Guangzhou Rural Commercial Bank Co., Ltd.

(A joint stock company incorporated in the People's Republic of China with limited liability)

Stock Code : 1551

CONTENTS

2 Company Profile

4 Summary of Financial Data

7 Management Discussion and Analysis

46 Changes in Share Capital and Shareholders

  1. Directors, Supervisors and Senior Management
  2. Major Events
  1. Corporate Structure
  2. Report on Review of Interim Financial Information
  3. Interim Financial Information (Unaudited)

152 Unreviewed Supplementary Financial Information

155 Definitions

This report was prepared in both Chinese and English. Where there is discrepancy between the Chinese and English versions, the Chinese version shall prevail.

COMPANY PROFILE

  1. Official Name
    1. Official Chinese Name: 廣州農村商業銀行股份有限公司
      (Abbreviated as "廣州農村商業銀行")
    2. Official English Name: Guangzhou Rural Commercial Bank Co., Ltd. (Abbreviated as "GRCB")
  1. Registered Capital: RMB9,808,268,539.00
  1. Legal Representative: Mr. Wang Jikang

(IV) Authorized Representatives: Mr. Yi Xuefei and Mr. Ngai Wai Fung

  1. Joint Company Secretaries: Ms. Zheng Ying and Mr. Ngai Wai Fung

(VI) H-Share Listing Stock Exchange: The Stock Exchange of Hong Kong Limited

(VII) H-Share Name and Code: GRCB (1551.HK)

(VIII) Offshore Preference Share Name and Code: GRCB 19USDPREF (4618.HK)

(IX) Registered Address: No. 9 Yingri Road, Huangpu District, Guangzhou, PRC

  1. Principal Place of Business in Hong Kong: 40th Floor, Sunlight Tower, No. 248 Queen's Road East, Wanchai, Hong Kong

(XI) Scope of Business: Monetary and financial services

(XII) Contact Address: No. 1 Huaxia Road, Pearl River New Town, Tianhe District, Guangzhou, Guangdong Province,

PRC

Postal Code: 510623

Company Website: www.grcbank.com

(XIII) Place of Inspection of the Interim Report: Office of the Board of Directors of the Bank

(XIV) Auditor: PricewaterhouseCoopers

(XV) Legal Advisor as to PRC Law: Guangdong Qiyuan Law Office

(XVI) Legal Advisor as to Hong Kong Law: King & Wood Mallesons

(XVII) H-Share Registrar: Computershare Hong Kong Investor Services Limited

(XVIII) Non-overseas Listed Shares Depository: China Securities Depository and Clearing Corporation Limited (XIX) Other Relevant Information of the Company

Date of Registration: 9 December 2009

Registration Authority: Guangzhou Administration for Industry and Commerce

Unified Social Credit Code: 914401017083429628

Financial License Registration No.: B1048H244010001

Customer Service and Complaint Telephone No.: +8695313

Investor Relations Telephone No.: +86(020)28019324

Email Address: ir@grcbank.com

2 GUANGZHOU RURAL COMMERCIAL BANK

COMPANY PROFILE

MAJOR HONORS RECEIVED IN THE FIRST HALF OF 2020

No.

Honors

Awarding/granting authority

Obtaining time

1

2

3

4

5

Best Inclusive Finance Bank of 2019 (2019年度最佳普惠金融銀行)

New Express

January 2020

2019 Top 10 Local Banks in Private Banking (2019十佳地方銀行私人銀行獎)

Retail Bank (《零售銀行》雜誌)

January 2020

"Poverty Alleviation Model Award of the Year" ("年度扶貧典範獎")

9th China Charity Festival

January 2020

Ranked 27th in 2019 China Banking Industry Top 100

China Banking Association

March 2020

Ranked 1st in terms of comprehensive wealth management capabilities in the

PY Standard

April 2020

first quarter of 2020

6

Ranked 905th in Forbes Global Listed Companies 2000

Forbes

May 2020

7

Ranked 159th in Top 1000 World Banks 2020

The Banker (英國《銀行家》雜誌)

July 2020

8

Ranked 383rd in 2020 Fortune China 500

Fortune China, Wealth Management

July 2020

Department of CICC

INTERIM REPORT 2020 3

SUMMARY OF FINANCIAL DATA

The financial information of the Group set forth in this interim report is prepared on a consolidated basis in accordance with IFRS and expressed in Renminbi unless otherwise stated.

For the

For the

six months

six months

Item (Expressed in RMB million,

ended

ended

Change in

Rate of Change

unless otherwise stated)

30 June 2020

30 June 2019

Amount

(%)

Operating results

Net interest income

9,229.58

7,737.30

1,492.28

19.29

Net fee and commission income

760.77

816.62

(55.85)

(6.84)

Operating income

11,793.68

10,800.11

993.57

9.20

Profit before income tax

4,094.65

4,543.96

(449.31)

(9.89)

Net profit

3,322.26

3,672.70

(350.44)

(9.54)

Net profit attributable to shareholders of the Bank

3,085.66

3,591.55

(505.89)

(14.09)

Basic earnings per share (Expressed in RMB per share)(1)

0.25

0.37

(0.12)

(32.43)

As at

Item (Expressed in RMB million,

As at

31 December

Change in

Rate of Change

unless otherwise stated)

30 June 2020

2019

Amount

(%)

Scale indicators

Total assets

972,223.97

894,154.29

78,069.68

8.73

Among which: loans and advances to customers, net

533,309.52

463,051.37

70,258.15

15.17

Total liabilities

896,808.38

820,444.98

76,363.40

9.31

Among which: customers deposits

727,023.96

658,243.09

68,780.87

10.45

Equity attributable to shareholders of the Bank

68,856.49

68,346.69

509.80

0.75

Non-controlling interests

6,559.10

5,362.62

1,196.48

22.31

Total equity

75,415.59

73,709.31

1,706.28

2.31

4 GUANGZHOU RURAL COMMERCIAL BANK

SUMMARY OF FINANCIAL DATA

For the

For the

six months

six months

ended

ended

Change in

Item (Expressed in percentage)

30 June 2020

30 June 2019

Amount

Profitability indicators

Return on average total assets(2)

0.71

0.91

(0.20)

Return on average equity(3)

9.24

12.73

(3.49)

Net interest spread(4)

2.19

2.43

(0.24)

Net interest margin(5)

2.22

2.35

(0.13)

Net fee and commission income to operating income(6)

6.45

7.56

(1.11)

Cost-to-income ratio(7)

22.23

24.33

(2.10)

As at

As at

31 December

Change in

Item (Expressed in percentage)

30 June 2020

2019

Amount

Assets quality indicators

Non-performing loan ratio(8)

1.84

1.73

0.11

Provision coverage ratio(9)

189.38

208.09

(18.71)

Allowance to total loans(10)

3.48

3.61

(0.13)

As at

As at

31 December

Change in

Item (Expressed in percentage)

30 June 2020

2019

Amount

Capital adequacy indicators(11)

Core Tier 1 capital adequacy ratio

9.41

9.96

(0.55)

Tier 1 capital adequacy ratio

10.99

11.65

(0.66)

Capital adequacy ratio

13.44

14.23

(0.79)

As at

As at

31 December

Change in

Item (Expressed in percentage)

30 June 2020

2019

Amount

Other indicators

Loan-to-deposit ratio(12)

75.92

72.92

3.00

INTERIM REPORT 2020 5

SUMMARY OF FINANCIAL DATA

Notes:

  1. Dividends of preference shares were distributed in the first half of 2020, and dividends of preference shares declared and distributed in that year were excluded from this indicator.
  2. The annualized return is calculated by dividing the net profit for the period (including profit attributable to non-controlling interests) by the average balance of total assets as at the beginning and end of the period.
  3. The annualized return is calculated by dividing the annualized net profit for the period (excluding the dividends of preference shares declared and distributed in the current year) by the average balance of total equity (excluding other equity instruments) as at the beginning and end of the period.
  4. The annualized return is calculated as the difference between the average yield rate on total interest-earning assets and the average cost rate on total interest-bearing liabilities.
  5. The annualized return is calculated by dividing net interest income by the average daily balance of total interest-earning assets.
  6. Calculated by dividing net fee and commission income by operating income.
  7. Calculated by dividing operating expenses (excluding tax and surcharges) by operating income.
  8. Calculated by dividing the balance of non-performing loans by the total loans and advances to customers.
  9. Calculated by dividing the balance of allowance for loan (including discounted bills) losses by the balance of non-performing loans.
  10. Calculated by dividing the balance of allowance for loan (including discounted bills) losses by the total loans and advances to customers.
  11. Calculated in accordance with the "Administrative Measures for the Capital of Commercial Banks (Provisional)" promulgated by CBRC.
    Core Tier 1 capital adequacy ratio = (core Tier 1 capital - reductions from respective capital)/risk-weighted assets *100% Tier 1 capital adequacy ratio = (Tier 1 capital - reductions from respective capital)/risk-weighted assets *100% Capital adequacy ratio = (total capital - reductions from respective capital)/risk-weighted assets *100%
  12. Calculated by dividing total loans and advances to customers by total deposits of customers.

6 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW FOR THE FIRST HALF OF 2020

  1. INCOME STATEMENT ANALYSIS

For the six months ended

30 June

Item (Expressed in RMB million,

Change in

Rate of

unless otherwise stated)

2020

2019

amount

change (%)

Interest income

18,496.02

15,751.72

2,744.30

17.42

Interest expense

(9,266.44)

(8,014.42)

(1,252.02)

15.62

Net interest income

9,229.58

7,737.30

1,492.28

19.29

Fee and commission income

881.65

935.23

(53.58)

(5.73)

Fee and commission expense

(120.88)

(118.61)

(2.27)

1.91

Net fee and commission income

760.77

816.62

(55.85)

(6.84)

Net trading gains

1,035.95

2,000.07

(964.12)

(48.20)

Net gains on financial investments

363.55

211.53

152.02

71.87

Other income, gains or losses

403.83

34.59

369.24

1,067.48

Operating income

11,793.68

10,800.11

993.57

9.20

Operating expenses

(2,720.87)

(2,701.05)

(19.82)

0.73

Credit impairment losses

(4,976.55)

(3,554.66)

(1,421.89)

40.00

Impairment losses on foreclosed assets

(1.61)

(0.44)

(1.17)

265.91

Profit before income tax

4,094.65

4,543.96

(449.31)

(9.89)

Income tax expense

(772.39)

(871.26)

98.87

(11.35)

Net profit

3,322.26

3,672.70

(350.44)

(9.54)

In the first half of 2020, the Group recorded a profit before income tax of RMB4,095 million, representing a year-on-year decrease of 9.89%, and a net profit of RMB3,322 million, representing a year-on-year decrease of 9.54%. The net interest income of the Group increased as compared to the corresponding period of last year; however, as affected by the COVID-19 pandemic and asset quality, the fair value of financial assets has declined and the expected credit impairment losses have increased, resulting in a decline in the Group's profit before income tax and net profit.

INTERIM REPORT 2020 7

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Net Interest Income
    In the first half of 2020, the net interest income of the Group amounted to RMB9,230 million, representing a year-on-year increase of RMB1,492 million, or 19.29%, and accounting for 78.26% of our total operating income. It was primarily due to an increase in net interest income driven by the rising scale of interest-earning assets.
    The following table sets forth interest income, interest expense and net interest income of the Group for the periods indicated:

For the

For the

Item (Expressed in RMB million, six months ended

six months ended

Change in

Rate of change

unless otherwise stated)

30 June 2020

30 June 2019

amount

(%)

Interest income

18,496.02

15,751.72

2,744.30

17.42

Interest expense

(9,266.44)

(8,014.42)

(1,252.02)

15.62

Net interest income

9,229.58

7,737.30

1,492.28

19.29

For the six months ended

For the six months ended

30 June 2020

30 June 2019

Annualized

Annualized

Interest

average

Interest

average

Item (Expressed in RMB million,

Average

income/

yield/cost

Average

income/

yield/cost

unless otherwise stated)

balance

expense

rate (%)

balance

expense

rate (%)

Loans and advances to customers

505,488.18

13,873.32

5.49

397,236.27

11,821.76

5.95

Financial investments

167,841.38

3,127.57

3.73

132,397.77

2,439.65

3.69

Placements and deposits with banks and

other financial institutions

50,253.29

672.53

2.68

36,081.61

690.37

3.83

Financial assets held under resale agreements

34,411.85

298.07

1.73

24,246.78

298.92

2.47

Deposits with central bank

74,688.59

524.53

1.40

67,814.22

501.02

1.48

Total interest-earning assets

832,683.29

18,496.02

4.44

657,776.65

15,751.72

4.79

Due to customers

659,880.40

6,967.33

2.11

540,696.27

5,410.09

2.00

Placements and deposits from banks and

other financial institutions and others

50,090.71

672.48

2.69

47,765.82

967.88

4.05

Financial assets sold under repurchase

agreements

11,476.12

89.84

1.57

8,703.27

99.86

2.29

Debt securities issued

90,223.24

1,376.85

3.05

78,451.82

1,487.76

3.79

Borrowing from central bank

10,644.73

159.94

3.01

3,238.83

48.83

3.02

Total interest-bearing liabilities

822,315.20

9,266.44

2.25

678,856.01

8,014.42

2.36

Net interest income

9,229.58

7,737.30

Net interest spread

2.19

2.43

Net interest margin

2.22

2.35

Note:

  1. Financial investments consist of financial assets at fair value through other comprehensive income and financial assets at amortized cost.

8 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2020, compared with the corresponding period of last year, the overall average yield of interest-earning assets decreased by 35 basis points to 4.44%, the overall average cost rate of interest-bearing liabilities decreased by 11 basis points to 2.25%, net interest spread decreased by 24 basis points to 2.19%, and net interest margin decreased by 13 basis points to 2.22%.

The following table sets forth changes in the Group's interest income and interest expense as compared to the corresponding period of last year due to changes in volume and interest rate. Changes in volume are measured by movement of the average balance, while changes in interest rate are measured by the movement of the average interest rate:

Increase/(decrease) due to

changes in the following item

Item (Expressed in RMB million,

Net increase/

unless otherwise stated)

Volume factor

Rate factor

decrease

Assets

Loans and advances to customers

3,221.58

(1,170.02)

2,051.56

Financial investments

653.11

34.81

687.92

Placements and deposits with banks and

other financial institutions

271.15

(289.00)

(17.85)

Financial assets held under resale

agreements

125.32

(126.17)

(0.85)

Deposits with central bank

50.80

(27.28)

23.52

Changes in interest income

4,321.96

(1,577.66)

2,744.30

Liabilities

Due to customers

1,192.53

364.71

1,557.24

Placements and deposits from banks and

other financial institutions and others

47.11

(342.51)

(295.40)

Financial assets sold under repurchase

agreements

31.82

(41.84)

(10.02)

Debt securities issued

223.23

(334.14)

(110.91)

Borrowing from central bank

111.66

(0.55)

111.11

Changes in interest expense

1,606.35

(354.33)

1,252.02

INTERIM REPORT 2020 9

MANAGEMENT DISCUSSION AND ANALYSIS

1. Interest income

In the first half of 2020, interest income of the Group amounted to RMB18,496 million, representing an increase of RMB2,744 million or 17.42% as compared to the corresponding period of last year.

  1. INTEREST INCOME FROM LOANS AND ADVANCES TO CUSTOMERS
    The average balance, interest income and average yield for each component of loans and advances to customers of the Group are set forth as follows:

For the six months ended

For the six months ended

30 June 2020

30 June 2019

Annualized

Annualized

Item (Expressed in RMB million,

Average

Interest

average

Average

Interest

average

unless otherwise stated)

balance

income

yield (%)

balance

income

yield (%)

Corporate loans

324,872.78

9,666.64

5.95

276,758.89

8,711.26

6.30

Personal loans

134,186.86

3,613.93

5.39

109,014.85

2,939.71

5.39

Discounted bills

46,428.54

592.75

2.55

11,462.53

170.79

2.98

Total loans and advances

to customers

505,488.18

13,873.32

5.49

397,236.27

11,821.76

5.95

Interest income from loans and advances to customers amounted to RMB13,873 million, representing a year-on-year increase of RMB2,052 million, or 17.35%, and the average yield decreased by 46 basis points to 5.49% as compared with last year, which was mainly because, firstly, the Group proactively implemented a series of supporting policies for enterprises that led to a decrease in interest rate of loans; and secondly, the existing loan business was gradually converted to loan prime rate (LPR) pricing.

10 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. INTEREST INCOME FROM AMOUNTS DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
    The average balance, interest income and average yield for each component of amounts due from banks and other financial institutions of the Group are set forth as follows:

For the six months ended

For the six months ended

30 June 2020

30 June 2019

Annualized

Annualized

Item (Expressed in RMB million,

Average

Interest

average

Average

Interest

average

unless otherwise stated)

balance

income

yield (%)

balance

income

yield (%)

Placements and deposits with banks and

other financial institutions

50,253.29

672.53

2.68

36,081.61

690.37

3.83

Financial assets held under resale

agreements

34,411.85

298.07

1.73

24,246.78

298.92

2.47

Total amounts due from banks and

other financial institutions

84,665.14

970.60

2.29

60,328.39

989.29

3.28

In the first half of 2020, the interest income from amounts due from banks and other financial institutions of the Group amounted to RMB971 million, which basically remained stable as compared to the corresponding period of last year, while the average yield decreased by 99 basis points to 2.29% as compared to the corresponding period of last year. It was mainly due to the continuation of loose monetary policy in the market amid the COVID-19 pandemic this year, which led to a decrease in interest rate.

INTERIM REPORT 2020 11

MANAGEMENT DISCUSSION AND ANALYSIS

2. Interest expense

In the first half of 2020, the Group's interest expense increased by RMB1,252 million, or 15.62%, to RMB9,266 million as compared to the corresponding period of last year.

  1. INTEREST EXPENSE ON AMOUNTS DUE TO CUSTOMERS
    The average balance, interest expense and average cost rate for each component of amounts due to customers of the Group are set forth as follows:

For the six months ended

For the six months ended

30 June 2020

30 June 2019

Annualized

Annualized

average

average

Item (Expressed in RMB million,

Average

Interest

cost rate

Average

Interest

cost rate

unless otherwise stated)

balance

expense

(%)

balance

expense

(%)

Corporate deposits

Demand

114,983.24

279.51

0.49

102,859.35

254.02

0.49

Time

185,439.73

3,036.15

3.27

147,980.15

2,532.17

3.42

Subtotal

300,422.97

3,315.66

2.21

250,839.50

2,786.19

2.22

Personal deposits

Demand

111,708.62

166.30

0.30

96,511.97

154.99

0.32

Time

220,052.37

3,183.51

2.89

151,749.71

2,159.19

2.85

Subtotal

331,760.99

3,349.81

2.02

248,261.68

2,314.18

1.86

Other deposits

27,696.44

301.86

2.18

41,595.09

309.72

1.49

Due to customers

659,880.40

6,967.33

2.11

540,696.27

5,410.09

2.00

In the first half of 2020, the Group's interest expense on amounts due to customers amounted to RMB6,967 million, representing a year-on-year increase of RMB1,557 million or 28.78%. In the first half of 2020, the cost rate of deposits was 2.11%, which increased by 11 basis points as compared to the corresponding period of last year, mainly due to a further increase in the proportion of time deposits, which had a higher interest cost.

