

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Interim Report 2020

Notes：

  1. For details of China Merchants Group Ltd. and its subsidiaries' interests in the Company, please refer to section 5.3.1 "Information on the Company's largest shareholder".
  2. Pagoda Tree Investment Company Limited was deemed to hold interests in the 477,903,500 H shares in the Company by virtue of its wholly-owned subsidiary of Compass Investment Company Limited:

(2.1) China Merchants Union (BVI) Limited held 477,903,500 H shares (long position) in the Company. Verise Holdings Company Limited was deemed to hold interests in the 477,903,500 H shares in the Company by virtue of holding the 50% interest in China Merchants Union (BVI) Limited.

(2.2) Verise Holdings Company Limited was wholly-owned by CNIC Corporation Limited. Therefore, CNIC Corporation Limited was deemed to hold interests in the 477,903,500 H shares in the Company.

(2.3) Compass Investment Company Limited (referred to in (2) above) was deemed to hold interests in the 477,903,500 H shares in the Company by virtue of holding the 98.9% interest in CNIC Corporation Limited.

The 477,903,500 H shares referred to in (2) and (2.1) to (2.3) above represented the same shares.

  1. Citigroup Inc. was deemed to hold a total of 372,681,285 H shares (long position) and 4,001,119 H shares (short position) in the Company by virtue of its control over a number of companies. The equity interests and short positions of Citigroup Inc. in the Company included a lending pool of 344,911,305 H shares. Besides, 7,876,720 H shares (long position) and 3,617,119 H shares (short position) were held through derivatives as follows:

2,465,680

H shares (long position) and 1,160,000

H shares (short position)

- through physically settled listed derivatives

600,000 H shares (long position) and 114,079 H shares (short position)

- through physically settled unlisted derivatives

4,811,040

H shares (long position) and 2,343,040

H shares (short position)

- through cash settled unlisted derivatives

  1. UBS Group AG was deemed to hold a total of 279,243,812 H shares (long position) in the Company by virtue of its control over a number of companies. The equity interests of UBS Group AG in the Company included 9,710,495 H shares (long position) which were held through derivatives as follows:

484,000 H shares (long position)

- through physically settled listed derivatives

7,000 H shares (long position)

- through cash settled listed derivatives

2,746,406

H shares (long position)

- through physically settled unlisted derivatives

6,473,089

H shares (long position)

- through cash settled unlisted derivatives

  1. JPMorgan Chase & Co. was deemed to hold a total of 276,988,666 H shares (long position) and 13,166,774 H shares (short position) in the Company by virtue of its control over a number of companies. The equity interests and short positions of JPMorgan Chase & Co. in the Company included a lending pool of 117,979,541 H shares. Besides, 12,533,879 H shares (long position) and 11,009,838 H shares (short position) were held through derivatives as follows:

2,031,000

H shares (long position) and 880,000

H shares (short position)

- through physically settled listed derivatives

231,500

H shares (long position) and 241,500 H shares (short position)

- through cash settled listed derivatives

554,000

H shares (long position) and 8,184,927

H shares (short position)

- through physically settled unlisted derivatives

9,717,379

H shares (long position) and 1,703,411 H shares (short position)

- through cash settled unlisted derivatives

Save as disclosed above, the Company is not aware of any other person (other than the Directors, Supervisors and chief executives (as defined in the Hong Kong Listing Rules) of the Company) who has any interests or short positions in the shares of the Company as at 30 June 2020 as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO.

90 China Merchants Bank Chapter V Changes in Shares and Information on Shareholders Interim Report 2020

5.6 Preference Shares

5.6.1 Issuance and listing of preference shares

Pursuant to the approvals by the regulatory authorities, the Company made a non-public issuance of 50,000,000 non-cumulative perpetual offshore preference shares on 25 October 2017. The issuance price is USD20 each and the coupon dividend rate per annum is 4.40% (excluding tax, i.e., the actual dividend yield to be received by the holders of the preference shares is 4.40%). The offshore preference shares of the issuance were listed on Hong Kong Stock Exchange on 26 October 2017 (abbreviated name of shares: "CMB 17USDPREF"; stock code: 04614; number of listed shares: 50,000,000). The total proceeds from the issuance of the offshore preference shares amounted to USD1.0 billion and, after deduction of the expenses relating to the issuance, has fully been used to replenish the Company's additional Tier 1 Capital.