12 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. INTEREST EXPENSE ON AMOUNTS DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS
    The average balance, interest expense and average cost rate for each component of the Group's amounts due to banks and other financial institutions are set forth as follows:

For the six months ended

For the six months ended

30 June 2020

30 June 2019

Annualized

Annualized

average

average

Item (Expressed in RMB million,

Average

Interest

cost rate

Average

Interest

cost rate

unless otherwise stated)

balance

expense

(%)

balance

expense

(%)

Placements and deposits from banks and

other financial institutions and others

50,090.71

672.48

2.69

47,765.82

967.88

4.05

Financial assets sold under repurchase

agreements

11,476.12

89.84

1.57

8,703.27

99.86

2.29

Total amounts due to banks and

other financial institutions

61,566.83

762.32

2.48

56,469.09

1,067.74

3.78

In the first half of 2020, the Group's interest expense on amounts due to banks and other financial institutions amounted to RMB762 million, representing a year-on-year decrease of RMB305 million or 28.60%, which was mainly due to the continuation of loose monetary policy in the market amid the COVID-19 pandemic, leading to a decrease in interest rate of interbank liabilities.

3. Net interest spread and net interest margin

In the first half of 2020, net interest spread decreased by 24 basis points to 2.19% as compared to the corresponding period of last year, and net interest margin decreased by 13 basis points to 2.22% as compared to the corresponding period of last year.

INTERIM REPORT 2020 13

MANAGEMENT DISCUSSION AND ANALYSIS

(II)

Non-interest Income

1.

Net fee and commission income

For the

For the

six months

six months

Item (Expressed in RMB million,

ended

ended

Change in

Rate of

unless otherwise stated)

30 June 2020

30 June 2019

amount

change (%)

Fee and commission income

Fee income from bank card business

281.07

329.29

(48.22)

(14.64)

Fee income from agency and custodian business

232.00

157.83

74.17

46.99

Guarantee and commitment fee income

83.52

29.36

54.16

184.47

Fee income from settlement and electronic channel business

76.30

76.34

(0.04)

(0.05)

Fee income from wealth management products

43.68

60.42

(16.74)

(27.71)

Fee income from advisory and consulting business

36.13

82.40

(46.27)

(56.15)

Financial leasing fee income

32.62

77.45

(44.83)

(57.88)

Fee income from foreign exchange business

19.99

28.26

(8.27)

(29.26)

Others

76.34

93.88

(17.54)

(18.68)

Subtotal

881.65

935.23

(53.58)

(5.73)

Fee and commission expense

Fee expense on bank card business

(33.26)

(13.77)

(19.49)

141.54

Fee expense on settlement and electronic channel business

(8.25)

(6.68)

(1.57)

23.50

Others

(79.37)

(98.16)

18.79

(19.14)

Subtotal

(120.88)

(118.61)

(2.27)

1.91

Net fee and commission income

760.77

816.62

(55.85)

(6.84)

In the first half of 2020, net fee and commission income of the Group amounted to RMB761 million, representing a year-on-year decrease of RMB56 million or 6.84%, which was mainly due to the decrease in fee income from bank card business and fee income from advisory and consulting business. Net fee and commission income accounted for 6.45% of the total operating income, which was mainly the fee income from bank card business and agency and custodian business.

  1. Net trading gains
    In the first half of 2020, the net trading gains of the Group amounted to RMB1,036 million, which were mainly interest income from financial investments at fair value through profit or loss and gains or losses from change in fair value.
  2. Net gains on financial investments
    In the first half of 2020, the net gains on financial investments of the Group amounted to RMB364 million, which were mainly the bid-ask spread from financial assets at fair value through other comprehensive income.
  3. Other income, gains or losses
    In the first half of 2020, "other income, gains or losses" of the Group amounted to RMB404 million, which was mainly foreign exchange gains or losses.

14 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Operating Expenses
    In the first half of 2020, the operating expenses of the Group increased by RMB20 million, or 0.73% to RMB2,721 million as compared to the corresponding period of last year.
    The following table sets forth the principal components of operating expenses of the Group for the periods indicated:

For the six

For the six

Item (Expressed in RMB million,

months ended

months ended

Change in

Rate of

unless otherwise stated)

30 June 2020

30 June 2019

amount

change (%)

Staff costs

1,719.03

1,649.09

69.94

4.24

Tax and surcharges

98.97

73.61

25.36

34.45

Depreciation and amortization

394.05

412.83

(18.78)

(4.55)

Others

508.82

565.52

(56.70)

(10.03)

Total operating expenses

2,720.87

2,701.05

19.82

0.73

1. Staff costs

Staff costs represent the largest component of operating expenses of the Group, accounting for 63.18% and 61.05% of our operating expenses for the first half of 2020 and 2019, respectively.

The following table sets forth the principal components of staff costs of the Group for the periods indicated:

For the six

For the six

Item (Expressed in RMB million,

months ended

months ended

Change in

Rate of

unless otherwise stated)

30 June 2020

30 June 2019

amount

change (%)

Salaries, bonuses and allowances

1,319.07

1,192.90

126.17

10.58

Benefits, social insurance, housing fund and

other insurances

345.97

389.00

(43.03)

(11.06)

Early and supplemental retirement benefits

7.73

26.85

(19.12)

(71.21)

Gross amount of labour union expenditure,

education costs and other staff costs

46.26

40.34

5.92

14.68

Total staff costs

1,719.03

1,649.09

69.94

4.24

In the first half of 2020, staff costs of the Group amounted to RMB1,719 million, representing

a year-on-year increase of RMB70 million or 4.24%.

2. Tax and surcharges

In the first half of 2020, the tax and surcharges incurred amounted to RMB99 million, representing a year-on-year increase of RMB25 million or 34.45%, which was mainly because the VAT paid this year increased as compared to the corresponding period of last year, leading to an increase in surcharges.

INTERIM REPORT 2020 15

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Depreciation and amortization
    In the first half of 2020, depreciation and amortization of the Group was RMB394 million, representing a year-on-year decrease of RMB19 million, or 4.55%.
  2. Others
    In the first half of 2020, other expenses amounted to RMB509 million, representing a year-on- year decrease of RMB57 million, or 10.03%.

(IV) Impairment Losses

The following table sets forth the principal components of impairment losses on assets of the Group for the periods indicated:

1.

Credit impairment losses

For the six

For the six

Item (Expressed in RMB million,

months ended

months ended

Change in

Rate of change

unless otherwise stated)

30 June 2020

30 June 2019

amount

(%)

Loans and advances to customers

3,430.98

2,152.86

1,278.12

59.37

Loans and advances at fair value

through other comprehensive

income

231.04

366.30

(135.26)

(36.93)

Others

1,314.53

1,035.50

279.03

26.95

Total

4,976.55

3,554.66

1,421.89

40.00

2. Impairment losses on foreclosed assets

For the six

For the six

Item (Expressed in RMB million,

months ended

months ended

Change in

Rate of change

unless otherwise stated)

30 June 2020

30 June 2019

amount

(%)

Foreclosed assets

1.61

0.44

1.17

265.91

As of the end of June 2020, all scale of loans and the balance of non-performing loans increased as compared to the end of the corresponding period of last year and the end of last year, and impairment losses to be accrued correspondingly increased. Meanwhile, being affected by the COVID-19 pandemic, the expected probability of default for certain loans and financial investments increased, and impairment allowances are provided accordingly.

  1. Income Tax Expense
    In the first half of 2020, income tax expense amounted to RMB772 million, representing a year-on- year decrease of RMB99 million, mainly due to a decrease in profit before income tax. The effective income tax rate was 18.86%.

16 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. ANALYSIS OF STATEMENT OF FINANCIAL POSITION
    1. Assets
      The following table sets forth the composition of the Group's total assets as at the dates indicated:

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Total loans and advances to customers

551,979.57

56.77

479,968.13

53.68

Allowances for impairment losses

(18,670.05)

(1.92)

(16,916.76)

(1.89)

Loans and advances to customers, net

533,309.52

54.85

463,051.37

51.79

Financial investments(1)

237,568.24

24.44

237,674.38

26.58

Cash and deposits with the central bank

85,665.06

8.81

99,562.34

11.13

Deposits with banks and other financial

institutions

20,803.00

2.14

30,700.32

3.43

Placements with banks and other financial

institutions

37,630.45

3.87

20,604.23

2.30

Financial assets held under resale agreements

41,948.51

4.31

28,593.49

3.20

Others(2)

15,299.19

1.58

13,968.16

1.57

Total assets

972,223.97

100.00

894,154.29

100.00

Notes:

  1. Financial investments included financial assets at fair value through profit or loss, financial assets at fair value through other comprehensive income and financial assets at amortized cost.
  2. Other assets consisted of property and equipment, goodwill, deferred income tax assets, right-of-use assets and others.

As at 30 June 2020, the Group's total assets amounted to RMB972,224 million, representing an increase of RMB78,070 million, or 8.73%, as compared to the end of last year. Among them, the total loans and advances to customers increased by RMB72,011 million, or 15.00%, as compared to the end of last year. This was primarily due to the faster growth in the scale of corporate loans, non- bank loans and discounted bills in the first half of the year.

Financial investments decreased by RMB106 million, or 0.04%, from the end of last year, which basically remained stable as compared to the end of last year.

Cash and deposits with the central bank decreased by RMB13,897 million or 13.96% from the end of last year, primarily due to three rate cuts by the central bank in the first half of the year decreasing the statutory deposit reserve ratio by 2.0 percentage points as compared to the end of last year.

Gross amount of deposits with banks and other financial institutions and placements with banks and other financial institutions increased by RMB7,129 million or 13.90% as compared to the end of last year, primarily due to the increased interbank borrowings.

Financial assets held under resale agreements increased by RMB13,355 million or 46.71% as compared to the end of last year. This was mainly due to an appropriate increase in the scale of financial assets held under resale agreements according to the funding arrangements.

INTERIM REPORT 2020 17

MANAGEMENT DISCUSSION AND ANALYSIS

1. Loans and advances to customers

DISTRIBUTION OF LOANS BY BUSINESS SEGMENT

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Corporate loans

355,733.00

64.45

326,135.41

67.95

Personal loans

135,426.80

24.53

124,718.88

25.98

Discounted bills

60,819.77

11.02

29,113.84

6.07

Total loans and advances to customers

551,979.57

100.00

479,968.13

100.00

As at 30 June 2020, total loans and advances to customers of the Group increased by RMB72,011 million, or 15.00%, to RMB551,980 million as compared to the end of last year. As compared to the end of last year, the Group's total corporate loans increased by RMB29,598 million, or 9.08%, to RMB355,733 million; total personal loans increased by RMB10,708 million, or 8.59%, to RMB135,427 million; and total discounted bills increased by RMB31,706 million, or 108.90%, to RMB60,820 million.

DISTRIBUTION OF LOANS BY PRODUCT TYPE

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Total corporate loans

355,733.00

64.45

326,135.41

67.95

Working capital loans

162,125.47

29.37

148,972.52

31.04

Fixed asset loans

168,500.16

30.53

161,442.87

33.64

Finance lease receivables

16,139.64

2.92

14,034.86

2.92

Others

8,967.73

1.63

1,685.16

0.35

Total personal loans

135,426.80

24.53

124,718.88

25.98

Personal mortgage loans

66,573.02

12.06

63,694.13

13.27

Personal business loans

48,364.98

8.76

40,502.80

8.44

Personal consumption loans

11,498.03

2.08

11,287.47

2.35

Balance of credit cards

8,990.77

1.63

9,234.48

1.92

Total discounted bills

60,819.77

11.02

29,113.84

6.07

Bank acceptance bills

57,705.73

10.45

27,478.90

5.73

Commercial acceptance bills

3,114.04

0.57

1,634.94

0.34

Total loans and advances to customers

551,979.57

100.00

479,968.13

100.00

18 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

As at 30 June 2020, the Group's balances of working capital loans, fixed asset loans and finance lease receivables were RMB162,125 million, RMB168,500 million and RMB16,140 million, respectively, representing 45.58%, 47.37% and 4.54% of total corporate loans, respectively. Among them, working capital loans and fixed asset loans increased by RMB13,153 million and RMB7,057 million, or 8.83% and 4.37%, as compared to the end of last year, respectively.

As at 30 June 2020, the Group's personal mortgage loans, personal business loans, personal consumption loans and balance of credit cards were RMB66,573 million, RMB48,365 million, RMB11,498 million and RMB8,991 million, respectively, representing 49.16%, 35.71%, 8.49% and 6.64% of total personal loans, respectively. Among them, the balances of personal mortgage loans and personal business loans increased by RMB2,879 million and RMB7,862 million, or 4.52% and 19.41%, as compared to the end of last year, respectively.

As at 30 June 2020, the Group's discounted bank acceptance bills and discounted commercial acceptance bills were RMB57,706 million and RMB3,114 million, respectively. Among them, discounted bank acceptance bills increased by RMB30,227 million and discounted commercial acceptance bills increased by RMB1,479 million, as compared to the end of last year.

DISTRIBUTION OF LOANS BY TYPE OF COLLATERAL

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Collateralized loans

293,373.75

53.15

276,622.25

57.64

Pledged loans

43,187.66

7.82

37,773.66

7.87

Guaranteed loans

124,839.39

22.62

109,401.88

22.79

Credit loans

90,578.77

16.41

56,170.34

11.70

Total loans and advances to customers

551,979.57

100.00

479,968.13

100.00

As at 30 June 2020, the Group's collateralized loans, pledged loans, guaranteed loans and credit loans increased by RMB16,752 million, RMB5,414 million, RMB15,438 million and RMB34,408 million, or 6.06%, 14.33%, 14.11% and 61.26%, respectively, as compared to the end of last year. Overall, the proportion of collateralized loans and pledged loans to total loans remained high at 60.97%, reflecting the prudent risk management policy.

INTERIM REPORT 2020 19

MANAGEMENT DISCUSSION AND ANALYSIS

2. Financial investments

The following table sets forth the composition of financial investments of the Group as at the dates indicated:

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Financial assets at fair value through profit or

loss

75,610.90

31.83

85,432.18

35.95

Financial assets at fair value through other

comprehensive income

86,279.49

36.32

69,706.11

29.33

Financial assets at amortized cost

75,677.85

31.85

82,536.09

34.72

Total financial investments

237,568.24

100.00

237,674.38

100.00

As at 30 June 2020, the financial investments of the Group totaled RMB237,568 million, which basically held flat as compared to the end of last year, and the overall scale remained stable.

  1. Liabilities
    The following table sets forth the composition of total liabilities of the Group as at the dates indicated:

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Amounts due to customers

727,023.96

81.07

658,243.09

80.23

Deposits from banks and other financial

institutions

42,174.26

4.70

41,039.19

5.00

Placements from banks and other financial

institutions

1,672.59

0.19

984.92

0.12

Financial assets sold under repurchase

agreements

8,836.67

0.99

9,730.36

1.19

Debt securities issued

83,048.97

9.26

79,240.06

9.66

Others(1)

34,051.93

3.79

31,207.36

3.80

Total liabilities

896,808.38

100.00

820,444.98

100.00

Note:

  1. Mainly including tax payable, borrowings from other banks, salaries, bonuses, allowances and subsidies payable, lease liabilities, etc.

As at 30 June 2020, the Group's total liabilities amounted to RMB896,808 million, representing an increase of RMB76,363 million or 9.31% as compared to the end of last year. As the most important source of the Group's capital, amounts due to customers increased by RMB68,781 million or 10.45% as compared to the end of last year.

20 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

1. Amounts due to customers

The following table sets forth the amounts due to customers of the Group by product type as at the dates indicated:

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Corporate deposits(1)

Time

196,478.18

27.03

177,449.45

26.96

Demand

137,492.08

18.91

131,828.17

20.03

Subtotal

333,970.26

45.94

309,277.62

46.99

Personal deposits

Time

247,152.89

34.00

209,169.74

31.78

Demand

111,720.69

15.36

107,750.92

16.37

Subtotal

358,873.58

49.36

316,920.66

48.15

Pledged deposits

16,202.82

2.23

12,654.10

1.92

Other deposits(2)

17,977.30

2.47

19,390.71

2.94

Amounts due to customers

727,023.96

100.00

658,243.09

100.00

Notes:

  1. Mainly including deposits from corporate customers and government bodies.
  2. Mainly including structured deposits, treasury time deposits, fiscal deposits, etc. raised from the launch of principal-preservation wealth management products by the Group.

As at 30 June 2020, amounts due to customers increased by RMB68,781 million or 10.45% to RMB727,024 million as compared to the end of last year. With respect to the customer structure of the Group, personal deposits accounted for 49.36% of the total amount due to customers, and the balance of personal deposits increased by RMB41,953 million or 13.24% as compared to the end of last year; corporate deposits accounted for 45.94% of the total amount due to customers, and the balance of corporate deposits increased by RMB24,693 million or 7.98% as compared to the end of last year. With respect to the maturity structure, demand deposits accounted for 34.27% of the total amount due to customers, representing a decrease of 2.13 percentage points over the end of last year, while time deposits accounted for 61.03%, representing an increase of 2.29 percentage points over the end of last year.

INTERIM REPORT 2020 21

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Composition of Shareholders' Equity
    The following table sets forth the composition of shareholders' equity of the Group as at the dates indicated:

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Share capital

9,808.27

13.01

9,808.27

13.31

Preference shares

9,820.73

13.02

9,820.73

13.32

Capital reserve

10,920.40

14.48

10,920.40

14.82

Surplus reserve

5,055.78

6.70

5,055.78

6.86

General risk reserve

11,236.83

14.90

11,236.83

15.24

Investment revaluation reserve

1,197.62

1.58

1,134.29

1.54

Remeasurement gains on defined benefit

plans

(33.37)

(0.04)

(20.61)

(0.03)

Retained earnings

20,850.23

27.65

20,391.00

27.66

Non-controlling interests

6,559.10

8.70

5,362.62

7.28

Total shareholders' equity

75,415.59

100.00

73,709.31

100.00

As at 30 June 2020, the Group recorded a paid-in capital of RMB9,808 million, and capital reserve reached RMB10,920 million, both remained stable as compared to the end of last year. Please refer to the notes to financial statements for further details.

22 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. LOAN QUALITY ANALYSIS
    1. Five-CategoryClassification of Loans
      The following table sets forth the distribution of the Group's loans by the five-category classification as at the dates indicated, under which non-performing loans include loans classified into substandard, doubtful and loss categories.

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Normal

518,003.76

93.84

456,703.96

95.16

Special mention

23,838.80

4.32

14,944.12

3.11

Substandard

2,684.65

0.49

523.19

0.11

Doubtful

6,799.84

1.23

7,159.26

1.49

Loss

652.52

0.12

637.60

0.13

Total loans and advances to customers

551,979.57

100.00

479,968.13

100.00

Non-performing loan ratio(1)

-

1.84

-

1.73

Note:

  1. Calculated by dividing the total amount of non-performing loans by total loans.

Under the increasingly complicated and different economic and financial circumstances at home and abroad, coupled with the combined effect of the COVID-19 pandemic and the non-performing assets of Shaoguan Rural Commercial Bank acquired by the Bank, the non-performing loan ratio of the Group as at 30 June 2020 was 1.84%, which increased by 0.11 percentage point from the end of last year.

INTERIM REPORT 2020 23

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Distribution of Non-performing Corporate Loans by Industry
    The following table sets forth the distribution of the Group's non-performing corporate loans by industry as at the dates indicated:

As at 30 June 2020

As at 31 December 2019

Non-

Non-

performing

performing

Item (Expressed in RMB million,

Percentage

loan ratio

Percentage

loan ratio

unless otherwise stated)

Amount

of total (%)

(%)

Amount

of total (%)

(%)

Wholesale and retail

319.61

4.20

0.51

443.48

7.36

0.83

Real estate

1,305.54

17.14

2.04

174.98

2.90

0.26

Leasing and commercial services

1,760.48

23.12

2.49

1,987.63

33.01

3.18

Manufacturing

457.93

6.01

1.22

1,300.74

21.59

3.63

Construction

53.79

0.71

0.17

111.53

1.85

0.41

Water conservation, environment and public

utilities management

11.52

0.15

0.14

11.52

0.19

0.16

Accommodation and catering

78.05

1.02

0.39

64.19

1.07

0.39

Transportation, storage and postal services

2,269.76

29.80

20.82

809.67

13.44

6.97

Agriculture, forestry, animal husbandry and

fishery

1,033.93

13.58

10.34

1,015.11

16.85

10.89

Information transmission, software and

information technology services

258.32

3.39

5.58

14.44

0.24

0.33

Education

26.75

0.35

0.26

-

-

-

Household, repair and other services

7.23

0.09

0.08

11.96

0.20

0.18

Production and supply of electricity, heat, gas

and water

4.18

0.06

0.15

4.77

0.08

0.17

Others

28.93

0.38

0.23

73.44

1.22

0.63

Total non-performing corporate loans

7,616.02

100.00

2.14

6,023.46

100.00

1.85

Note:

  1. Calculated by dividing non-performing loans (loans classified into substandard, doubtful or loss categories) of each industry by gross loans granted to such industry.

As at 30 June 2020, the Group's non-performing corporate loans in the real estate industry increased from the end of last year, which was mainly because individual customers faced a slow sales progress of their high-end real estate projects amid the economic downturn and pandemic, resulting in a tight capital chain. The Group's non-performing corporate loans in transportation, storage and postal services industries increased from the end of last year, which was mainly because individual customers failed to run their business properly and made more external investments amid the economic downturn and pandemic, leading to a capital chain rupture.

24 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Distribution of Non-performing Loans by Product Type
    The following table sets forth the distribution of the Group's non-performing loans by product type as at the dates indicated:

As at 30 June 2020

As at 31 December 2019

Non-

Non-

performing

performing

Item (Expressed in RMB million,

Percentage

loan ratio

Percentage

loan ratio

unless otherwise stated)

Amount

of total (%)

(%)

Amount

of total (%)

(%)

Corporate loans

7,616.02

100.00

2.14

6,023.46

100.00

1.85

Personal loans

1,871.99

100.00

1.38

1,547.91

100.00

1.24

Personal mortgage loans

326.63

17.45

0.49

243.48

15.73

0.38

Personal business loans

975.11

52.09

2.02

846.20

54.66

2.09

Personal consumption loans

242.97

12.98

2.11

197.31

12.75

1.75

Balance of credit cards

327.28

17.48

3.64

260.92

16.86

2.83

Discounted bills

649.00

100.00

1.07

748.67

100.00

2.57

Total non-performing loans

10,137.01

100.00

1.84

8,320.04

100.00

1.73

Note:

  1. Calculated by dividing non-performing loans (loans classified into substandard, doubtful or loss categories) in each product type by gross loans in that product type.

Due to the combined effect of the economic downturn, the COVID-19 pandemic and the non-performing assets of Shaoguan Rural Commercial Bank acquired by the Bank, as at 30 June 2020, the non-performing ratio of corporate loans increased by 0.29 percentage point to 2.14% as compared to the end of last year, whereas the non-performing ratio of personal loans increased by 0.14 percentage point to 1.38% as compared to the end of last year.

INTERIM REPORT 2020 25

MANAGEMENT DISCUSSION AND ANALYSIS

(IV) Overdue Loans to Customers

The following table sets forth the aging timetable of the Group's loans by loan certificate as at the dates indicated:

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Loans that were not past due

533,097.01

96.58

465,744.76

97.04

Loans that were past due

18,882.56

3.42

14,223.37

2.96

Within 3 months

12,143.58

2.20

8,211.00

1.71

3 months to 1 year

3,746.90

0.68

3,329.86

0.69

1 year to 3 years

2,353.48

0.43

2,233.60

0.47

Over 3 years

638.60

0.11

448.91

0.09

Total loans and advances

551,979.57

100.00

479,968.13

100

Loans that were past due for more than

3 months

6,738.98

1.22

6,012.37

1.25

Due to the combined effect of the economic downturn, the COVID-19 pandemic and the non-performing assets of Shaoguan Rural Commercial Bank acquired by the Bank, as at 30 June 2020, overdue loans amounted to RMB18,883 million, representing an increase of RMB4,659 million from the end of last year and accounting for 3.42% of the total loans, representing an increase of

  1. 0.46 percentage point from the end of last year.

  2. Rescheduled Loans and Advances

As at 30 June 2020

As at 31 December 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Rescheduled loans and advances

9,032.90

1.64

10,808.49

2.25

As at 30 June 2020, rescheduled loans and advances amounted to RMB9,033 million, representing a decrease of RMB1,776 million from the end of last year.

26 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

IV. ANALYSIS OF CAPITAL ADEQUACY RATIO

The Group adopted the Administrative Measures for the Capital of Commercial Banks (Provisional) (《商業 銀行資本管理辦法(試行)) to calculate its capital adequacy ratio, under which credit risks are measured by weighted method, market risks are measured by standard method and operational risks are measured by basic indicator approach, and the scope of this calculation covers all branches of the Bank as well as subsidiaries which are financial institutions which comply with the Administrative Measures for the Capital of Commercial Banks (Provisional) (《商業銀行資本管理辦法(試行)). The following table sets forth the relevant information of the Group's capital adequacy ratio as at the dates indicated.

As at

As at

31 December

Item (Expressed in RMB million, unless otherwise stated)

30 June 2020

2019

Core Tier 1 capital adequacy ratio

9.41%

9.96%

Tier 1 capital adequacy ratio

10.99%

11.65%

Capital adequacy ratio

13.44%

14.23%

Portion of paid-in capital that may be included

9,808.27

9,808.27

Portion of capital reserve that may be included

10,920.40

10,920.40

Surplus reserve

5,055.78

5,055.78

General risk reserve

11,236.83

11,236.83

Retained earnings

20,850.23

20,391.00

Portion of minority interests that may be included

2,313.50

1,955.72

Others

1,164.24

1,113.68

Total core Tier 1 capital

61,349.25

60,481.68

Regulatory deductions for core Tier 1 capital

Goodwill and other intangible assets (excluding land use rights)

(893.90)

(900.96)

Core Tier 1 capital, net

60,455.35

59,580.72

Other Tier 1 capital

Other Tier 1 capital instruments and their premium

9,820.73

9,820.73

Portion of minority interests that may be included

304.98

259.47

Net Tier 1 capital

70,581.06

69,660.92

Tier 2 capital

Tier 2 capital instruments and related premium that may be included

9,998.80

9,998.74

Excessive loan loss allowances

5,174.81

4,924.20

Portion of minority interests that may be included

604.10

509.17

Net capital

86,358.77

85,093.03

Total risk-weighted assets

642,423.19

597,980.14

As at 30 June 2020, the capital adequacy ratio of the Group was 13.44%, representing a decrease of 0.79 percentage points over the end of last year, mainly due to the growth of risk-weighted assets over the end of last year exceeding the growth of net capital. Net capital amounted to RMB86,359 million, representing an increase of RMB1,266 million or 1.49% over the end of last year, mainly due to the Bank's replenishment of capital by retained profit in the first half of the year. Risk-weighted assets amounted to RMB642,423 million, representing an increase of RMB44,443 million or 7.43% over the end of last year, mainly attributable to the increase in credit risk-weighted assets as result of the increases in the scales of loan business and placements with non-bank institutions.

INTERIM REPORT 2020 27

MANAGEMENT DISCUSSION AND ANALYSIS

  1. ANALYSIS OF LEVERAGE RATIO
    As at 30 June 2020, the Group measured and disclosed the leverage ratio in accordance with the Administrative Measures for the Leverage Ratio of Commercial Banks (Revised) (《商業銀行槓桿率管理辦法 (修訂)).

As at

Item (Expressed in RMB million, unless otherwise stated)

30 June 2020

Net Tier 1 capital

70,581.06

The balance of assets on and off balance sheet after adjustments

1,036,538.40

Leverage ratio (%)

6.81%

VI. SEGMENT INFORMATION

The Group conducts its business principally in Guangdong Province, the PRC. Its major customers and non- current assets are located in Guangdong Province, the PRC.

Summary of business distribution

Operating income

For the six months ended

For the six months ended

30 June 2020

30 June 2019

Item (Expressed in RMB million,

Percentage of

Percentage of

unless otherwise stated)

Amount

total (%)

Amount

total (%)

Corporate banking business

6,232.44

52.85

5,810.04

53.80

Personal banking business

3,501.27

29.68

3,747.99

34.70

Financial market business

1,872.68

15.88

1,241.08

11.49

Other businesses

187.29

1.59

1.00

0.01

Total operating income

11,793.68

100.00

10,800.11

100.00

VII. OFF-BALANCE-SHEET ITEMS

The Group's off-balance-sheet items include loan commitments, acceptance bills, undrawn credit card limits, issuance of letters of guarantee and issuance of letters of credit. Acceptance bills, issuance of letters of guarantee and issuance of letters of credit were deemed as key business segments. As at 30 June 2020, the balances of loan commitments, acceptance bills, undrawn credit card limits, issuance of letters of guarantee and issuance of letters of credit were RMB83,299 million, RMB28,804 million, RMB15,830 million, RMB38,885 million and RMB1,389 million, respectively.

VIII. CONTINGENT LIABILITIES AND ASSETS PLEDGED AS SECURITY

For details of the Group's contingent liabilities and assets pledged as security as at 30 June 2020, please refer to notes 41 and 43 to the condensed consolidated financial statements.

28 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS OPERATION

  1. Corporate Banking Business
    1. Corporate Deposit Business
      Throughout the first half of 2020, the Bank adhered to its principle of holding deposits as its base, and emphasized its work on securing deposits strictly. By a number of measures, the Bank took full advantage of being a local banking corporation in Guangzhou to intensively cultivate the financial field of rural revitalization and reinforce the business of deposits of village communities. Meanwhile, it pushed hard the development of bank-and-government business such as provincial and municipal fiscal payment, urban renewal funds supervision and land auction deposit, and promoted the measure of keeping institutional funds in the Bank. On the other hand, its effort was put at strengthening the fund management of corporate settlement, increasing the deposit settlement rate of corporate payment and settlement, and enhancing the quality of comprehensive financial services and fiscal management value-added services through the capabilities of trading banks and investment banks. The Bank also expanded the deposit sales channels, deepened the cooperation with enterprises and underpinned its customer base for supporting the steady growth of corporate deposit business.
  1. Corporate Loan Business
    In the first half of 2020, given the Bank's active response to the national strategic guidance, it firmly supported the real economy and the economic development of private enterprises, as well as the development of the Guangdong-HongKong-Macau Greater Bay Area. The Bank strived to improve the effectiveness of serving the real economy through innovation in its product, business model and system. In the first half of 2020, the Bank thoroughly implemented the relevant government requirements to effectively reduce the financing costs of medium, small and micro-sized enterprises, satisfy the financing needs of enterprises and implement the policy of postponing principal and interest repayment, so as to facilitate the resumption of their work and production. The Bank continued to enhance product innovation and launch innovative products such as the "loans for aiding enterprises to fight against COVID-19 (援企戰疫貸)" and "Zheng Cai Dai (政採貸)", so as to help resume work and production and effectively support the development of the real economy. The Bank optimized the loan interest rate pricing mechanism and the credit approval process to continuously improve the efficiency of serving the real economy. In addition, the Bank solidly conducted the "six-stability" work, fully implemented the "six-guarantee" task, and fully performed its social responsibilities in the normalized prevention and control of the pandemic and the promotion of economic and social development.
  1. Trading Bank Business
    The Bank insisted on serving entities and people's livelihood. It achieved steady development of its trading bank business by empowering its businesses with the help of financial technology integrating domestic and overseas resources online and offline and continuously optimizing the trading bank product system. In the first half of 2020, facing the sudden COVID-19 pandemic, the Bank actively fulfilled its social responsibilities, by quickly adjusting the electronic channel system limits and business hours, reducing various transfer and remittance fees, simplifying the handling of imports of epidemic prevention materials and foreign exchange donations, and opening up a "green channel" for foreign exchange financial services, so as to help resume work and production. At the same time, in order to ensure the implementation of various policies to stabilize foreign trade, enterprises and employment, the Bank provided customers with innovative high-quality financial services: innovative use of blockchain technology, launch of new product "Chain Financing (鏈融通)", and promotion

INTERIM REPORT 2020 29

MANAGEMENT DISCUSSION AND ANALYSIS

of the foreign currency "Lian Lian Dai (連連貸)" business, providing SMEs with strong support for ongoing operation, and giving full play to the advantages of financial services to stabilize foreign trade. The Bank actively responded to the rural revitalization strategy, by launching the "Cun Zi Bao (村資寶)" business, and providing online rural collective fund services for governmental departments at various levels and customers in village communities. In addition, the Bank vigorously promoted the online service process, sped up the business handling process, launched various businesses, such as the discount service of electronic bank acceptance bills - "Sun•Cloud e-Discount (太陽e)", the electronic channels for transfers of personal foreign currencies between current and demand deposits, the online VIP call deposit, the online printing and inspection of electronic statements, etc..

In the midst of business development, the Bank accelerated the functional development of the supporting system of its trading bank business, and created a new international business system, village-level financial management platform and Sun e-financing chain, to achieve the digital transformation of financial services and enhance its comprehensive service capability, making financial services easily accessible and developing the layout for the market in the future.

  1. Personal Banking Business
    1. Personal Deposit Business
      While keeping a fast-growing scale, the Bank set its external pricing strategy in a proactive, flexible and competitive manner and diversified the product sales strategies, further optimizing the structure of deposit. The first was to refine the product sales strategies and proactively guide customers to formulate the compositions of their product portfolios through taking into account both liquidity and investment return. The second was to enhance the promotion of current and medium- and short-term deposit products with high profits while maintaining a steady growth of fixed lump-sum time deposits, large-denomination certificates of deposit and other products. The third was to launch new products of high liquidity and small and dispersed deposits such as Huoqibao (活期寶) and Merchant Exclusive (商戶專享), to increase the profit contribution of the Bank. The fourth was to provide uninterrupted returns of deposit rights to strengthen the sense of presence and competitiveness of the Bank through the systematic deposit service activities such as the payment of bonus at the Spring Festival, the recovery of amounts at the end of the year, serving newborns and elderly customers and the offline plus online services. As of the end of June 2020, in terms of market share, the Bank's saving deposits continued to rank second among banks in Guangzhou with higher level of saving deposits than the average level of banks in Guangzhou.
  1. Personal Loan Business
    Through proactively implementing the national regulation policy on real estate industry, the Bank supported the real housing needs of residents, and maintained the steady growth of personal housing loan business. Its online and offline consumption loan products were updated to support the consumption upgrade of residents. Thus, the personal consumption loan business grew steadily. In order to provide customers with more financing convenience and enhance customer experience, the Bank optimized the personal credit approval process, simplified the filing requirements and opened up green approval channels. The increasing consumer demand from customers was therefore gradually satisfied.

30 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Personal Wealth Management Business
    During the transition period of the new wealth management regulations, facing the rigid conversion expectations broken in the market, the Bank focused its wealth management sales on medium- and low-risk products, and moderately allocated medium- and high-risk products for qualified investors. As such, the income contribution of wealth management business remained stable. Secondly, in order to enhance the competitiveness of the wealth management business, the Bank innovatively launched a series of periodic net-value wealth management products named "Sun Great Wealth (太陽嘉富)" and promoted the gradual transformation of personal wealth management products into net-value products. As of the end of June 2020, the balance of the net-value wealth management products amounted to RMB13,440 million, and the balance of personal wealth management products with expected yield was RMB64,128 million, representing an increase of RMB116 million as compared to the beginning of the year, while the sales reached RMB81,944 million in the first half of the year.

(IV) Bank Card Business

Keeping abreast of the government's policy guidance, and in active response to the Guangdong- Hong Kong-Macao Greater Bay Area development strategy, the Bank vigorously expanded the base of customers in the field of various high-end talents introduced by government, and made full support for the development of Guangdong-HongKong-Macao Greater Bay Area and the high-end talent introduction. As of the end of June 2020, the Bank issued a total of 4,497 "Sun•Leading Yue Cards" (太陽領粵卡) exclusively for talents of Guangdong-HongKong-Macao Greater Bay Area and, as a representative, released 8,479 allowances for talents of different kinds amounting to RMB167 million. Meanwhile, the Bank provided integrated financial services to cardholders through card products, and focused on promoting social security card service upgrade, building the retail customer value-added service right system and constantly enhancing the ability to serve people's livelihood.

As of 30 June 2020, the Bank issued an accumulation of 409,400 new personal debit cards, and had 7,466,100 existing personal debit cards. The cumulative deposit balance of personal debit cards amounted to RMB121,999 million, representing a year-on-year increase of RMB12,578 million. The cumulative spending related to the debit cards of the Bank amounted to RMB38,830 million, and the various fee income arising from personal debit cards reached RMB8 million.