Pursuant to the approvals by the regulatory authorities, the Company made a non-public issuance of 275,000,000 domestic preference shares on 22 December 2017. The issuance price is RMB100 each and the coupon dividend rate per annum is 4.81% (including tax). The domestic preference shares of the issuance have been listed and traded on the integrated business platform of Shanghai Stock Exchange since 12 January 2018 (abbreviated name of shares:"Zhao Yin You 1 (招銀優1)"; stock code: 360028; number of listed shares: 275,000,000). The total proceeds from the issuance of the domestic preference shares amounted to RMB27.5 billion. The net proceeds after deduction of the expenses relating to the issuance, has fully been used to replenish the Company's additional Tier 1 Capital.

For details, please refer to the relevant announcement(s) published by the Company on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company, respectively.

5.6.2 Number of shareholders of preference shares and their shareholdings

As at the end of the reporting period, the Company had a total of 13 holders of preference shares (or their nominees), including 1 holder of offshore preference shares (or its nominee) and 12 holders of domestic preference shares.

As at the end of the reporting period, the shareholdings of the Company's top ten holders of offshore preference shares (or their nominees) were as follows:

Number of

Shares held

shares subject

Changes in

at the end

to trading

Shares pledged

Name of

Type of

Type of

the reporting

of the period

Percentage of

moratorium

or frozen

Serial No.

shareholder

shareholder

shares

period (share)

(share)

shareholdings (%)

(share)

(share)

1

The Bank of New

Overseas legal person

Offshore

-

50,000,000

100

-

Unknown

York Depository

preference share

(Nominees) Limited

Notes:

  1. The shareholdings of holders of preference shares are calculated based on the information listed in the register of holders of preference shares maintained by the Company.
  2. As the issuance is an offshore non-public issuance, the information listed in the register of holders of preference shares is the information on the nominees of the placees.
  3. The Company is not aware of any affiliated relationship or action in concert among the above holders of preference shares and the top ten holders of ordinary shares.
  4. "Percentage of shareholdings" represents the percentage of the number of offshore preference shares held by the holders of preference shares to the total number of offshore preference shares.

China Merchants Bank

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Interim Report 2020

As at the end of the reporting period, the shareholdings of the Company's top ten holders of domestic preference shares were as follows:

Number of

Shares held

shares subject

Changes in

at the end

Percentage of

to trading

Shares pledged

Name of

Type of

Type of

the reporting

of the period

shareholdings

moratorium

or frozen

Serial No.

shareholder

shareholder

shares

period (share)

(share)

(%)

(share)

(share)

1

China Mobile

State-owned legal

Domestic preference

-

106,000,000

38.55

-

-

Communications Group

person

shares

Co., Ltd.

2

CCB Trust Co., Ltd.

State-owned legal

Domestic preference

-

30,000,000

10.91

-

-

person

shares

3

BOC Asset Management

Others

Domestic preference

-

25,000,000

9.09

-

-

Co., Ltd. (中銀資產管理

shares

有限公司)

4

China National Tobacco

State-owned legal

Domestic preference

-

20,000,000

7.27

-

-

(Henan Province)

person

shares

Company

Ping An Property &

Others

Domestic preference

-

20,000,000

7.27

-

-

Casualty Insurance

shares

Company of China, Ltd.

6

China Everbright Bank

Others

Domestic preference

-

19,000,000

6.91

-

-

Company Limited

shares

7

China National Tobacco

State-owned legal

Domestic preference

-

15,000,000

5.45

-

-

(Sichuan Province)

person

shares

Company

China National Tobacco

State-owned legal

Domestic preference

-

15,000,000

5.45

-

-

(Anhui Province)

person

shares

Company

9

China Construction

State-owned legal

Domestic preference

-

10,000,000

3.64

-

-

Bank Corporation,

person

shares

Guangdong Branch

10

China National Tobacco

State-owned legal

Domestic preference

-

5,000,000

1.82

-

-

(Liaoning Province)

person

shares

Company

Changjiang Pension

State-owned legal

Domestic preference

-

5,000,000

1.82

-

-

Insurance Co., Ltd.

person

shares

China Resources SZITIC

State-owned legal

Domestic preference

-

5,000,000

1.82

-

-

Trust Co., Ltd.

person

shares

Notes:

  1. The shareholdings of preference shareholders are calculated based on the information listed in the register of holders of preference shares maintained by the Company.
  2. China National Tobacco (Henan Province) Company, China National Tobacco (Sichuan Province) Company, China National Tobacco (Anhui Province) Company and China National Tobacco (Liaoning Province) Company are all wholly-owned subsidiaries of China National Tobacco Corporation. Save for the above, the Company is not aware of any affiliated relationship or action in concert among the above holders of preference shares or between the above holders of preference shares and the Company's top ten holders of ordinary shares.
  3. "Percentage of shareholdings" represents the percentage of the number of domestic preference shares held by the holders of preference shares to the total number of domestic preference shares.

92 China Merchants Bank Chapter V Changes in Shares and Information on Shareholders Interim Report 2020

5.6.3 Dividend distribution of preference shares

During the reporting period, no distribution of dividend for preference shares was made by the Company.

5.6.4 Repurchase or conversion of preference shares

During the reporting period, there had been no repurchase and conversion of preference shares.

5.6.5 Restored voting rights of preference shares

During the reporting period, the voting rights of the Company's domestic and offshore preference shares in issue had not been restored.

5.6.6 Accounting policies for preference shares and the reason of adoption

The Company made accounting judgments over its preference shares then issued and outstanding in accordance with the requirements of the relevant accounting principles, including the "International Financial Reporting Standard 9 - Financial Instruments" and the "International Financial Reporting Standard 7 - Financial Instruments: Disclosures" promulgated by International Accounting Standards Board. As the preference shares issued and outstanding of the Company carry no obligation to deliver cash and cash equivalents, nor have they any contractual obligations to deliver a variable number of its own equity instruments for settlement, they were therefore measured as equity instruments.

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Directors, Supervisors, Senior Management, Employees, and Organisational Structure

6.1 Directors, Supervisors and Senior Management

Shareholding

Shareholding at the

Date of Birth

at the beginning

end of the period

Name

Gender

(Y/M)

Title

Term of office

of the period (share)

(share)

Li Jianhong

Male

1956.5

Chairman

2014.8

- (note 1)

-

-

Non-Executive Director

2014.7

- (note 1)

Fu Gangfeng

Male

1966.12

Vice Chairman

2018.7

- 2022.6

-

-

Non-Executive Director

2010.8

- 2022.6

Tian Huiyu

Male

1965.12

Executive Director

2013.8

- 2022.6

220,400

290,500

President and Chief Executive Officer

2013.9

- 2022.6

Zhou Song

Male

1972.4

Non-Executive Director

2018.10 - 2022.6

-

-

Hong Xiaoyuan

Male

1963.3

Non-Executive Director

2007.6

- 2022.6

-

-

Zhang Jian

Male

1964.10

Non-Executive Director

2016.11 - 2022.6

-

-

Su Min

Female

1968.2

Non-Executive Director

2014.9

- 2022.6

-

-

Wang Daxiong

Male

1960.12

Non-Executive Director

2016.11 - 2022.6

-

-

Luo Sheng

Male

1970.9

Non-Executive Director

2019.7

- 2022.6

-

-

Liu Jianjun

Male

1965.8

Executive Director

2019.8

- 2022.6

160,000

210,000

Executive Vice President

2013.12 - 2022.6

Secretary of Board of Directors

2019.7

- 2022.6

Wang Liang

Male

1965.12

Executive Director

2019.8

- 2022.6

160,000

220,000

Executive Vice President

2015.1

- 2022.6

Chief Financial Officer

2019.4

- 2022.6

Leung Kam Chung,

Male

1952.1

Independent Non-Executive Director

2015.1

- (note 2)

-

-

Antony

Zhao Jun

Male

1962.9

Independent Non-Executive Director

2015.1

- (note 2)