With respect to the credit card business, the Bank strengthened product innovation. For optimizing customer structure, the Bank introduced high-quality credit customers, and developed and launched the "Sun•Elite Card (太陽菁英卡)". For enriching credit card products and promoting the diversion of channels of customer acquisition to mass customer acquisition, the Bank developed and launched the "Sun•Unicom Co-branded Card (太陽聯通聯名卡)". In addition, the Bank strengthened the promotion of official credit card WeChat operation, created the first WeChat tweet with "100,000+" reading rates, actively promoted the brand building of credit cards and enhanced customers' loyalty.

Closely keeping up with the pace of consumption upgrades, the Bank maintained sound operation based on the customer groups and interest rates of different products for existing customers, improved the professionalism, scientificity and systematicness of data application, with an aim to provide quality financial services for customers.

As of the end of June 2020, the total number of credit cards in issue reached 1.6765 million, representing a year-on-year increase of 5.3%. In the first half of 2020, the Bank's intermediate business income from credit card business amounted to RMB264 million. In the first half of 2020, the operating income generated from the credit card business of the Bank reached RMB400 million.

INTERIM REPORT 2020 31

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Financial Market Business
    In the first half of 2020, due to the impact of the COVID-19 pandemic at home and abroad, the international financial market fluctuated violently, which brought challenges to the domestic economic development. Faced with the complicated and changing external environment, the Bank always adhered to stable operation, actively promoted the transformation and innovation of the financial market business, solidly promoted the all-round transformation of business development model, profit model and the research and investment decision-making mechanisms, and constantly improved management level and profitability.
    1. Continuously improving the investment decision-making mechanism, lifting the investment and research level and enhancing the swing-trading ability
      The Bank continuously improved the investment decision-making mechanism to enhance the scientific and forward-lookingdecision-making. Through continuously improving its investment and research capabilities and its market research and judgment capabilities, the Bank continued to optimize its investment and trading strategies based on the development of the COVID-19 pandemic at home and abroad as well as the strength and rhythm of counter-cyclical adjustment policies, and accurately grasped the swing-trading opportunities with significant improvement in the profitability of transactions.
  1. Vigorously promoting the transformation of wealth management business to enhance the scale of net-value products
    On the one hand, the Bank revised the wealth management business portfolio proactively to diminish the portion of interbank wealth management and boost the retail wealth management business. On the other hand, the Bank proactively promoted product innovation, and cash management, non-fixed- period open net-value wealth management products were launched successively. As of the end of June 2020, the balance of net-value wealth management products of the Bank was RMB19,015 million.
    The Bank's wealth management investment focused on money market instruments, debt securities and enhanced bond funds. As of the end of June 2020, the investment balance of debt securities and money market instruments amounted to RMB49,910 million, accounting for 62.51% of the total; the investment balance of enhanced bond funds amounted to RMB8,360 million, accounting for 10.47% of the total; and the rest of the investment amounted to RMB21,576 million, accounting for 27.02% of the total.
    In the national wealth management capability ranking report for the first quarter of 2020 issued by PY Standard, the Bank ranked 1st in terms of comprehensive wealth management capabilities, profitability, risk management capabilities and diversification of wealth management products among rural financial institutions. In the appraisal of open net-value bank wealth management products by CSJ Golden Bull (中證金牛) in the first quarter of 2020, five products of the Bank, including "Enjoy Wealth 35-DayType-A (私享嘉富35A)" and "Sun Great Wealth No. 2 (太陽嘉富2)", received a 5-star rating by jnlc.com (金牛理財), and the Bank ranked 5th, in terms of the number of products selected, among 28 banks selected in the country.

32 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Others
    The Bank continued to promote the construction of Zhujiang financial institutions cooperation platform, actively expand the platform cooperation institutions, and strengthen the business cooperation with financial institutions. At present, there are 73 member institutions which have signed contracts with the platform. Online trading on the platform has seen initial results, with a trading volume of RMB1,800 million in the first half of 2020.
    The Bank proactively developed the bond underwriting and distribution business and supported the issuance of anti-epidemic bonds. In the first half of 2020, the Bank was awarded as the outstanding underwriter of the export-import bank of China and the Agricultural Development Bank in 2019, with the accumulatively underwritten anti-epidemic bonds amounting to RMB2,450 million in the first half of the year.
    The Bank promoted the steady development of the asset custody business and provided efficient and quality services on settlement, accounting and investment supervision, etc. In the first half of 2020, the average daily size of asset custody of the Bank was RMB386,697 million.

IV. Inclusive Financial Business

In the first half of 2020, the Bank thoroughly implemented the decisions and deployment of inclusive finance and the SME-supporting refinancing policies of governments at all levels and regulatory institutions, supported epidemic prevention and control through timely release of guiding opinions, innovative research and development of special products, and facilitated the "incremental expansion, quality improvement and cost reduction" of the inclusive and SME business financial services, so as to support the high-quality development of the real economy.

As of 30 June 2020, the balances of the inclusive and SME loans of the Bank amounted to RMB29,545 million, an increase of RMB6,296 million, or 27.08%, over the beginning of the year, and its growth rate was higher than other loan types of the Bank. It served 23,917 SME loan customers, an increase of 6,510 over the beginning of the year. In the first half of 2020, the weighted average interest rate of loans cumulatively granted was 4.99%, representing a decrease of 0.97 percentage points as compared to the full year of 2019.

  1. Team Building
    The Bank continued to improve the inclusive finance specialized system to promote the healthy development of inclusive finance and SME business. As of 30 June 2020, the Bank had 33 inclusive finance teams and 1 inclusive finance sub-branch, namely Zhujiang Sub-branch, in Guangzhou, and 5 inclusive finance teams in branches in other regions, providing a good foundation for better serving the inclusive finance and SME customers. The Bank attached importance to the cultivation of employees' professional quality and business skills, as well as the building of a professional and high-performance team.
  1. Promoting Businesses
    The Bank proactively implemented the SME-supporting refinancing policy of the central bank. As of 30 June 2020, the Bank received the PBOC funding of RMB5,546 million for granting the SME-supporting refinancing loans, ranking first in Guangzhou region.

INTERIM REPORT 2020 33

MANAGEMENT DISCUSSION AND ANALYSIS

During the COVID-19 pandemic, the Bank took various measures and precisely adopted them to relieve the difficulties of medium, small and micro-sized enterprises, and spared no effort to help resume work and production.

The Bank continuously promoted the grid-based inclusive and SME financial service projects in villages, communities and professional markets. It continued to adopt a batch business model in various major professional markets and business circles in Guangzhou, and achieved the financial service coverage of small and micro-sized merchants in batches through business cooperation with market operators and industry associations in business circles.

  1. Product Innovation
    Based on the categories of villagers and non-villagers and online and offline, the Bank created the "Sun Inclusive" brand, with the focus on launching a series of products of inclusive and SME businesses such as Sun • SME Loans (太陽小微貸), Sun • Housing Loans (太陽房易貸), Sun • Excess Credit Loans (太 陽超額信用貸), Sun • Business Loans for Villagers (太陽村民致富貸), Sun • Micro E-loan (太陽e ), and Sun • Villager E-loan (太陽村民e).

(IV) Technological Support

In line with the new online and offline retail formats for the synchronous development of SMEs and individual proprietors, the Bank actively promoted online credit loan products and service functions such as self-service online application, inquiry, money withdrawal and repayment on internet banking and direct banking, to provide customers with "7 x 24 hours" online service and maximize the convenience of financing. The Bank actively connected with the financing platform of medium, small and micro-sized businesses, well-knownthird-partye-commerce platforms and big data platforms in China so as to gradually achieve transformation of inclusive and SME businesses in batches based on scenarios.

  1. "Sannong" Financial Business
    By adhering to its objectives of keeping a foothold in "Sannong" and serving rural revitalization, the Bank proactively established a flexible and comprehensive rural revitalization financial service system, so as to fully play its pivotal role in supporting the economic development of "Sannong". As of the end of June 2020, the scale of the Bank's agricultural loans amounted to RMB36,797 million, increasing by RMB491 million from the beginning of the year.
    1. Improving the overall work plan
      Firstly, the Bank regularly reviewed the execution of the "Three-year Action Plan for Promotion of the Rural Revitalization Strategy of Guangzhou Rural Commercial Bank (2018-2020)", and gradually improved and steadily promoted the implementation of the action plan and various measures to serve rural revitalization.
      Secondly, according to the work requirements of the central, provincial and municipal governments regarding the implementation of the rural revitalization strategy, and in combination with its actual situation, the Bank carefully summarized and reported the phased achievements of implementing the rural revitalization strategy, and actively devised the work plan and deployment with major tasks for next phase.

34 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Clarifying the direction of the credit policy
    In the 2020 credit policy, the Bank clarified the strategic positioning of supporting agriculture, and established the business orientation of continuous growth in agriculture-related loans throughout the year. At the same time, it continued to include agriculture, forestry, animal husbandry, fishery and other sectors into the encouraged and supported category and formulated the credit policy for sub-sectors. On the basis of the due diligence and liability exemption mechanism established in the early stage, the Bank revised and optimized the implementation rules for the due diligence and liability exemption work on the credit granting to inclusive and SME businesses, so as to provide a ground for serving rural revitalization and inclusive finance.
  1. Helping village communities with pandemic prevention and control
    During the pandemic, the Bank took various measures to help village communities with pandemic prevention and control. The Bank carried out pandemic prevention and control jointly with village communities by reinforcing major pandemic prevention checkpoints in relevant village communities and quickly offering the necessities for pandemic prevention. As of the end of June 2020, the Bank donated supplies to 577 village communities, and the relief supplies included 177,400 surgical masks, 21,500 bottles of sanitizers, 140,900 pairs of gloves and other anti-pandemic supplies.

IV. Supporting the resumption of work and production with credit grants

The Bank issued the "Work Plan of Guangzhou Rural Commercial Bank for Supporting Resumption of Work and Production of Agriculture-related Enterprises", and sorted out the key leading enterprises of agricultural industrialization at all levels (Guangzhou) and the "Vegetable Basket (菜籃子)" agricultural producers in the Guangdong-HongKong-Macao Greater Bay Area (Guangzhou). It purposely put forward nine work measures including offering the preferential loan interest rates and opening up the green credit approval channels to vigorously promote the resumption of work and production of agriculture-related enterprises.

  1. Promoting the improvement and upgrading of the village-level industrial parks
    The Bank and Guangzhou Municipal Industry and Information Technology Bureau jointly launched the "Financial Service Plan for Supporting Improvement and Upgrading of Village-Level Industrial Parks in Guangzhou", with the provision of a special fund of RMB60 billion. Through the launch of exclusive credit products, the offering of exclusive preferential loan interest rates, the establishment of a rapid response mechanism, the implementation of bond financing and other measures, the Bank assisted in the transformation and upgrading of the industrial parks and the financing of small and micro-sized enterprises in those parks.

VI.

Further carrying out the "Thousand Enterprises Help Thousand Villages" (千企幫千村) project

With reference to its past successful experience in related projects, the Bank actively introduced

Yuewang Group (粵旺集團) to Gaoping Village, Aotou Town, Conghua District to invest in the frog

and rice symbiosis project. At present, it has grown more than 300 mu of rice and operated more than

50 mu of frog farming area. Through the project development, 370 mu of idle land in the village has

been revitalized, driving the improvement in the employment level of the village and the per capita

income of local villagers.

INTERIM REPORT 2020 35

MANAGEMENT DISCUSSION AND ANALYSIS

VII. Promoting the "Internet + Finance" model

The Bank actively utilized the rural mobile payment application in carrying out the "Ten-Hundred-Thousand Project (十百千示範工程)", and vigorously promoted the "Internet + finance" business model, so as to give better play to financial services in serving rural revitalization. As of the end of June 2020, the scale of the Bank's merchant acquirers was approximately 17,000, with a total of approximately 6.24 million transactions and a cumulative transaction amount of RMB9,200 million. Among the administrative villages in Guangzhou, merchants in approximately 80% of village communities have used our payment services. The Bank had approximately 9,500 merchants in village community.

VI. Distribution Channels

  1. Physical Outlets
    As of 30 June 2020, the Bank had 651 operating outlets, of which 633 were located in the Guangzhou region and 18 were non-local outlets in the province. In terms of the number of outlets in the Guangzhou region, the Bank ranked first among the banks in the Guangzhou region. The Bank operated 5 non-local branches in Foshan, Qingyuan, Heyuan, Zhaoqing and Zhuhai, 12 sub-branches (of which 2 sub-branches were newly established in 2020) and 1 sub-office.
  1. Self-serviceEquipment
    As of 30 June 2020, the number of ATMs, self-service inquiry terminals and smart service terminals of the Bank amounted to 2,649, among which 1,772 were ATMs, 721 were self-service inquiry terminals and 156 were smart service terminals.
  1. Smart Banking
    As of 30 June 2020, the Bank had a total of 102 smart banking outlets and smart facilities including VTM and STM were installed. Transactions worth RMB3,000 million have been settled.

(IV) Internet Finance

1. Mobile banking

With an aim to provide customers with safe and convenient "contactless" internet financial services, the Bank comprehensively promoted the innovation and integration of biometrics and financial technology. The function of face scan transfer was launched, using facial recognition technology to increase transaction limits and optimize registration process. It realized the 7×24 uninterrupted identity authentication service which enhanced the efficiency of mobile banking services and customer experience. In June 2020, the Bank's mobile banking successfully passed the comprehensive security assessment and professional evaluation of China Internet Finance Association and other authoritative institutions, and was shortlisted for the first batch of mobile financial apps in the country. As of 30 June 2020, the Bank had approximately 4.51 million mobile banking customers with 6.4526 million financial transactions, representing a year-on- year increase of 0.17%, and a transaction amount of RMB168,482 million, representing a year- on-year increase of 0.47%. Of which, the number of the mobile banking corporate customers was approximately 17,500, which made 178,900 financial transactions with the monetary amount of RMB9,067 million.

36 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

  1. Internet banking
    The Bank continued to enrich its internet banking product system and enhance customer experience. With respect to the personal internet banking, it launched various services such as money transfer for wealth management, transfer of foreign currencies between current and demand deposits, inquiry relating to letter of guarantee, etc. As of 30 June 2020, the Bank had approximately 2.33 million personal internet banking customers with 3.3475 million financial transactions, representing a year-on-year increase of 2.09%, and a transaction amount of RMB127,565 million, representing a year-on-year decrease of 4.08%. In order to meet the market needs, the Bank has developed its online corporate financial services in the face of the pandemic, and the corporate internet banking business is developing at an accelerated pace. As of 30 June 2020, the Bank had approximately 24,900 corporate internet banking customers, and the number of financial transactions made through the corporate internet banking was 1.0243 million, representing a year-on-year increase of 27.8%, and the transaction amount was RMB582,155 million, representing a year-on-year increase of 48.72%.
  2. Direct banking
    With the aim of establishing an open, shared, and win-win financial ecosystem, the Bank actively explored integration of financial services and convenient scenarios, which deepened the self-development of scenarios such as "smart campus" and "smart community" while looking into the scenarios including "smart medical" and "smart transport", thereby providing users with a diversified online financial value-added service experience. As of 30 June 2020, the Bank had approximately 1.27 million direct banking customers with 0.8326 million financial transactions, representing a year-on-year increase of 68.57%, and a transaction amount of RMB15,785 million, representing a year-on-year decrease of 32.82%.
  3. WeChat banking
    The Bank's WeChat banking integrates publicity, customer service and financial tools, and provides the customers with fast and easy "finger-tip" financial services such as wealth management and purchase, financial information, latest offer, account enquiry, and appointment for corporate account opening, through which the products of the Bank are promoted in a casual manner. As a result, it has gradually become an important channel for the Bank's brand publicity and business promotion. As of 30 June 2020, the Bank's customers of WeChat banking reached 0.7755 million, representing an increase of 10% as compared to the beginning of the year.

INTERIM REPORT 2020 37

MANAGEMENT DISCUSSION AND ANALYSIS

5. Online mall (Sun Market (太陽集市))

The Sun Market strived to integrate the advantageous agricultural service resources to implement the disintermediation of the agricultural industry chain, thereby establishing a new golden age for the transformation and upgrade of modern agricultural enterprises and farmers. A new mode of poverty alleviation through the industry of "Internet + Agriculture Industry Leader + Base + Farmer" was explored proactively, by which Sun Market could fully exert its new leading function of helping to alleviate poverty. By establishing an integrated online and offline Internet trading system, the Bank has launched a new "retailing" model of dual-channel shopping in both physical stores and online malls and achieved the provision of one-stop service for the display and sales of poverty alleviation products, which facilitated the purchase of agricultural and sideline products for customers, and at the same time, contributed in the truly going out of poverty alleviation commodities and a quick well-off realization of the poor farmer households. As of 30 June 2020, the number of Sun Market's customers was 501,800. The Bank received 208,900 orders, an increase of 3% year-on-year, while the total transaction amount amounted to RMB29.9803 million, an increase of 9% year-on-year.

VII. Principal Subsidiaries

Zhujiang County Bank is a new-type rural financial institution established by the Bank, as a main promoter, in accordance with relevant laws, regulations and regulatory policies. The objectives for which it is established are to fill the gaps in local rural financial services and increase the supply of financial services for Sannong and small and micro-sized businesses. It is of great significance for performing social responsibility by the Bank, conducting inclusive finance, and increasing the breadth and depth of the service to rural revitalization and the support to targeted poverty alleviation. During the Reporting Period, the Bank earnestly performed its duties as a promoter, continuously strengthened the consolidated management and resource support for the Zhujiang County Banks, and led the steady improvement of their operation and management. As of 30 June 2020, the Bank established 25 Zhujiang County Banks in 9 provinces and cities of China.

As a wholly-owned subsidiary promoted and established by the Bank, Zhujiang Financial Leasing Co., Ltd. was incorporated and commenced operation in December 2014, with a registered capital of RMB1 billion. It is mainly engaged in financial leasing related business.

As holding subsidiaries of the Bank, Hunan Zhuzhou Zhujiang Rural Commercial Bank Co., Ltd., Chaozhou Rural Commercial Bank Co., Ltd., Guangdong Nanxiong Rural Commercial Bank Co., Ltd. and Shaoguan Rural Commercial Bank Co., Ltd. were incorporated and commenced operation in December 2017, June 2019, July 2019 and June 2020, respectively, with registered capital of RMB600 million, RMB2,633.34 million, RMB431.8 million and RMB1,373.71 million, respectively. They are mainly engaged in monetary financial business.

38 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

VIII. Information Technology

In the first half of 2020, the Bank proactively propelled the establishment of information system and continuously intensified the supporting role of information technology in the development of banking business. In the first half of 2020, all important information systems of the Bank maintained a stable operation, and no unplanned system outages occurred. The networks operated stably.