-

-

Wong See Hong

Male

1953.6

Independent Non-Executive Director

2017.2

- 2022.6

-

-

Li Menggang

Male

1967.4

Independent Non-Executive Director

2018.11 - 2022.6

-

-

Liu Qiao

Male

1970.5

Independent Non-Executive Director

2018.11 - 2022.6

-

-

Tian Hongqi

Male

1957.5

Independent Non-Executive Director

2019.8

- 2022.6

-

-

Liu Yuan

Male

1962.1

Chairman of Board of Supervisors, Employee Supervisor

2014.8

- 2022.6

180,000

270,000

Peng Bihong

Male

1963.10

Shareholder Supervisor

2019.6

- 2022.6

-

-

Wen Jianguo

Male

1962.10

Shareholder Supervisor

2016.6

- 2022.6

-

-

Wu Heng

Male

1976.8

Shareholder Supervisor

2016.6

- 2022.6

-

-

Ding Huiping

Male

1956.6

External Supervisor

2016.6

- 2022.6

-

-

Han Zirong

Male

1963.7

External Supervisor

2016.6

- 2022.6

-

-

Xu Zhengjun

Male

1955.9

External Supervisor

2019.6

- 2022.6

-

-

Wang Wanqing

Male

1964.9

Employee Supervisor

2018.7

- 2022.6

121,000

151,000

Liu Xiaoming

Male

1963.11

Employee Supervisor

2019.6

- 2022.6

100,000

145,000

Xiong Liangjun

Male

1963.2

Secretary of the Party Discipline Committee

2014.7

- present

160,000

190,000

Wang Jianzhong

Male

1962.10

Executive Vice President

2019.4

- 2022.6

162,100

178,600

Shi Shunhua

Male

1962.12

Executive Vice President

2019.4

- 2022.6

165,000

245,000

Wang Yungui

Male

1963.6

Executive Vice President

2019.6

- 2022.6

160,000

160,000

Li Delin

Male

1974.12

Executive Assistant President

2019.4

- present

130,000

200,000

Liu Hui

Female

1970.5

Executive Assistant President

2019.4

- present

134,100

185,400

Tang Zhihong

Male

1960.3

Former Executive Vice President

2006.5

- 2020.4

241,400

241,400

94

China Merchants Bank

Chapter VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure

Interim Report 2020

Notes:

  1. Due to change of work arrangement, Mr. Li Jianhong resigned as the Chairman, Non-Executive Director, Chairman of the Strategy Committee of the Board and member of the Nomination Committee of the Board. In accordance with the relevant requirements of the Articles of Association of China Merchants Bank Co., Ltd., in order to ensure the soundness of corporate governance of the Company and the Company's normal operation, Mr. Li Jianhong will continue to perform the duties as the Chairman, Non-Executive Director, Chairman of the Strategy Committee of the Board and member of the Nomination Committee of the Board until the date on which the qualifications for serving as the new Non-Executive Director to be elected at the general meeting of the Company and the new Chairman to be elected at the Board meeting are approved by the CBIRC.
  2. Pursuant to the relevant requirements of the "Guiding Opinions on Establishing the Independent Director System in Listed Companies" 《( 關於在 上市公司建立獨立董事制度的指導意見》), the term of office of independent directors shall not exceed six years. Therefore, the terms of office of Mr. Leung Kam Chung, Antony and Mr. Zhao Jun, both being Independent Directors, will expire earlier than the conclusion of the Eleventh Session of the Board of Directors.
  3. There was a change in the shareholdings of the Directors, Supervisors and senior management listed in the above table during the reporting period, which was due to an increase in their respective shareholdings.
  4. None of the Directors, Supervisors or senior management listed in the above table has been punished by the securities regulator(s) over the past three years.
  5. None of the Directors, Supervisors or senior management listed in the above table holds any share options of the Company or has been granted any of its restricted shares.

6.2 Appointment and Resignation of Directors, Supervisors and Senior Management

In April 2020, according to the relevant resolutions passed at the 10th meeting of the Eleventh Session of the Board of Directors of the Company, Mr. Tang Zhihong ceased to serve as an Executive Vice President of the Company due to age reason. For details of the above-mentioned matters, please refer to the relevant announcements published by the Company on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and the Company.