  1. Technology Governance
    The Bank focused on enhancing the ability of technology governance and technology management. The senior management and committees at all levels organized and convened multiple meetings, at which important proposals were considered, including the Information Technology Plan (2020-2022) ( 《信息科技規劃(2020-2022)) and the Instructions on Building a Distributed Financial Cloud Platform (《關於建設分佈式金融雲平台的請示》). The Bank improved the software research and development management system, strengthened the IT infrastructure management and enhanced the technology outsourcing management, which effectively improved the capacity of science and technology in terms of independent research and development and business support.
  1. Information Security Guarantee
    The Bank continued to strengthen its capability of information security guarantee with a focus on protecting data centers and important information infrastructure, introduced the advanced continuous threat protection system and upgraded the Internet portal security equipment to enhance external defense capabilities. It conducted the information system penetration tests and the host security loophole and security baseline verification to constantly strengthen the system security, improved the data security management system, and carried out the training of all its staff's awareness of information security, effectively improving the information security management level.
  1. Business Continuity Management
    In the first half of 2020, firstly, the Bank organized and completed the comprehensive self-examination of business continuity risk and the special examination of operational interruptions in accordance with the requirements of the CBIRC. Secondly, it formulated the annual drill plan for important information systems and important businesses, and completed the intra-citydisaster-related switchover drills for 5 important information systems and the business continuity drills for 4 important businesses, enhancing the Bank's emergency response capabilities for the information system of the Bank. Thirdly, it organized and implemented the overall business impact analysis on various business lines such as financial market, corporate finance and online finance, effectively identifying important businesses and expanding the coverage of the Bank's business continuity management.

(IV) Development of Information Technology

The Bank continued to increase the investment in technology resources, and promoted the construction of information system throughout the Bank by adhering to its "customer-centered" business philosophy. The Bank deepened the in-depth integration of technology and business with a view to enhancing product research and development in the real economy, inclusive small and microsized businesses, and Sannong business. It also proactively responded to changes in business and management models caused by the pandemic. Through the application of emerging technologies such as big data, artificial intelligence, cloud computing, etc., the Bank promoted financial product innovation and business model reform with a total of 14 information technology projects commencing operation during the first half of 2020.

INTERIM REPORT 2020 39

MANAGEMENT DISCUSSION AND ANALYSIS

IX. Human Resources Management

  1. Human Resources Management
    As of 30 June 2020, the Group had 13,274 employees in total, representing an increase of 606 employees or 4.8% as compared to the end of 2019. Of which 12,790 employees entered into labor contracts with the Group, an increase of 856 employees as compared to the end of 2019; and 484 employees were dispatched workers, a decrease of 250 employees as compared to the end of 2019.
  1. Training
    The Bank stayed committed to the improvement of the professional level and occupational quality of staff. The Bank went on perfecting its internal corporate university "Zhujiang Business School". In 2020, the Bank implemented its training work according to the requirements of the strategic development of the whole Bank and its key tasks, innovated the online and offline learning methods, promoted the staff education and training across the Bank in a planned manner, conducted the key talent training projects and implemented precise training, so as to fully empower its staff and organizations. Affected by the COVID-19 pandemic, the training in the first half of the year was mainly conducted by way of online teaching, and took the form of live broadcast teaching, online special courses and online public courses. In the first half of the year, the Bank organized a total of 169 training projects, including 102 online projects. Those trainings covered more than 25,000 trainees. The online learning time per individual was 55.5 hours, and the average satisfaction of trainees under key training projects was 95 points. At the same time, it held the workshops for optimizing the courses and system for posts such as account managers of inclusive finance and small- and micro-sized customers and operation supervisors to gradually develop standardized quality courses and unremittedly lay a solid foundation for training operation.

RISK MANAGEMENT

In the first half of 2020, the Group strictly implemented the decisions and deployment of governments and regulatory authorities at all levels, issued the special credit policy as a guideline, and actively implemented the tasks of "six stabilities (六穩)" and "six guarantees (六保)". Focusing on the further promotion of "one project and two activities (一工程兩行動)"1, the Group comprehensively promoted the implementation of risk management work to make up for shortcomings, and raised the overall risk management level, so as to effectively enhance the risk prevention and mitigation capabilities.

During the Reporting Period, the Group's risk management capabilities and levels were improving as a result of the Group's ability to control its overall risks and the effective internal control and management.

  1. Credit Risk Management
    Credit risk refers to the risk of economic losses arising from failure of the borrower or the counterparty of the Bank to fulfil relevant obligations as per the contract for various reasons.
    The Compliance and Risk Management Committee of the Group is responsible for formulating policies and strategies relating to the overall credit risk management of the Group, and the Risk Management Department, the Credit Approval Department and the Asset Monitoring Department are responsible for the specific implementation, monitoring and evaluation of credit risk management policies and strategies. Various business lines provide active cooperation in risk management and control.

1. Risk prevention project, risk prevention activities and absolute collection activities

40 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2020, the Group pushed forward the improvement of the risk management structure and mechanism and process, strengthened the management of business personnel and developed system management tools, so as to enhance its ability to prevent and control the credit risk. First of all, it optimized the risk control organization structure, comprehensively implemented the risk director appointment system and established multiple regional review and approval centers, so as to strengthen the vertical management and enhance the independence of risk control. Secondly, it optimized the risk management and control policies, introduced credit policies, investment policies and the specialized credit policies for epidemic prevention and control, enhanced access management in high-risk areas and strengthened financial support for the real economy, so as to promote economic and social development and financial stability. Thirdly, it optimized the credit authorization management system, and introduced the system of key personnel in charge of operation to highlight the responsibilities of business-operating principals. Fourthly, it upgraded the "risk prevention project" to focus on the two main lines of people and businesses, tightened the system defense, strengthened technical protection, promoted the optimization of risk management measures within the Bank, and enhanced its risk identification and control capabilities and the guarantee capability of risk management system to prevent the occurrence of new risks. Fifthly, it promoted the two activities of risk prevention and absolute collection, implemented the "two-books" (兩本台賬) management by the way of one group and one policy for one account, strengthened the process of supervision and guidance, actively resolved high-risk businesses, disposed of non-performing assets, strengthened the accountability for risk assets, and kept zero tolerance and rigid attitude towards incompliance with rules and disciplines and criminal offences. Sixthly, it boosted the establishment of project group for the risk management system, expanded the introduction of external risk information, and facilitated intelligent and digital risk management. Seventhly, it strengthened team management, optimized performance evaluation, and enhanced the evaluation of asset quality management and control. Eighthly, it carried out the supervision and inspection of system implementation, actively implemented the rectification of internal and external inspection problems through the risk prevention project, and established a long-term risk control mechanism.

In the first half of 2020, the overall credit risks of the Group were under control, and the non-performing rate of the Group was kept within the control objectives.

  1. Liquidity Risk Management
    Liquidity risk refers to the risk that sufficient funds cannot be obtained at a reasonable cost in time to meet debts falling due, perform other payment obligations and meet other capital needs of normal business.
    The objective of liquidity risk management of the Group is to meet the liquidity needs arising from assets, liabilities and off-balance sheet businesses and fulfil payment obligations to external parties in a timely manner under the normal operating environment of the Group or at a highly stressed condition through the establishment of a scientific and comprehensive liquidity risk management mechanism and effective identification, measurement, monitoring and reporting of liquidity risks, so as to maintain the balance between effectiveness and security of funds.
    The Asset/Liability Management Committee is responsible for formulating policies and strategies relating to overall liquidity risk management of the Group, and the Asset/Liability Management Department is responsible for implementing liquidity risk management policies and strategies and monitoring and evaluating liquidity risks. Various business lines provide active cooperation in liquidity management.

INTERIM REPORT 2020 41

MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2020, the Group continued to implement liquidity risk policies and various measures for liquidity risk management, and enhanced the uniform and centralized management of liquidity risk. The specific management measures included: Firstly, the Group ensured the management of daily capital positions to conduct centralized management of funds of the Bank, and conducted timely monitoring and proper supplementation to guarantee the safety of provisions. Secondly, the Group included the requirements for liquidity risk management into its business plan to ensure limiting the existing quality liquidity assets within a safe range. Thirdly, based on the risk preference in liquidity risk approved by the Board of Directors, the Group formulated limits on liquidity risk every quarter, and monitored the execution of the risk limit every month and assessed the execution every quarter to ensure liquidity risk is under control. Fourthly, the Group monitored liquidity indicators monthly and made forward-looking predictions of liquidity indicators and gaps, and timely identified risks, and made reasonable capital arrangement. Fifthly, the Group carried out stress testing for liquidity risk quarterly to timely assess the Group's liquidity risk tolerance and risk mitigating capability, and added stress testing during the important sensitive period to enhance the monitoring and prevention of liquidity risk on a timely basis. Sixthly, the Group regularly carried out liquidity risk emergency drills in order to improve the efficiency of its response under emergency situation.

In the first half of 2020, the overall liquidity risks of the Group were under control, without any significant liquidity risk incidents, all key liquidity risk indicators of each month were able to meet the standards, and results of the stress test also showed that the Group had adequate risk mitigating capability to deal with crises under pressure.

  1. Market Risk Management
    Market risk refers to the risk of losses in on- and off-balance sheet businesses from adverse changes in market prices (interest rate, exchange rate, stock prices and commodity prices). Interest rate risk is the major market risk of bank accounts. The Group calculates interest rate sensitivity gap on a regular basis, and evaluates, through gap analysis, the interest rate risk that it undertakes, and further evaluates the impacts of changes in interest rate on net interest income and enterprises' net worth under different interest rates.
    According to the requirements of Guidelines for Market Risk Management of Commercial Banks, Guidelines for Internal Control of Commercial Banks and Guidelines for the Stress Testing of Commercial Banks formulated by regulators, the Group manages its interest rate risk and foreign exchange risk with reference to relevant provisions under the New Basel Capital Accord, and has established a market risk management system by making provisions on, monitoring and reporting the authorization, credit extension and risk limits.
    In the first half of 2020, the Group remained concerned about changes in currency policies and market prices, and took a number of measures to enhance the capability to manage market risk. Firstly, it formulated the basic investment policy, adjusted risk preference, promoted business transformation towards fixed income, transactions, position operation and active management, and strictly controlled high-risk investment business. Secondly, it implemented the risk monitoring mechanism, and established the full-calibre risk monitoring mechanism for on- and off-balance sheet credit bonds, implemented the penetrate-through principle, dynamically collected the underlying bond holdings, conducted overall analysis from the dimensions of scale, limit, and profit and loss on a monthly basis, timely indicated risks and supervised rectifications for abnormal deviations in indicators. Thirdly, it strengthened the cultivation of professional talents, supported its employees to obtain high-level qualifications such as CFA and FRM, and strengthened cooperation and communication with external excellent investment research teams, so as to continuously improve the professional level of its employees.

42 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2020, the overall market risks of the Group were under control. None of the asset type had exceeded the policy limit control, and the overall risk preference was reduced.

IV. Operational Risk Management

Operational risk refers to the risk of losses caused by imperfections or faults of internal procedures, staff and system, or external events. Operational risks of the Group are classified mainly into internal risks and external risks. Internal risks mainly include risks arising from human factors, inappropriate procedures and operational processes, and failure of IT system. External risks mainly include risks caused by external emergencies.

In the first half of 2020, the Group combined the prevention of cases with operational risk management, continuously strengthened the standardized management of business procedures, and enhanced its efforts in the risk prevention and control to strictly prevent operational risk. Firstly, it formulated the "Implementation Plan for Case Prevention and Control and Operational Risk in 2020" (2020年案件防控及操作風險工作實 施方案》), and organized all units to strengthen the prevention and control of cases and operational risk management from the aspects of system development, system implementation, inspection and supervision. Secondly, it steadily carried out business continuity management, and introduced and implemented the overall plan for rectification of business continuity risk, put the work plans into practice, carried out the training of business continuity management, and raised the Bank's risk awareness towards business continuity management. Thirdly, it optimized and improved the information technology risk monitoring mechanism, released new version of monitoring indicators, and carried out the "look-back" specialized inspection of information technology risks in batches. Fourthly, it carried out the specialized examination of information technology outsourcing risk and the comprehensive risk assessment of outsourcing.

  1. Implementation of the New Basel Capital Accord
    The Group promoted the implementation of the New Basel Capital Accord in accordance with regulatory requirements, consolidated infrastructure, created and optimized risk models, and improved the effectiveness of the comprehensive risk measurement system.
    In the first half of 2020, firstly, the Group formulated the 2020 risk appetite statement and the indicator system based on the changes in external regulatory situation and risk control requirements. Secondly, it updated and optimized the non-retail internal rating model, developed the corporate and retail risk pre- warning model, and introduced and applied the PBOC's digital interpretation score for the first time to improve the timeliness and accuracy of the identification of risk customers. Thirdly, it completed the risk identification assessment and stress test in the internal capital adequacy assessment, and continuously promoted the establishment, monitoring and optimization of various risk measurement information systems such as IFRS9 impairment and risk-weighted assets.

VI. Anti-money Laundering Conditions

The Group strictly implemented the regulatory requirements, conscientiously fulfilled the basic obligations of anti-money laundering, strengthened the management of anti-money laundering work, and formulated the emergency plans during the epidemic prevention and control to ensure that the overall anti-money laundering work would not be suspended, and that the basic requirements are not compromised. It constantly adapted to the new situation and new changes of anti-money laundering, further improved the money laundering risk management system of the Bank, and raised the money laundering risk prevention level of the Bank.

INTERIM REPORT 2020 43

MANAGEMENT DISCUSSION AND ANALYSIS

In the first half of 2020, the Group conscientiously organized and implemented the publicity and training of anti-money laundering. On the one hand, it actively responded to the publicity program of the People's Bank of China, Guangzhou Branch, organized and implemented essay contests, micro-video publicity of anti-money laundering and other activities, and produced online soft advertising text in phases for WeChat promotion, and conducted publicity to raise the public's awareness of anti-money laundering. On the other hand, it actively utilized online channels, engaged experts to give lectures and took other ways to carry out anti-money laundering training at different levels, thus enriching the anti-money laundering knowledge at all levels of the Bank, and enhancing our awareness of duty performance.

INTERNAL AUDIT

The Bank has established an independent and vertical internal audit management system. The independent internal audit department was established under the Board of Directors. Under the leadership and guidance of the Bank's Party committee and the Board of Directors and the supervision and guidance of the Board of Supervisors, the internal audit department is responsible for the overall management of the Bank's internal audit work. The internal audit department regularly reports to the Party committee and the Board of Directors, and submits major audit matters to the Bank's Party committee for pre-study and consideration before submitting to the Board of Directors for consideration.

The internal audit department fully performed the audit supervisory function of the third risk defence, and established a beneficial cooperation mechanism with various business management departments, risk management department, discipline inspection and supervision department, etc. Through audit and evaluation, the internal audit department continued to improve the Bank's operation management, risk management, internal control and corporate governance, so as to help the Bank to enhance operation management and curb irregularities.

During the Reporting Period, the internal audit department fully implemented the work requirements of the superior management organizations and the work arrangements of the Bank's Party committee, the Board of Directors and the Board of Supervisors. It improved its political position and promoted the reform of the internal audit supervision system, with the commitment to build a centralized, full-coverage, authoritative and efficient internal audit supervision system. Systematic and standardized audit methods were utilized to conduct various audit projects in order to strengthen the management of audit quality and audit process control, promote the continuous improvement of the Bank's internal control level, and facilitate stable business development. The internal audit department was risk-oriented and carried out special audits in performance appraisal, information technology, bad debt write-off, fund sales, custody business, the Party fee management and other fields, conducted internal control evaluation audits on the whole Bank in a bid to enhance the overall improvement of the Bank's internal control level as well as facilitate the sustainable and stable development of various business segments. Meanwhile, follow-up audits were performed, in which the rectification of the audited units were tracked on dynamically. It also upgraded and transformed the audit information system based on audit management. A normalized and specialized construction of audit team was developed to continuously improve the comprehensive quality of audit staff members.

44 GUANGZHOU RURAL COMMERCIAL BANK

MANAGEMENT DISCUSSION AND ANALYSIS

OUTLOOK

In the first half of 2020, China's macro-economy slowed down significantly amid the COVID-19 pandemic. Its macro-economic growth rate in the first quarter was -6.8%, which was the lowest level since the National Bureau of Statistics has published such quarterly economic growth rate in 1992. Investment, consumption and exports segments have reported negative growth of various degrees. SMEs were severely hit by the pandemic, and catering, accommodation, tourism, transportation and other industries had a hard time. During the second quarter, as the pandemic was basically under control within the country, enterprises resume their work and production steadily. Coupled with the counter-cyclical control effects brought by the loose monetary policy and proactive fiscal policy, investment and consumption have rebounded steadily and exports have become stable. Thus, in comparison with last quarter, the economy growth sharply bounced back up to 3.2%. For the first half of the year, China recorded its economic growth rate of -1.60%, which was the negative economic growth of half year for the first time since 1992.

Looking forward to the second half of the year, economic stimulus will be gradually implemented. Among them, the issuance of special purpose debt will boost the infrastructure development for maintaining growth, the subsidy policies for commodities such as automobiles and home appliances will promote the continued recovery of consumption, and the gradual re-start of overseas economy will stabilize exports. As such, it is expected to achieve a positive growth of more than 5% for the economy in the third and fourth quarters, and maintain an annual economic growth rate of about 2%. However, we have to stay alert on the risk factors such us the uncertainty of the overseas pandemic and the possible escalation of Sino-US tension.

In the face of the COVID-19 pandemic, the Bank maintained stable operations during the first half of 2020. While the Bank was helping entities to ride out the pandemic, the Bank's scale of assets and liabilities was growing steadily with stable asset quality and resilient profitability. In the second half of the year, based on the changes in domestic and international macro-economic conditions, the Bank will make use of the policy advantages of the Greater Bay Area to optimize the credit resources allocation and continue to enhance the business and product innovation capabilities, thereby contributing to the economic growth of the Greater Bay Area.

INTERIM REPORT 2020 45

CHANGES IN SHARE CAPITAL AND SHAREHOLDERS

I.

CHANGES IN SHARES

Unit: Share, %

Change during

the Reporting

31 December 2019

Period

30 June 2020

Amount of

Quantity

Proportion

change

Quantity

Proportion

Total share capital

9,808,268,539

100

-

9,808,268,539

100

Non-overseas listed shares held by legal persons

5,501,947,888

56.09

-

5,501,947,888

56.09

Including: Shares held by state-owned legal person

shareholders

1,796,589,712

18.32

-

1,796,589,712

18.32

Non-overseas listed shares held by natural persons

2,485,985,651

25.35

-

2,485,985,651

25.35

Including: Shares held by internal staff members

370,778,208

3.78

-

370,778,208

3.78

Overseas listed foreign shares

1,820,335,000

18.56

-

1,820,335,000

18.56

Notes:

    1. As of the end of the Reporting Period, the total number of shareholders of the Bank's Non-overseas Listed Shares was 29,146, and all were deposited in China Securities Depository and Clearing Corporation Limited. The total number of shareholders of H Shares was 93 (of which HKSCC Nominees Limited, as a nominee, acted on behalf of several shareholders).
    2. The shares held by state-owned legal persons represent the Non-overseas Listed Shares of the Bank held by 14 state-owned legal person shareholders, including Guangzhou Finance Holdings Group Co., Ltd., Guangzhou Pearl River Enterprises Group Co., Ltd., etc.
    3. As of the end of the Reporting Period, 171,504 Non-overseas Listed Shares of the Bank were involved in judicial freezing, representing 0.0017% of the total share capital of the Bank.
  1. SHAREHOLDINGS OF SHAREHOLDERS
  1. Total Number of Shareholders
    As of 30 June 2020, the Bank had a total share capital of 9,808 million shares, comprising 7,988 million Non-overseas Listed Shares and 1,820 million overseas listed shares. There were 715 legal person shareholders in possession of 5,502 million Non-overseas Listed Shares, accounting for 56.09% of the total share capital. Among which, 14 were state-owned shareholders in possession of 1,797 million shares, accounting for 18.32% of the total share capital, while 28,431 were natural person shareholders in possession of 2,486 million Non-overseas Listed Shares, accounting for 25.35% of the total share capital.

46 GUANGZHOU RURAL COMMERCIAL BANK

CHANGES IN SHARE CAPITAL AND SHAREHOLDERS

  1. Top Ten Shareholders as of the End of the Reporting Period
    As of 30 June 2020, the top ten shareholders of Guangzhou Rural Commercial Bank together held 41.56% of the Bank's total share capital, with no single holder of Non-overseas Listed Shares having control of more than 5% of the total share capital, marking a dispersed shareholding structure. Among the top ten shareholders, the largest shareholder of Non-overseas Listed Shares was Guangzhou Finance Holdings Group Co., Ltd., which held 3.73% of the total share capital. The second largest shareholder was Guangzhou Pearl River Enterprises Group Co., Ltd. with 3.45% of the total share capital, and the third largest was Guangzhou Vanlead Group Co., Ltd. with 3.26% of the total share capital. All of these top three shareholders of Non-overseas Listed Shares are enterprises solely-owned by the state.
    As at 30 June 2020, the top ten shareholders are as follows:

Class of

Number of

Shareholding

No.

Name

shareholder

Nature of shareholder

shares (Share)

proportion (%)

1

HKSCC Nominees Limited(1)

H Shares

Other

1,819,981,900

18.56

2

Guangzhou Finance Holdings Group Co., Ltd.

Non-overseas

State-owned legal person

366,099,589

3.73

(廣州金融控股集團有限公司)

Listed Shares

3

Guangzhou Pearl River Enterprises Group Co., Ltd.

Non-overseas

State-owned legal person

338,185,193

3.45

(廣州珠江實業集團有限公司)

Listed Shares

4

Guangzhou Vanlead Group Co., Ltd.

Non-overseas

State-owned legal person

319,880,672

3.26

(廣州萬力集團有限公司)

Listed Shares

5

Guangzhou Radio Group Co., Ltd.

Non-overseas

State-owned legal person

310,728,411

3.17

(廣州無線電集團有限公司)

Listed Shares

6

Shanghai Dazhan Investment Management Co., Ltd.

Non-overseas

Non-state-owned legal person

250,000,000

2.55

(上海大展投資管理有限公司)

Listed Shares

7

Guangzhou Business Investment Holding Group Co., Ltd.

Non-overseas

State-owned legal person

191,749,019

1.95

(廣州商貿投資控股集團有限公司)

Listed Shares

8

Nanjing Gaoke Co., Ltd.

Non-overseas

Non-state-owned legal person

180,000,000

1.84

(南京高科股份有限公司)

Listed Shares

9

Guangdong Zhujiang Roads & Bridges Investment Co., Ltd.

Non-overseas

Non-state-owned legal person

160,020,000

1.63

(廣東珠江公路橋梁投資有限公司)

Listed Shares

10

Shenzhen Weilu Investment Holding Co., Ltd.

Non-overseas

Non-state-owned legal person

140,010,000

1.43

(深圳市偉祿投資控股有限公司)

Listed Shares

Total

4,076,654,784

41.56

Notes:

  1. HKSCC Nominees Limited, as a nominee, held 1,819,981,900 H Shares in aggregate in the Bank on behalf of several clients, representing approximately 18.56% of the issued share capital of the Bank. As a member of CCASS, HKSCC Nominees Limited conducts registration and custodian business for clients.
  2. The above proportions are calculated on the basis of the total share capital of the Bank of 9,808,268,539 shares.

INTERIM REPORT 2020 47

CHANGES IN SHARE CAPITAL AND SHAREHOLDERS

  1. Internal Staff Members' Shareholdings
    As of 30 June 2020, the Bank had a total of 5,688 internal staff member shareholders, holding 370 million shares, which accounted for 3.78% of the total share capital of the Bank.

(IV) Interests and Short Positions of Substantial Shareholders and Other Persons in Shares and Underlying Shares under the Hong Kong Laws and Regulations

Based on the knowledge of the directors and chief executives of the Bank, as at 30 June 2020, the following persons (other than the directors, chief executives and supervisors of the Bank) had, or were deemed or taken to have interests or short positions in the shares and underlying shares of the Bank which would fall to be disclosed to the Bank and the Hong Kong Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Bank pursuant to Section 336 of the SFO with details as follows:

Number of

Approximate

shares held

Approximate

percentage of

Long/

directly or

percentage of

the relevant

Class of

short

indirectly

interest in the

class of shares

Name of shareholder

Nature of interest

shares

position

(Share)

Bank

of the Bank

Guangzhou Municipal

Interest of a controlled

Non-

Long

1,786,589,712

18.22%

22.37%

People's Government(1)

corporation

overseas

Listed

Shares

Aeon Life Insurance

Beneficial owner

H Shares

Long

295,229,000

3.01%

16.22%

Company Limited

Guangzhou HongHui

Beneficial owner

H Shares

Long

200,991,000

2.05%

11.04%

Investment Co., Ltd(2)

Zeng Weipeng(2)

Interest of a controlled

H Shares

Long

114,558,840

1.17%

6.29%

corporation

Liu Feng(3)

Interest of a controlled

H Shares

Long

294,530,203

3.00%

16.18%

corporation

Good Prospect

Beneficial owner

H Shares

Long

294,530,203

3.00%

16.18%

Corporation Limited(3)

Deng Geng(4)

Interest of a controlled

H Shares

Long

294,554,000

3.00%

16.18%

corporation

East Lake Technology

Beneficial owner

H Shares

Long

294,554,000

3.00%

16.18%

Limited(4)

Su Jiaohua(5)

Interest of the spouse

H Shares

Long

221,424,797

2.26%

12.16%

Lin Xiaohui(5)

Interest of a controlled

H Shares

Long

221,424,797

2.26%

12.16%

corporation

Manureen Investment

Beneficial owner

H Shares

Long

221,424,797

2.26%

12.16%

Limited(5)

Lead Straight Limited(6)

Beneficial owner

H Shares

Long

195,229,000

1.99%

10.72%

Grandbuy International

Interest of a controlled

H Shares

Long

195,229,000

1.99%

10.72%

Trade (HK) Limited(6)

corporation

Guangzhou General

Interest of a controlled

H Shares

Long

195,229,000

1.99%

10.72%

Merchandise Group

corporation

Co., Ltd.(6)

Guang Rong Finance

Beneficial owner

H Shares

Long

104,347,000

1.06%

5.73%

Company Limited(7)

GuangZhou Finance

Interest of a controlled

H Shares

Long

104,347,000

1.06%

5.73%

Holdings (HK) Co., Ltd.(7)

corporation

GuangZhou Finance

Interest of a controlled

H Shares

Long

104,347,000

1.06%

5.73%

Holdings Group Co., Ltd.(7)

corporation

48 GUANGZHOU RURAL COMMERCIAL BANK

CHANGES IN SHARE CAPITAL AND SHAREHOLDERS

Notes:

  1. These 1,786,589,712 shares include 366,099,589 shares directly held by Guangzhou Finance Holdings Group Co., Ltd. (廣州金融控股集團有限公司), 338,185,193 shares directly held by Guangzhou Pearl River Enterprises Group Co., Ltd. (廣州珠江實業集團有限公司), 319,880,672 shares directly held by Guangzhou Vanlead Group Co., Ltd. (廣州萬力集團有限公司), 310,728,411 shares directly held by Guangzhou Radio Group Co., Ltd. (廣州無線電集團有限公司), 191,749,019 shares directly held by Guangzhou Business Investment Holding Group Co.,Ltd. (廣州商貿投資控股集團有限公司), 137,283,914 shares directly held by Guangzhou Light Industry & Trade Group Co., Ltd. (廣州輕工工貿集團有限公司), 45,312,844 shares directly held by Guangzhou Jinjun Investments Holding Co., Ltd. (廣州金駿投資控股有限公司), 33,405,752 shares directly held by Guangzhou Lingnan International Enterprise Group Co., Ltd. (廣州嶺南國際企業集團有限 公司), 18,304,522 shares directly held by Guangzhou Guangyong State-owned Assets Management Co., Ltd. (廣州市廣永國有資產經營有限公司), 9,152,261 shares directly held by Guangzhou Textiles Industry & Trade Holdings Ltd. (廣州紡織工貿企業集團有限公司), 7,052,469 shares directly held by Guangzhou Port Group Co., Ltd. (廣州港集團有限公司), 9,152,261 shares directly held by Guangzhou Development Zone Industrial Development Group Co., Ltd. (廣州開發區工業發展集團有限公司) and 282,805 shares directly held by Guangzhou Yunpu Industrial Zone Baiyun Enterprises Development Company (廣州市雲埔工業區 白雲實業發展總公司).
    Pursuant to the SFO, Guangzhou Municipal People's Government is deemed to be interested in the shares held by Guangzhou Finance Holdings Group Co., Ltd. (廣州金融控股集團有限公司), Guangzhou Pearl River Enterprises Group Co., Ltd. (廣州珠江實業集團有限公司), Guangzhou Vanlead Group Co., Ltd. (廣 州萬力集團有限公司), Guangzhou Radio Group Co., Ltd. (廣州無線電集團有限公司), Guangzhou Business Investment Holding Group Co.,Ltd. (廣州商貿投資控股集團有限公司), Guangzhou Light Industry & Trade Group Co., Ltd. (廣州輕工工貿集團有限公司), Guangzhou Jinjun Investments Holding Co., Ltd. (廣州金駿投 資控股有限公司), Guangzhou Lingnan International Enterprise Group Co., Ltd. (廣州嶺南國際企業集團有限 公司), Guangzhou Guangyong State-owned Assets Management Co., Ltd. (廣州市廣永國有資產經營有限公 司), Guangzhou Textiles Industry & Trade Holdings Ltd. (廣州紡織工貿企業集團有限公司) and Guangzhou Port Group Co., Ltd. (廣州港集團有限公司), which are directly or indirectly wholly-owned by Guangzhou Municipal People's Government, and in the shares held by Guangzhou Development Zone Industrial Development Group Co., Ltd. (廣州開發區工業發展集團有限公司) and Guangzhou Yunpu Industrial Zone Baiyun Enterprises Development Company (廣州市雲埔工業區白雲實業發展總公司), which are controlled by Guangzhou Municipal People's Government.
  2. Guangzhou HongHe Investment Co., Ltd. is owned as to 90% by Zeng Weipeng, and Guangzhou HongHe Investment Co., Ltd. owns Guangzhou HongHui Investment Co., Ltd. Therefore, Zeng Weipeng is deemed to be interested in the 200,991,000 shares by virtue of the SFO.
  3. Liu Feng wholly owns Good Prospect Corporation Limited. Therefore, Liu Feng is deemed to be interested in the 294,530,203 shares by virtue of the SFO.
  4. Deng Geng wholly owns East Lake Technology Limited. Therefore, Deng Geng is deemed to be interested in the 294,554,000 shares by virtue of the SFO.
  5. Manureen Investment Limited is owned as to 70% by Lin Xiaohui. Therefore, Lin Xiaohui is deemed to be interested in the 221,424,797 shares by virtue of the SFO. Su Jiaohua is the spouse of Lin Xiaohui. Therefore, Su Jiaohua is deemed to be interested in the 221,424,797 shares by virtue of the SFO.
  6. Grandbuy International Trade (HK) Limited is wholly owned by Guangzhou General Merchandise Group Co., Ltd. Lead Straight Limited is wholly owned by Grandbuy International Trade (HK) Limited. Hence, Guangzhou General Merchandise Group Co., Ltd. and Grandbuy International Trade (HK) Limited Co., Ltd. are deemed to be interested in the 195,229,000 shares by virtue of the SFO.
  7. Guangzhou Finance Holdings (HK) Co., Ltd. is owned as to 62.49% by GuangZhou Finance Holdings Group Co., Ltd. Guang Rong Finance Company Limited is wholly owned by Guangzhou Finance Holdings (HK) Co., Ltd. Hence, GuangZhou Finance Holdings Group Co., Ltd. and Guangzhou Finance Holdings (HK) Co., Ltd. are deemed to be interested in the 104,347,000 shares by virtue of the SFO.

Save as disclosed above, the Bank is not aware of any other person (other than the directors, chief executives and supervisors of the Bank) having any interests or short positions in the shares or underlying shares of the Bank as at 30 June 2020 as recorded in the register required to be kept by the Bank pursuant to Section 336 of the SFO.

INTERIM REPORT 2020 49

CHANGES IN SHARE CAPITAL AND SHAREHOLDERS

  1. Major Shareholders under "Interim Measures for Equity Management of Commercial Banks" (《商業銀行股權管理暫行辦法》)
    Pursuant to the requirements concerning major shareholders under "Interim Measures for Equity Management of Commercial Banks", the shareholders listed in the table below were the major shareholders of the Bank as at the end of the Reporting Period:

Whether

over 50%

Number of

Reason for

of the shares

Parties

Ultimate

shares held

being major

held were

Controlling

De facto

acting in

beneficial

Related

No.

Name of shareholder

(share)

shareholder

pledged

shareholders

controllers

concert

owners

parties

1

GuangZhou Finance

366,099,589.00

Delegated director

No

Holdings Group Co., Ltd.

Mr. Li Fangjin

(廣州金融控股集團

有限公司)

2

Guangzhou Vanlead

319,880,672.00

Delegated supervisor

No

Group Co., Ltd.

Mr. Huang Yong

(廣州萬力集團有限公司)

3

Guangdong Zhujiang Roads

160,020,000.00

Delegated director

Yes

& Bridges Investment Co.,

Mr. Zhu Kelin

Ltd. (廣東珠江公路橋樑投

資有限公司)

4

Guangzhou Chimelong

60,020,000.00

Delegated director

No

Group Co., Ltd. (廣州長隆

Mr. Su Zhigang

集團有限公司)

5

Guangzhou Haojin

20,000,000.00

Delegated director

No

Motorcycle Co., Ltd.

Mr. Liu Guojie

(廣州豪進摩托車股份 有限公司)

Guangzhou

Guangzhou

Municipal

Municipal

People's

People's

Government

Government

Guangzhou

Guangzhou

Industrial

Municipal

Investment

People's

Holding Group

Government

Co., Ltd.

(廣州工業投資

控股集團有限公司)

Guangdong

Zhu Yihang

Pearl River

(朱一航)

Investment

Management

Group Co., Ltd.

(廣東珠江投資

管理集團有限公司)

Guangdong

Su Zhigang,

Chimelong

Zhang Liushen

Group Co., Ltd.

(張柳深)

(廣東長隆集團

有限公司)

Liu Guojie

Liu Guojie

-

GuangZhou Finance

18 related

Holdings Group

natural persons

Co., Ltd.

and 76 related

legal persons

-

Guangzhou Vanlead

3 related

Group Co., Ltd.

natural persons

and 231 related

legal persons

- Zhu Yihang

4 related

natural persons

and 592 related

legal persons

-

Guangzhou

2 related

Chimelong

natural persons

Group Co., Ltd.

and 44 related

legal persons

-

Guangzhou

2 related

Haojin Motorcycle

natural persons

Co., Ltd.

and 18 related

legal persons

Note: For the definition of major shareholders, controlling shareholders, de facto controllers, related parties, parties acting in concert and ultimate beneficial owners, please see the relevant requirements of the Interim Measures for Equity Management of Commercial Banks. The major shareholders of the Bank have submitted their lists of related parties, and the Bank will regularly maintain and update the list of related parties to continuously lift the level of management of related party transactions. The Bank has disclosed the related party transactions in this report. Due to limitations on space, it does not provide the list of related parties of major shareholders.

50 GUANGZHOU RURAL COMMERCIAL BANK

CHANGES IN SHARE CAPITAL AND SHAREHOLDERS

(VI) Issuance of Offshore Preference Shares through a Private Offering

  1. Issuance and listing of offshore preference shares
    To supplement the capital of the Bank in a diversified way, further enhance the capital strength of the Bank and enhance its ability to resist risks, upon the approvals by Guangdong Bureau of the China Banking and Insurance Regulatory Commission (Guangdong Bureau of CBIRC) (Yue Yin Bao Jian (Chou) Fu [2018] No. 27) and the China Securities Regulatory Commission (CSRC) (Zheng Jian Xu Ke [2019] No. 355), the Bank issued non-cumulative perpetual Offshore Preference Shares in the amount of USD1,430 million on 20 June 2019. The Offshore Preference Shares (abbreviated as GRCB 19USDPREF with code of 04618) were listed on the Hong Kong Stock Exchange on 21 June 2019 with a nominal value of RMB100 per share at an offering price of USD20 per share. The total number of shares issued was 71,500,000, all of which were issued and fully paid in US dollars.
    Based on the Renminbi central parity rate published by the China Foreign Exchange Trade System on 20 June 2019, the gross proceeds from the offering of the Offshore Preference Shares were approximately RMB9.839 billion. The proceeds raised from the issuance of the Offshore Preference Shares, after deduction of the issuance expenses, as of the end of the Reporting Period, have been fully used to replenish the additional tier 1 capital of the Bank, increase the tier 1 capital adequacy ratio of the Bank and optimize the capital structure, which is consistent with the specific use disclosed beforehand.
    For the issuance terms and relevant details of the Offshore Preference Shares, please refer to the announcements of the Bank published on the website of the Hong Kong Stock Exchange (www.hkex.com.hk) and the official website of the Bank (www.grcbank.com).
  2. Number of offshore preference shareholders and shareholdings
    As of the end of the Reporting Period, the Bank had 1 offshore preference shareholder.
    Shareholdings of the offshore preference shareholders (or their nominees) of the Bank are as follows (the following data are based on the register of offshore preference shareholders as at 30 June 2020):

Increase or

Number

decrease

of shares

Number

during the

Total

subject

of shares

Reporting

Shareholding

number of

to selling

pledged

Nature of

Class of

Period

ratio

shares held

restrictions

or frozen

Name of shareholder

shareholder

shares

(share)

(%)

(share)

(share)

(share)

The Bank of

Offshore

New York Depository

Foreign

preference

(Nominees) Limited

legal person

shares

71,500,000

100

71,500,000

-

Unknown

Notes:

  1. Shareholdings of offshore preference shareholders are based on the information listed in the register of offshore preference shareholders of the Bank.
  2. As the Offshore Preference Shares were offered through a private offering, the register of offshore preference shareholders presented the information on nominees of the allotted investors.