6.3 Changes in Information of Directors and Supervisors

  1. Mr.Li Jianhong ceased to serve as the Chairman of China Merchants Group Ltd. since 10 July 2020.
  2. Mr. Zhou Song concurrently serves as the Chairman of China Merchants Investment Development Co., Ltd..
  3. Mr. Luo Sheng ceased to serve as the Deputy Head of the dedicated risk disposal team of CBIRC dispatched to Anbang Group.
  4. Mr. Wong See Hong concurrently serves as an Independent Non-ExecutiveDirector of HDR Global Trading Limited and a member of the Financial Management Commission of the Hong Kong Administration Society (香港管理學會財務管理委員會).
  5. Mr. Liu Qiao concurrently serves as a member of the Listing Committee of ChiNext of Shenzhen Stock Exchange.
  6. Mr. Ding Huiping concurrently serves as an Independent Director of Beijing Dinghan Technology Group Co., Ltd. and ceased to concurrently serve as an Independent Director of Huadian Power International Corporation Limited.

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Interim Report 2020

6.4 Current Positions Held by Directors and Supervisors in the Shareholders' Companies

Name

Name of Company

Major Title

Term of Office

Li Jianhong

China Merchants Group Ltd.

Chairman

From July 2014 to July 2020

Fu Gangfeng

China COSCO Shipping Corporation Limited

Director and General Manager

From September 2019 up to now

Zhou Song

China Merchants Group Ltd.

Chief Accountant

From October 2018 up to now

Hong Xiaoyuan

China Merchants Group Ltd.

Assistant General Manager

From September 2011 up to now

Director (Executive) of the Executive Committee of

From June 2018 up to now

the China Merchants Financial Group/Platform

Zhang Jian

China Merchants Group Ltd.

Chief Digital Officer

From January 2019 up to now

Deputy Director (Executive) of the Executive

From June 2018 up to now

Committee of the China Merchants Financial

Group/Platform

Su Min

China Merchants Group Ltd.

Deputy Director (Executive) of the Executive

From June 2018 up to now

Committee of the China Merchants Financial

Group/Platform

Wang Daxiong

COSCO SHIPPING Development Co., Ltd.

Chairman

From July 2019 up to now

Luo Sheng

Dajia Insurance Group Co., Ltd.

Proposed to serve as Deputy General Manager

His qualification is subject to the

approval by the CBIRC

Peng Bihong

China Communications Construction Group

Chief Accountant

From September 2019 up to now

Co., Ltd.

Wen Jianguo

Hebei Port Group Co., Ltd.

Director and Chief Accountant

From July 2009 up to now

Wu Heng

SAIC Motor Corporation Limited

General Manager of Finance Affairs Department

From August 2019 up to now

96

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Chapter VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure

Interim Report 2020

6.5 Interests and Short Positions of Directors, Supervisors and Chief Executives under Hong Kong Laws and Regulations

As at 30 June 2020, the interests and short positions of the Directors, Supervisors and chief executives of the Company in the shares, underlying shares and debentures of the Company and its associated corporations (as defined in the SFO), which are required to be notified to the Company and Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, including the interests and short positions which the Directors, Supervisors and chief executives of the Company are taken or deemed to have under such provisions of the SFO, or which are required to be and are recorded in the register required to be kept pursuant to Section 352 of the SFO or as otherwise required to be notified to the Company and Hong Kong Stock Exchange pursuant to the Model Code set out in Appendix 10 to the Hong Kong Listing Rules, were as follows:

Percentage

Percentage

of the

of the

No. of

relevant class

total issued

Long/short

Shares

of shares

ordinary

Name

Position

Class of shares

position

Capacity

(shares)

in issue (%)

shares (%)