INTERIM REPORT 2020 51

CHANGES IN SHARE CAPITAL AND SHAREHOLDERS

  1. Profit distribution of the Offshore Preference Shares
    Dividends will be paid in cash by the Bank to offshore preference shareholders. Each dividend will be payable annually in arrears on the dividend payment date. During the Reporting Period, dividends for the Offshore Preference Shares of USD93,744,444.44 was distributed by the Bank on 20 June 2020, of which USD84,370,000 was paid to the holders of Offshore Preference Shares at a nominal dividend rate of 5.9%, and income tax of USD9,374,444.44 was withheld.
  2. Other information on the Offshore Preference Shares
    During the Reporting Period, no Offshore Preference Shares have been repurchased, converted into ordinary shares or had their voting rights restored, and there was no experience of any trigger event in which the Offshore Preference Shares need to be coercively converted into H Shares.
    In accordance with Accounting Standards for Enterprise No. 22 - Recognition and Measurement of Financial Instruments (2017 revised), Accounting Standards for Enterprise No. 37 - Presentation of Financial Instruments (2017 revised) and Rules on the Differences between Financial Liabilities and Equity Instruments and Relevant Accounting Treatment promulgated by the Ministry of Finance of the PRC, as well as International Financial Reporting Standards No. 9
    - Financial Instruments and International Accounting Standards No. 32 - Financial Instruments: Presentation formulated by the International Accounting Standards Board, the issued and existing Offshore Preference Shares are eligible to be classified as equity instruments, and will be accounted for as equity instruments.

52 GUANGZHOU RURAL COMMERCIAL BANK

DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

  1. DIRECTORS OF THE BANK

As of 30 June 2020, the Board of Directors of the Bank comprised a total of nine directors, including one executive director, namely Mr. Yi Xuefei (Deputy Secretary of the Party Committee, Vice Chairman and President); four non-executive directors, namely Mr. Li Fangjin, Mr. Su Zhigang, Mr. Liu Guojie and Mr. Zhu Kelin; and four independent non-executive directors, namely Mr. Liu Shaobo, Mr. Liu Heng, Mr. Song Guanghui and Mr. Zheng Jianbiao.

Mr. Yung Hin Man Raymond resigned as an independent non-executive director of the Bank on 14 January 2020.

The appointment of Mr. Zhang Jian as a director of the Bank was passed by the Board of Directors and shareholders' general meeting of the Bank, and is subject to approval of qualification by the regulatory authority.

  1. SUPERVISORS OF THE BANK

As of 30 June 2020, the Board of Supervisors of the Bank comprised a total of seven supervisors, including three employee representative supervisors, namely Ms. Wang Xigui, Ms. He Heng, and Mr. Lai Jiaxiong; three external supervisors, namely Mr. Mao Yunshi, Mr. Chen Dan, and Mr. Shao Baohua; and one shareholder representative supervisor, namely Mr. Huang Yong.

Mr. Zhang Dalin resigned as a supervisor of the Bank on 10 March 2020.

  1. SENIOR MANAGEMENT OF THE BANK

As of 30 June 2020, the senior management of the Bank comprised a total of nine members: Mr. Yi Xuefei (Deputy Secretary of the Party Committee, Vice Chairman and President); Mr. Zhao Wei (Chief of the Discipline Inspection Team of the Commission for Discipline Inspection and the National Supervision Commission of Guangzhou stationed in Guangzhou Rural Commercial Bank); two Vice Presidents, namely Mr. Chen Jianming and Mr. Lin Ripeng; one assistant to the President, namely Mr. Tan Bo; two business directors, namely Ms. Chen Linjun and Ms. Yang Xuan; Mr. Cai Huiran (Chief Information Officer); and Ms. Zheng Ying (Secretary of the Board of Directors).

IV. SECURITIES TRANSACTIONS BY DIRECTORS AND SUPERVISORS

The Bank has adopted a code of conduct regarding securities transactions by the directors, supervisors and relevant employees no less exacting than the required standards as set out in the Model Code for Securities Transactions by Directors of Listed Issuers in Appendix 10 to the Listing Rules. Having made specific enquiries with all directors and supervisors, all directors and supervisors of the Bank confirmed that they have complied with the aforesaid code throughout the six months from 1 January 2020 to 30 June 2020.

INTERIM REPORT 2020 53

MAJOR EVENTS

CORPORATE GOVERNANCE

During the Reporting Period, the Bank continued to refine its corporate governance mechanism and improve its corporate governance in strict compliance with laws and regulations such as the Company Law of the People's Republic of China, the Commercial Banking Law of the People's Republic of China as well as the Listing Rules and in line with actual conditions of the Bank.

During the Reporting Period, the Bank has observed and complied with the code provisions of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules. Meanwhile, the Bank has complied with most of the recommended best practices set out in the aforementioned code.

IMPLEMENTATION OF DIVIDENDS DISTRIBUTION

Upon the approval of the 2019 AGM of the Bank, the Bank distributed a final dividend in cash for 2019 on 22 June 2020 of RMB0.20 per share (tax inclusive) and RMB1,962 million (tax inclusive) in aggregate to holders of Non- overseas Listed Shares and holders of H Shares whose names appeared on the register of members of the Bank on 4 June 2020. The Bank did not declare any interim dividend for 2020 (2019: nil).

REPURCHASE, SALE AND REDEMPTION OF LISTED SECURITIES

During the Reporting Period, the Bank and its subsidiaries did not repurchase, sell or redeem any of the Bank's securities.

MATERIAL RELATED PARTY TRANSACTIONS

As of the end of June 2020, the loan balance of material related party transactions between the Bank and related parties amounted to RMB7,148 million.

MATERIAL LEGAL PROCEEDINGS AND ARBITRATIONS

As of 30 June 2020, pending non-credit extension legal proceedings in which the Bank was a defendant or third party involved an amount of RMB1,517,000,000. The verified amount of provision for loss on the pending non- credit extension legal proceedings in which the Bank was a defendant or third party was RMB3,022,500. The bank is of the view that it will not have any material impact on the Bank's operating activities.

54 GUANGZHOU RURAL COMMERCIAL BANK

MAJOR EVENTS

INTERESTS AND SHORT POSITIONS OF DIRECTORS, CHIEF EXECUTIVES AND SUPERVISORS IN THE COMPANY

As of 30 June 2020, based on the information available to the Bank and as far as the directors are aware, the interests and short positions of the directors, chief executives and supervisors of the Bank in the shares, underlying shares or debentures of the Bank or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Bank and the Hong Kong Stock Exchange pursuant to the provisions of Divisions 7 and 8 of Part XV of the SFO (including the interests or short positions which he/she was deemed or taken to have under such provisions of the SFO), or as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Bank and the Hong Kong Stock Exchange pursuant to the Model Code were as follows:

Directors', supervisors' and chief executives' interests in the Bank

Approximate

Number of

percentage

shares held

Approximate

of the

directly or

percentage

relevant class

Long/Short

indirectly

of interests

of shares of

Name

Capacity

Nature of interest

Class of shares

position

(Share)

in the Bank

the Bank

Yi Xuefei

Director

Beneficial owner

Non-overseas Listed Shares

Long

500,000

0.005%

0.006%

Su Zhigang

Director

Interest of a controlled

Non-overseas Listed Shares

Long

60,020,000

0.612%

0.751%

corporation(1)

Zhu Kelin

Director

Interest of spouse

Non-overseas Listed Shares

Long

1,201,000

0.012%

0.015%

Liu Guojie

Director

Interest of a controlled

Non-overseas Listed Shares

Long

20,000,000

0.204%

0.250%

corporation(2)

Zhang Dalin

Supervisor

Beneficial owner/

Non-overseas Listed Shares

Long

1,201,000

0.012%

0.015%

(resigned on 10

Interest of a controlled

Non-overseas Listed Shares

Long

5,000,000

0.051%

0.063%

March 2020)

corporation(3)

Mao Yunshi

Supervisor

Interest of spouse

Non-overseas Listed Shares

Long

1,201,000

0.012%

0.015%

Shao Baohua

Supervisor

Beneficial owner/

Non-overseas Listed Shares

Long

1,201,000

0.012%

0.015%

Interest of spouse/

Non-overseas Listed Shares

Long

2,407,000

0.025%

0.030%

Interest of a controlled

Non-overseas Listed Shares

Long

42,010,000

0.428%

0.526%

corporation(4)

Lai Jiaxiong

Supervisor

Beneficial owner

Non-overseas Listed Shares

Long

452,224

0.005%

0.006%

Notes:

  1. These shares were held by Guangzhou Chimelong Group Co., Ltd., which was owned as to 87.14% by Su Zhigang. Therefore, by virtue of the SFO, Su Zhigang, a director of the Bank, is deemed or taken to be interested in all the shares held by Guangzhou Chimelong Group Co., Ltd.
  2. These shares were held by Guangzhou Haojin Motorcycle Co., Ltd. (廣州豪進摩托車股份有限公司), which was owned as to 99% by Liu Guojie. Therefore, by virtue of the SFO, Liu Guojie, a director of the Bank, is deemed or taken to be interested in all the shares held by Guangzhou Haojin Motorcycle Co., Ltd. (廣州豪進摩托車股份有限公司).

INTERIM REPORT 2020 55

MAJOR EVENTS

  1. These shares were held by Guangzhou Fengle Fuel Co., Ltd. (廣州豐樂燃料有限公司), which was owned as to 84% by Zhang Dalin. Therefore, by virtue of the SFO, Zhang Dalin is deemed or taken to be interested in all the shares held by Guangzhou Fengle Fuel Co., Ltd. (廣州豐樂燃料有限公司).
  2. These shares were held by Guangzhou Huadu Huanyang Commerce and Trade Co., Ltd. (廣州市花都環洋商貿有限公司), which was owned as to 45.4% by Shao Baohua. Therefore, by virtue of the SFO, Shao Baohua, a supervisor of the Bank, is deemed or taken to be interested in all the shares held by Guangzhou Huadu Huanyang Commerce and Trade Co., Ltd. (廣州市花都環洋商貿有限公司).

Save as disclosed above, as at 30 June 2020, none of the directors, supervisors and chief executives of the Bank had any interests or short positions in any shares, underlying shares or debentures of the Bank or its associated corporations (within the meaning of Part XV of the SFO) which were recorded in the register required to be kept by the Bank pursuant to Section 352 of the Hong Kong SFO, or required to be notified to the Bank and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules.

PENALTIES IMPOSED ON THE BANK AND DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE BANK

During the Reporting Period, the Bank and all the directors, supervisors and senior management of the Bank had no record of being subject to inspections, administrative penalties and circulating criticisms by the CSRC or public censures by the Hong Kong Stock Exchange, or penalties by relevant regulatory bodies that posed significant impact on the Bank's operation.

MATERIAL CONTRACTS AND THEIR PERFORMANCE

During the Reporting Period, the Bank had no material contracts to be performed.

MATERIAL ACQUISITION AND DISPOSAL OF ASSETS AND MERGER OF ENTERPRISES

During the Reporting Period, Shaoguan Rural Commercial Bank, in which the Bank holds 50.1% of the equity interests, officially started operations on 24 June 2020.

SUBSEQUENT EVENTS

The Bank intends to issue A shares with the total amount of no more than 1,596,694,878 shares, and the issuance proportion does not exceed 14% of the total share capital after the issuance. The relevant proposal on the above matter was considered and approved by the general meeting of the Bank held on 6 September 2018.

REVIEW OF INTERIM RESULTS

The Bank's interim condensed consolidated financial data for the six months ended 30 June 2020 prepared in accordance with the IFRS has been reviewed by PricewaterhouseCoopers.

The Bank's interim results report for the six months ended 30 June 2020 has been reviewed by the Audit Committee under the Board of Directors of the Bank and the Board of Directors.

56 GUANGZHOU RURAL COMMERCIAL BANK

CORPORATE STRUCTURE

Internal Audit Department

Strategic Planning Department

(Post-Doctoral Research Center)

Security Department (People's Armed Force)

Information Technology Department

General Office

CommitteeNomination

CommitteeSupervisionand

Asset and Liability Management Department

Finance and Performance Management Department

Human Resources Department

(Party Committee Organization Department)

Audit

Institutional Discipline Inspection Committee

Party Committee Propaganda Department

Party-Mass Relationship Work Department

of

BoardofOffice Supervisors

Customer Service Department

Supervisorsof

Centralized Operation Department

Operational Management Department

Bank

Board

CommitteeSupervisoryon DutiesofPerformance

CommitteeResourcesHuman

MarketingComprehensiveand CommitteeInnovation

ManagementFinanceInclusiveCommittee

CommitteeFinanceTechnology

Compliance and Legal Affairs Department

(Anti-money Laundering Center, Consumer Rights

Protection Committee)

Credit Approval Department

Asset Monitoring Department

CorporateStructure of RuralGuangzhouCommercial

GeneralMeetings

Boardof Directors

SeniorManagement

Risk Management Department

DirectorsofBoardofOffice

RiskandCompliance

CommitteeManagement

CommitteeReviewDispositionAsset

CommitteeManagementLiabilityandAsset

CommitteeApprovalFinance

ContinuityBusiness

CommitteeManagement

Sun Finance Business Department

Internet Finance Business Department

Credit Card Centre

Zhujiang Sub-branch

Inclusive and SME Business Management Department

Sun Market

Private Banking Business Department

Retail Finance Business Management Department

InvestmentandStrategyCommittee (Sannong Committee)

AuditCommittee

TransactionsPartyRelatedand Risk Management Committee

andNominationRemuneration Committee

ProtectionConsumerCommittee

Fixed Asset Finance Business Department

Asset Management Department

Asset Custody Department

Financial Market Department

Interbank Business Department

Financial Market Business Management Department

Major Customer Business Department

Group and Institution Business Department

Strategic and Emerging Industry Business Department

Investment Banking Department

Transaction Banking Department

(International Business Department)

Sannong Business Management Department

Corporate Financial Business Management Department

Investment and Institution Management Department

Shaoguan Rural Commercial Bank

Nanxiong Rural Commercial Bank

Chaozhou Rural Commercial Bank

Zhuzhou Zhujiang Rural Commercial Bank

Zhujiang County Bank

Zhujiang Financial Leasing Co., Ltd.

Head Office

-branch)

Business Unit of

(Huaxia Sub

Yangcheng Sub-branch

Huacheng Sub-branch

Non-local Branch

Central Sub-branch

INTERIM REPORT 2020 57

REPORT ON REVIEW OF INTERIM FINANCIAL INFORMATION

For the six months ended 30 June 2020

To the Board of Directors of Guangzhou Rural Commercial Bank Co., Ltd. (Incorporated in the People's Republic of China with limited liability)

INTRODUCTION

We have reviewed the interim financial information set out on pages 59 to 151, which comprises the interim condensed consolidated statement of financial position of Guangzhou Rural Commercial Bank Co., Ltd. (the "Bank") and its subsidiaries (together, the "Group") as at 30 June 2020 and the interim condensed consolidated statement of profit or loss, the interim condensed consolidated statement of comprehensive income, the interim condensed consolidated statement of changes in equity and the interim condensed consolidated statement of cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 "Interim Financial Reporting". The directors of the Bank are responsible for the preparation and presentation of this interim financial information in accordance with International Accounting Standard 34 "Interim Financial Reporting". Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the interim financial information of the Group is not prepared, in all material respects, in accordance with International Accounting Standard 34 "Interim Financial Reporting".

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 28 August 2020

58 GUANGZHOU RURAL COMMERCIAL BANK

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

Six months ended 30 June

Note

2020

2019

Interest income

5

18,496,018

15,751,717

Interest expense

5

(9,266,434)

(8,014,414)

Net interest income

9,229,584

7,737,303

Fee and commission income

6

881,651

935,229

Fee and commission expense

6

(120,885)

(118,607)

Net fee and commission income

760,766

816,622

Net trading gains

7

1,035,954

2,000,070

Net gains on financial investments

8

363,550

211,525

Other income, gains or losses

9

403,830

34,590

Operating income

11,793,684

10,800,110

Operating expenses

10

(2,720,873)

(2,701,050)

Credit impairment losses

11

(4,976,547)

(3,554,664)

Impairment losses on foreclosed assets

11

(1,619)

(436)

Profit before income tax

4,094,645

4,543,960

Income tax expense

12

(772,386)

(871,259)

Net Profit for the period

3,322,259

3,672,701

Attributable to:

Shareholders of the Bank

3,085,657

3,591,552

Non-controlling interests

236,602

81,149

3,322,259

3,672,701

Earnings per share (RMB yuan)

- basic and diluted

14

0.25

0.37

The accompanying notes form an integral part of these interim condensed consolidated financial information.

INTERIM REPORT 2020 59

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

Six months ended 30 June

Note

2020

2019

Net Profit for the period

3,322,259

3,672,701

Other comprehensive income (after tax, net):

36

-

-

Items that may be reclassified to profit or loss

Changes in the fair value of financial assets at fair value through

other comprehensive income

(396,569)

(110,496)

Changes in the expected credit losses of financial assets at fair

value through other comprehensive income

455,877

762,671

Items that will not be reclassified to profit or loss

Remeasurement (losses)/ income on defined benefit plans

(12,758)

3,224

Subtotal of other comprehensive income for the period

46,550

655,399

Total comprehensive income for the period

3,368,809

4,328,100

Total comprehensive income attributable to:

Shareholders of the Bank

3,136,223

4,246,886

Non-controlling interests

232,586

81,214

3,368,809

4,328,100

The accompanying notes form an integral part of these interim condensed consolidated financial information.