Tian Huiyu

Executive Director, President and

A Share

Long position

Beneficial Owner

290,500

0.00141

0.00115

Chief Executive Officer

Zhou Song

Non-Executive Director

A Share

Long position

Interest of spouse

23,282

0.00011

0.00009

Liu Jianjun

Executive Director, Executive

A Share

Long position

Beneficial Owner

210,000

0.00102

0.00083

Vice President and Secretary of

Board of Directors

Wang Liang

Executive Director, Executive Vice

A Share

Long position

Beneficial Owner

220,000

0.00107

0.00087

President and Chief Financial Officer

Liu Yuan

Chairman of Board of Supervisors,

A Share

Long position

Beneficial Owner

270,000

0.00131

0.00107

Employee Supervisor

Wang Wanqing

Employee Supervisor

A Share

Long position

Beneficial Owner

151,000

0.00073

0.00060

Liu Xiaoming

Employee Supervisor

A Share

Long position

Beneficial Owner

145,000

0.00070

0.00057

6.6 Information on Employees

As of 30 June 2020, the Group had 88,535 employees15 (including dispatched employees). The classification of our employees by profession is: 17,611 employees in corporate finance, 35,387 employees in retail finance, 4,410 employees in risk management, 14,364 employees in operation management, 8,119 employees in research and development, 895 employees in administrative and logistical support, and 7,749 employees in general management. The classification of our employees by educational background is: 20,938 employees with master's degrees and above, 58,423 employees with bachelor's degrees and 9,174 employees with junior college degrees or below.

15Including employees of the Company, CMB Wing Lung Bank, CMB Financial Leasing, CMB International Capital, CMB Wealth Management, China Merchants Fund, CIGNA & CMB Life Insurance, Merchants Union Consumer, MBCloud and CMB Network Technology.

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Interim Report 2020

6.7 Branches and Representative Offices

Asset scale

No. of

(in millions

Regions

Name of branches

Business address

Postal code

branches

No. of staff

of RMB)

Head Office

Head Office

7088 Shennan Boulevard, Shenzhen

518040

1

4,870

3,010,393

Credit Card Center

686

Lai'an Road, Pudong New District, Shanghai

201201

1

6,170

625,871

Yangtze River Delta

Shanghai Branch

1088 Lujiazui Ring Road, Pudong New District, Shanghai

200120

92

4,822

281,283

Shanghai Pilot Free Trade

6 Jilong Road, Waigaoqiao Bonded Area, Pudong New

200131

1

15

37,041

Zone Branch

District, Shanghai

Nanjing Branch

199

Lushan Road, Jianye District, Nanjing

210005

81

3,027

193,389

Hangzhou Branch

23

Hangda Road, Hangzhou

310007

71

2,697

200,614

Ningbo Branch

342

Min'an East Road, Ningbo

315042

32

1,181

78,318

Suzhou Branch

36

Wansheng Street, Industrial Park, Suzhou

215028

30

1,320

122,262

Wuxi Branch

6-107,6-108 1st Financial Street, Binhu District, Wuxi

214001

18

772

46,685

Wenzhou Branch

Block 2, 4, 5, Hongshengjin Garden, Wuqiao Avenue,

325000

13

535

35,217

Lucheng District, Wenzhou

Nantong Branch

111

Gongnong Road, Nantong

226007

14

572

30,973

Bohai Rim

Beijing Representative Office

26/F, Building 3, No.1 Yuetan South Street, Xicheng

100045

1

12

-

District, Beijing

Beijing Branch

156

Fuxingmen Nei Dajie, Xicheng District, Beijing

100031

98

4,988

359,281

Qingdao Branch

65

Hai'er Road, Laoshan District, Qingdao

266103

49

1,564

53,746

Tianjin Branch

255

Guangdong Road and 9 Qianjin Road, Hexi District,

300201

43

1,685

90,973

Tianjin

Jinan Branch

7 Gongqingtuan Road, Jinan

250012

60

1,843

90,287

Yantai Branch

66

Zhujiang Road, Economic & Technological

264006

17

577

18,682

Development Area, Yantai

Shijiazhuang Branch

172

Zhonghua Street South, Shijiazhuang

050000

14

458

24,368

Tangshan Branch

45

Beixin Road West, Lubei District, Tangshan

063000

10

230

6,276

Pearl River Delta and

Guangzhou Branch

5 Huasui Road, Tianhe District, Guangzhou

510623

77

2,673

191,761

West Side of Taiwan

Shenzhen Branch

2016 Shennan Boulevard, Futian District, Shenzhen

518001

118

5,071

418,911

Strait

Fuzhou Branch

316

Jiangbinzhong Boulevard Road, Fuzhou

350014

34

1,201

64,756

Xiamen Branch

18

Lingshiguan Road, Siming District, Xiamen

361012

31

975

58,503

Quanzhou Branch

180

Jiangbin North Road, Fengze Street, Quanzhou

362800

17

498

24,286

Dongguan Branch

200

Hongfu Road, Nancheng District, Dongguan

523000

28

884

49,433

Foshan Branch

12

Denghu Road East, Guicheng Street, Nanhai District,

528200

28

1,041

61,127

Foshan

North-eastern China

Shenyang Branch

12

Shiyiwei Road, Heping District, Shenyang

110003

61

1,637

48,473

Dalian Branch

17

Renmin Road, Zhongshan District, Dalian

116001

37

1,225

43,042

Harbin Branch

3 Zhongyang Avenue, Daoli District, Harbin

150010

38

1,098

40,561

Changchun Branch

9999 Renmin Avenue, Nanguan District, Changchun

130022

25

696

21,966

98

China Merchants Bank

Chapter VI Directors, Supervisors, Senior Management, Employees, and Organisational Structure

Interim Report 2020

Asset scale

No. of

(in millions

Regions

Name of branches

Business address

Postal code

branches

No. of staff

of RMB)

Central China

Wuhan Branch

518 Jianshe Avenue, Wuhan

430022

126

2,719

151,731

Nanchang Branch

468 Dieshan Road, Donghu District, Nanchang

330008

58

1,489

92,514

Changsha Branch

766 Wuyi Avenue, Changsha

410005

44

1,516

58,888

Hefei Branch

169 Funan Road, Hefei

230001

41

1,355

62,192

Zhengzhou Branch

96 Nongye Road East, Zhengzhou

450018

47

1,327

77,525

Taiyuan Branch

265 Nan Zhong Huan Road, Xiaodian District, Taiyuan

030012

28

857

32,113

Haikou Branch

Building C, Haian Yihao, 1 Shimao Road North, Haikou

570125

9

332

13,200

Western China

Chengdu Branch

No. 1, the 3rd section of Renmin Road South,

610000

55

1,678

73,179

Wuhou District, Chengdu

Lanzhou Branch

9 Qingyang Road, Chengguan District, Lanzhou

730030

29

923

33,577

Xi'an Branch

1 Gaoxin No.2 Road, Xi'an

710075

68

1,929

94,951

Chongqing Branch

88 Xingguang Road, New North District, Chongqing

401121

49

1,679

97,772

Urumchi Branch

2 Huanghe Road, Urumchi

830006

17

782

25,986

Kunming Branch

1 Chongren Street, Wuhua District, Kunming

650021

52

1,325

58,838

Hohhot Branch

9 Chilechuan Avenue, Saihan District, Huhhot

010098

22

619

27,278

Nanning Branch

No.136-5 Minzu Avenue, Qingxiu District, Nanning

530028

21

547

33,839

Guiyang Branch

284 Zhonghua Road North, Yunyan District, Guiyang

550001

16

462

26,046

Yinchuan Branch

138 Beijingzhong Road, Jinfeng District, Yinchuan

750001

17

428

15,378

Xining Branch

4 Xinning Road, Chengxi District, Xining

810000

10

286

10,622

Outside Mainland China

Hong Kong Branch

31/F, Three Exchange Square, 8 Connaught Place,

/

1

261

127,217

Central, Hong Kong

USA Representative Office

23rd Floor, 535 Madison Avenue, New York, U.S.A

10022

1

1

╱

New York Branch

23rd Floor, 535 Madison Avenue, New York, U.S.A

10022

1

107

39,938

Singapore Branch

1 Raffles Place, Tower2, #32-61, Singapore

048616

1

58

9,271

Taipei Representative Office

333, Section 1, Jilong Road, Xinyi District, Taipei

11012

1

2

╱

Luxembourg Branch

20 Boulevard Royal, L-2449, Luxembourg

L-2449

1

42

9,567

London Branch

18/F, 20 Fenchurch Street, London, UK

/

1

49

12,952

Sydney Branch

L39, GPT, 1 Farrer Place, Sydney, NSW

/

1

37

2,549

Other assignments

/

/

/

/

28

/

CMB Wing Lung Bank

45 Des Voeux Road Central, Hong Kong

/

/

2,024

HK$371,542

CMB Financial Leasing

22/F, 1088 Lujiazui Ring Road, Shanghai

200120

/

300

196,052

CMB International Capital

45-46/F, Champion Tower, 3 Garden Road, Central,

/

/

509

HK$36,698

Hong Kong

CMB Wealth Management

Level 17-20, CR Capital Tower, 2700 Keyuan South

518052

/

434

7,054

Road, Nanshan District, Shenzhen

China Merchants Fund

China Merchants Bank Tower, 7088 Shennan Boulevard,

518040

/

639

7,552

Shenzhen

CIGNA & CMB Life Insurance

Unit 3102, China Merchants Bank Tower, 7088 Shennan

518040

/

3,750

70,333

Boulevard, Shenzhen

Merchants Union Consumer

18/F, Building A4, Kexing Science Park, Nanshan

518000

/

967

92,076

District, Shenzhen

MBCloud

4/F, Building A, Wanrong Building, 1029 Nanhai

518000

/

440

425

Avenue, Shenzhen

CMB Network Technology

4/F, Building A, CMB Information R&D Building, Keji

518057

/

4,297

462

Zhongyi Road, Gaoxinzhong District, Nanshan

District, Shenzhen

Total

/

/

/

1,857

88,535

/

China Merchants Bank

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Interim Report 2020

Corporate Governance

7.1 Overview of Corporate Governance

During the reporting period, the Shareholders' General Meeting, the Board of Directors, the Board of Supervisors and the special committees under the Board of Directors and the Board of Supervisors of the Company functioned in an efficient manner, ensuring the prudent and compliant operation as well as the sustainable and healthy growth of the Company. During the reporting period, the Company held 1 Shareholders' General Meeting, 7 meetings of the Board of Directors, including 2 on-site meetings and 5 meetings voted through remote communication, at which 43 proposals were reviewed and 9 reports were delivered; held 17 meetings of the special committees under the Board of Directors, including 2 meetings of Strategic Committee, 5 meetings of Audit Committee, 2 meetings of Related Party Transactions Management and Consumer Rights Protection Committee, 4 meetings of Risk and Capital Management Committee, 2 meetings of Remuneration and Appraisal Committee, and 2 meetings of Nomination Committee, at which 61 proposals were reviewed and 14 reports were delivered; held 4 meetings of the Board of Supervisors, at which 19 proposals were reviewed and 12 reports were delivered; held 2 meetings of the special committees under the Board of Supervisors, including 1 meeting of the Nomination Committee and 1 meeting of the Supervisory Committee, at which 4 proposals were reviewed.

Having conducted thorough self-inspection, the Company was not aware of any non-compliance of its corporate governance practice during the reporting period with the requirements set out in the CSRC's regulatory documents governing the corporate governance of listed companies.

7.2 Information on Shareholders' General Meetings

During the reporting period, the Company convened 1 Shareholders' General Meeting, namely the 2019 Annual General Meeting held in Shenzhen on 23 June 2020. The notification, convening, holding and voting procedures of the meeting complied with relevant requirements of the Company Law of the People's Republic of China, the Articles of Association of China Merchants Bank Co., Ltd. and the Hong Kong Listing Rules. For details of the relevant resolutions reviewed at the meeting, please refer to the disclosure documents including the 2019 Annual General Meeting documents, the General Meeting Circulars and the announcements on resolutions published on the websites of the Shanghai Stock Exchange, the Hong Kong Stock Exchange and the Company.

7.3 Securities Transactions of Directors, Supervisors and Relevant Employees

The Company has adopted the Model Code set out in Appendix 10 to the Hong Kong Listing Rules as the code of conduct for Directors and Supervisors of the Company in respect of their dealings in the Company's securities. Having made specific enquiry, all the Directors and Supervisors of the Company have complied with the aforesaid Model Code during the reporting period.

The Company has also established the guidelines for the relevant employees' dealings in the Company's securities, which are no less exacting than the Model Code.

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China Merchants Bank Co. Ltd. published this content on 28 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 September 2020 08:39:03 UTC