60 GUANGZHOU RURAL COMMERCIAL BANK

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

As at

As at

30 June

31 December

Note

2020

2019

ASSETS

Cash and deposits with central bank

15

85,665,058

99,562,341

Deposits with banks and other financial institutions

16

20,803,002

30,700,318

Placements with banks and other financial institutions

17

37,630,449

20,604,232

Financial assets held under resale agreements

18

41,948,512

28,593,493

Loans and advances to customers

19

533,309,523

463,051,371

Financial investments

- Financial assets at fair value through profit or loss

20

75,610,904

85,432,178

- Financial assets at fair value through other comprehensive income

21

86,279,491

69,706,113

- Financial assets at amortized cost

22

75,677,847

82,536,087

Property and equipment

23

2,882,021

2,921,638

Goodwill

24

734,237

734,237

Deferred tax assets

25

5,906,375

5,054,904

Other assets

26

5,776,551

5,257,379

Total assets

972,223,970

894,154,291

LIABILITIES

Due to the central bank

13,088,233

8,867,584

Deposits from banks and other financial institutions

27

42,174,257

41,039,193

Placements from banks and other financial institutions

28

1,672,592

984,917

Financial assets sold under repurchase agreements

29

8,836,665

9,730,355

Customer deposits

30

727,023,962

658,243,086

Income tax payable

1,758,385

2,323,077

Debt securities issued

31

83,048,968

79,240,055

Other liabilities

32

19,205,319

20,016,713

Total liabilities

896,808,381

820,444,980

INTERIM REPORT 2020 61

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

As at

As at

30 June

31 December

Note

2020

2019

EQUITY

Share capital

33

9,808,269

9,808,269

Preference shares

34

9,820,734

9,820,734

Reserves

35

28,377,255

28,326,689

Retained earnings

20,850,233

20,391,000

Equity attributable to shareholders of the Bank

68,856,491

68,346,692

Non-controlling interests

6,559,098

5,362,619

Total equity

75,415,589

73,709,311

Total liabilities and equity

972,223,970

894,154,291

The accompanying notes form an integral part of these interim condensed consolidated financial information.

The interim condensed consolidated financial information was approved by the Board of Directors on 28 August

2020 and were signed on its behalf by:

Yi Xuefei

Chen Jianming

Ding Bin

Vice Chairman

Chief Financial Officer

Head of Financial Department

62 GUANGZHOU RURAL COMMERCIAL BANK

Attributable to shareholders of the Bank

Reserves

Non-

Other

Share

Preference

Capital

Surplus

General

comprehensive

Retained

Controlling

capital

shares

reserve

reserve

reserve

income

Subtotal

earnings

Total

interests

Total

Note 33

Note 34

Note 35

Balance at 1 January 2020

9,808,269

9,820,734

10,920,403

5,055,777

11,236,832

1,113,677

28,326,689

20,391,000

68,346,692

5,362,619

73,709,311

Net profit for the period

-

-

-

-

-

-

-

3,085,657

3,085,657

236,602

3,322,259

Other comprehensive income for the period

-

-

-

-

-

50,566

50,566

-

50,566

(4,016)

46,550

Total comprehensive income

-

-

-

-

-

50,566

50,566

3,085,657

3,136,223

232,586

3,368,809

Acquisition of subsidiaries

-

-

-

-

-

-

-

-

-

1,045,376

1,045,376

Dividends declared and paid to ordinary

shareholders

-

-

-

-

-

-

-

(1,961,654)

(1,961,654)

(81,483)

(2,043,137)

Dividends declared and paid to preference

shareholders

-

-

-

-

-

-

-

(664,770)

(664,770)

-

(664,770)

Balance at 30 June 2020

9,808,269

9,820,734

10,920,403

5,055,777

11,236,832

1,164,243

28,377,255

20,850,233

68,856,491

6,559,098

75,415,589

2020 REPORT INTERIM

six the For of thousands in expressed amounts (All

OF STATEMENT CONSOLIDATED CONDENSED INTERIM

2020 June 30 ended months stated) otherwise unless RMB

EQUITY IN CHANGES

63

BANK COMMERCIAL RURAL GUANGZHOU 64

Attributable to shareholders of the Bank

Reserves

Non-

Other

Share

Preference

Capital

Surplus

General

comprehensive

Retained

Controlling

capital

shares

reserve

reserve

reserve

income

Subtotal

earnings

Total

interests

Total

Note 33

Note 34

Note 35

Balance at 1 January 2019

9,808,269

-

10,860,995

4,398,573

9,448,545

1,067,148

25,775,261

17,277,797

52,861,327

2,719,741

55,581,068

Net profit for the period

-

-

-

-

-

-

-

3,591,552

3,591,552

81,149

3,672,701

Other comprehensive income for the period

-

-

-

-

-

655,334

655,334

-

655,334

65

655,399

Total comprehensive income

-

-

-

-

-

655,334

655,334

3,591,552

4,246,886

81,214

4,328,100

Capital contributed by non-controlling

shareholders

-

-

-

-

-

-

-

-

-

26,000

26,000

Issuance of preferences shares

-

9,820,734

-

-

-

-

-

-

9,820,734

-

9,820,734

Acquisition of a subsidiary

-

-

-

-

-

-

-

-

-

1,907,675

1,907,675

Dividends declared and paid

-

-

-

-

-

-

-

(1,961,654)

(1,961,654)

(41,690)

(2,003,344)

Balance at 30 June 2019

9,808,269

9,820,734

10,860,995

4,398,573

9,448,545

1,722,482

26,430,595

18,907,695

64,967,293

4,692,940

69,660,233

2020 June 30 ended months six the For stated) otherwise unless RMB of thousands in expressed amounts (All

STATEMENT CONSOLIDATED CONDENSED INTERIM

EQUITY IN CHANGES OF

Attributable to shareholders of the Bank

Reserves

Non-

Other

Share

Preference

Capital

Surplus

General

comprehensive

Retained

Controlling

capital

shares

reserve

reserve

reserve

income

Subtotal

earnings

Total

interests

Total

Note 33

Note 34

Note 35

Balance at 1 January 2019

9,808,269

-

10,860,995

4,398,573

9,448,545

1,067,148

25,775,261

17,277,797

52,861,327

2,719,741

55,581,068

Net profit for the year

-

-

-

-

-

-

-

7,520,348

7,520,348

390,365

7,910,713

Other comprehensive income for the year

-

-

-

-

-

46,529

46,529

-

46,529

1,760

48,289

Total comprehensive income

-

-

-

-

-

46,529

46,529

7,520,348

7,566,877

392,125

7,959,002

Capital contributed by

non-controlling shareholders

-

-

-

-

-

-

-

-

-

72,280

72,280

Transactions with non-controlling interests

-

-

(43,884)

-

-

-

(43,884)

-

(43,884)

43,884

-

Issuance of preference shares

-

9,820,734

-

-

-

-

-

-

9,820,734

-

9,820,734

Acquisition of subsidiaries

-

-

-

-

-

-

-

-

-

2,272,514

2,272,514

Shareholders' donation

-

-

103,292

-

-

-

103,292

-

103,292

2,583

105,875

Appropriation to surplus reserve

-

-

-

657,204

-

-

657,204

(657,204)

-

-

-

Dividends declared and paid

-

-

-

-

-

-

-

(1,961,654)

(1,961,654)

(140,508)

(2,102,162)

Appropriation to general reserve

-

-

-

-

1,788,287

-

1,788,287

(1,788,287)

-

-

-

Balance at 31 December 2019

9,808,269

9,820,734

10,920,403

5,055,777

11,236,832

1,113,677

28,326,689

20,391,000

68,346,692

5,362,619

73,709,311

The accompanying notes form an integral part of these interim condensed consolidated financial information.

2020 REPORT INTERIM

six the For of thousands in expressed amounts (All

OF STATEMENT CONSOLIDATED CONDENSED INTERIM

2020 June 30 ended months stated) otherwise unless RMB

EQUITY IN CHANGES

65

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

Six months ended 30 June

Note

2020

2019

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax

4,094,645

4,543,960

Adjustments for:

Interest income on financial investments

(3,127,567)

(2,439,646)

Interest income accrued on impaired financial assets

(47,833)

(35,046)

Interest expense on debt securities

5

1,376,849

1,487,756

Net trading gains

(371,930)

(918,326)

Net gains on financial investments

8

(363,550)

(211,525)

Net foreign exchange gains

(151,591)

(23,070)

Negative goodwill

(76,229)

-

Net (gains)/losses on disposal of property and equipment and

foreclosed assets

(36,961)

1,440

Depreciation and amortization

10

394,053

412,830

Depreciation of investment properties

9,918

11,401

Interest expense on lease liabilities

23,464

-

Impairment losses

11

5,128,662

3,555,100

Other

1,921

-

6,853,851

6,384,874

Net decrease/(increase) in operating assets

Deposits with central bank

7,036,826

(3,919,196)

Deposits with banks and other financial institutions

2,229,396

1,666,977

Placements with banks and other financial institutions

(12,565,084)

(7,305,185)

Financial assets held under resale agreements

(4,773,028)

798,384

Loans and advances to customers

(68,309,703)

(58,570,302)

Financial assets at fair value through profit or loss

94,789

(13,182,822)

Other assets

(1,845,639)

(565,537)

(78,132,443)

(81,077,681)

Net increase/(decrease) in operating liabilities

Due to the central bank

4,125,149

2,231,722

Deposits from banks and other financial institutions

969,613

(36,052,351)

Placements from banks and other financial institutions

687,675

(618,463)

Financial assets sold under repurchase agreements

(895,690)

(5,285,861)

Customer deposits

58,043,722

46,848,840

Other liabilities

(993,081)

(215,847)

61,937,388

6,908,040

Net cash flows used in operating activities before tax

(9,341,204)

(67,784,767)

Income tax paid

(2,220,121)

(1,961,333)

Net cash flows used in operating activities

(11,561,325)

(69,746,100)

66 GUANGZHOU RURAL COMMERCIAL BANK

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

Six months ended 30 June

Note

2020

2019

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of property and equipment and other long-term assets

(135,200)

(139,748)

Proceeds from disposal of property and equipment

and other long-term assets

44,146

2,204

Cash paid for investments

(62,224,909)

(52,073,178)

Dividends received

-

586

Proceeds from sale and redemption of investments

61,906,796

48,361,452

Acquisition of a subsidiary, net of cash acquired

40(b)

1,289,955

2,049,590

Return on investments

4,413,587

3,664,114

Net cash flows from investing activities

5,294,375

1,865,020

CASH FLOWS FROM FINANCING ACTIVITIES

Issuance of preference shares

34

-

9,839,115

Cash payments for transaction cost of preference shares issued

34

-

(18,381)

Capital contributed by non-controlling shareholders

-

26,000

Shareholders' donation

269

42,633

Proceeds from issuance of debt securities

69,617,162

77,896,282

Repayment of debt securities issued

(65,245,325)

(39,168,197)

Interest paid on debt securities

(1,939,772)

(1,659,303)

Dividends paid to ordinary shares

(1,961,654)

(1,961,654)

Dividends paid to preference shares

(664,770)

-

Payment for lease contracts

(159,662)

(111,882)

Dividends paid to non-controlling shareholders

(81,483)

(41,690)

Net cash flows (used in)/from financing activities

(435,235)

44,842,923

NET DECREASE IN CASH AND CASH EQUIVALENTS

(6,702,185)

(23,038,157)

Cash and cash equivalents at the beginning of the period

86,870,896

77,319,617

Effect of exchange rate changes on cash and cash equivalents

127,839

18,070

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD

37

80,296,550

54,299,530

NET CASH FLOWS FROM OPERATING ACTIVITIES INCLUDE:

Interest received

15,611,538

12,769,332

Interest paid

(7,542,084)

(6,788,240)

The accompanying notes form an integral part of these interim condensed consolidated financial information.

INTERIM REPORT 2020 67

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

1 CORPORATE INFORMATION AND STRUCTURE

Guangzhou Rural Commercial Bank Co., Ltd. (the "Bank"), whose predecessor was established in 1952, underwent a series of reforms in subsequent years. Under the "Approval Regarding the Opening of Guangzhou Rural Commercial Bank Co., Ltd." (Yinjianfu No. [2009]484) issued by the China Banking Regulatory Commission (the "CBRC", which was renamed to China Banking Insurance Regulatory Commission (the "CBIRC") in 2018), Guangzhou Rural Commercial Bank Co., Ltd. was incorporated on 9 December 2009.

The Bank obtained its finance permit No.B1048H244010001 from the CBIRC and its business license of Unified Social Credit code No.914401017083429628 from the Administration for Industry and Commerce of Guangzhou Municipality. The registered office is located at No.9 Yingri Road, Huangpu District, Guangzhou, the PRC.

On 20 June 2017, the Bank was listed on The Stock Exchange of Hong Kong Limited.

The Bank and its subsidiaries (the "Group") conducts its operating activities in the PRC.

The principal activities of the Bank comprise taking deposits from the general public (including domestic and foreign currency), granting short, medium and long-term loans (including domestic and foreign currency), domestic and international settlements, bills acceptance and discounting, providing agency services for issuing/ redemption and underwriting of government bonds, trading government bonds, trading and issuing financial bonds, inter-bank placements (including domestic and foreign currency), bank cards (including debit cards and credit cards) business, providing agency services of payment collection and insurance agency service, providing safe locker service, foreign currency remittance, foreign currency exchange, settlement and sale of foreign exchange, foreign credit investigations, advisory and attestation service, fund and insurance assets trusteeship, financing services, fund consignment business, e-bank services, securitization of credit assets, and other financial business activities approved by the CBIRC or other relevant regulators.

As at 30 June 2020, the Bank had a total of 30 subsidiaries, including 25 county banks, a financial leasing company and 4 rural commercial banks across China.

The interim condensed consolidated financial information was authorized for issue by the Board of Directors of the Bank on 28 August 2020.

68 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

1 CORPORATE INFORMATION AND STRUCTURE (CONTINUED)

The Bank and its subsidiaries are collectively referred to as the "Group". As at 30 June 2020, the Bank had a total of 30 subsidiaries, including 25 county banks, a financial leasing company and 4 rural commercial banks. The details of the Bank's subsidiaries as at 30 June 2020 are as follows:

Registered capital

Percentage of equity

Percentage of voting

Principal

(in thousands)

interests held by the Bank

rights held by the Bank

activities

Name

Place of registration

2020-6-30

2019-12-31

2020-6-30

2019-12-31

2020-6-30

2019-12-31

Laiwu Zhujiang County Bank

Laiwu, Shandong Province

60,000

60,000

51.00%

51.00%

51.00%

51.00%

Banking

Jiangsu Xuyi Zhujiang

Xuyi, Jiangsu Province

50,000

50,000

51.00%

51.00%

51.00%

51.00%

Banking

County Bank

Jiangsu Qidong Zhujiang

Qidong, Jiangsu Province

100,000

100,000

51.00%

51.00%

51.00%

51.00%

Banking

County Bank

Changning Zhujiang County Bank

Changning, Hunan Province

50,000

50,000

51.00%

51.00%

51.00%

51.00%

Banking

Laizhou Zhujiang County Bank

Laizhou, Shandong Province

80,000

80,000

51.00%

51.00%

56.00%

56.00%

Banking

Haiyang Zhujiang County Bank

Haiyang, Shandong Province

70,000

70,000

51.00%

51.00%

51.00%

51.00%

Banking

Huixian Zhujiang County Bank (i)

Huixian, Henan Province

100,000

100,000

35.00%

35.00%

53.57%

53.57%

Banking

Pengshan Zhujiang

Meishan, Sichuan Province

50,000

50,000

35.00%

35.00%

51.00%

51.00%

Banking

County Bank (i)

Xinjin Zhujiang County Bank (i)

Xinjin, Sichuan Province

100,000

100,000

35.00%

35.00%

53.00%

53.00%

Banking

Guanghan Zhujiang

Guanghan, Sichuan Province

100,000

100,000

35.00%

35.00%

51.00%

51.00%

Banking

County Bank (i)

Dalian Baoshuiqu Zhujiang

Dalian Bonded Area, Liaoning

350,000

350,000

81.43%

81.43%

87.43%

87.43%

Banking

County Bank

Province

Jizhou Zhujiang County Bank (i)

Jian, Jiangxi Province

87,820

87,820

33.79%

33.79%

57.19%

57.19%

Banking

Heshan Zhujiang County Bank (i)

Heshan, Guangdong Province

150,000

150,000

34.00%

34.00%

71.00%

71.00%

Banking

Beijing Mentougou Zhujiang

Mentougou District, Beijing

100,000

100,000

51.00%

51.00%

51.00%

51.00%

Banking

County Bank

Xinyang Zhujiang County Bank (i)

Xinyang, Henan Province

414,200

414,200

39.60%

39.60%

54.13%

54.13%

Banking

Yantai Fushan Zhujiang

Yantai, Shandong Province

100,000

100,000

93.00%

93.00%

100.00%

100.00%

Banking

County Bank

INTERIM REPORT 2020 69

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

1 CORPORATE INFORMATION AND STRUCTURE (CONTINUED)

Registered capital

Percentage of equity

Percentage of voting

Principal

(in thousands)

interests held by the Bank

rights held by the Bank

activities

Name

Place of registration

2020-6-30

2019-12-31

2020-6-30

2019-12-31

2020-6-30

2019-12-31

Anyang Zhujiang County Bank (i)

Anyang, Henan Province

60,000

60,000

35.00%

35.00%

55.50%

55.50%

Banking

Qingdao Chengyang Zhujiang

Qingdao, Shandong Province

100,000

100,000

35.00%

35.00%

51.00%

51.00%

Banking

County Bank (i)

Suzhou Wuzhong Zhujiang

Suzhou, Jiangsu Province

150,000

150,000

51.00%

51.00%

51.00%

51.00%

Banking

County Bank

Sanshui Zhujiang County Bank (i)

Foshan, Guangdong Province

200,000

200,000

33.40%

33.40%

50.50%

50.50%

Banking

Zhongshan Dongfeng Zhujiang

Dongfeng, Guangdong

150,000

150,000

35.00%

35.00%

55.00%

55.00%

Banking

County Bank (i)

Province

Xingning Zhujiang County Bank (i)

Meizhou, Guangdong Province

50,000

50,000

34.00%

34.00%

100.00%

100.00%

Banking

Shenzhen Pingshan Zhujiang

Shenzhen, Guangdong

300,000

300,000

35.00%

35.00%

83.00%

83.00%

Banking

County Bank (i)

Province

Dongguan Huangjiang Zhujiang

Dongguan, Guangdong

150,000

150,000

35.00%

35.00%

100.00%

100.00%

Banking

County Bank (i)

Province

Zhengzhou Zhujiang

Zhengzhou, Henan Province

200,000

200,000

35.00%

35.00%

90.00%

90.00%

Banking

County Bank (i)

Zhuzhou Zhujiang Rural

Zhuzhou, Hunan Province

600,000

600,000

51.00%

51.00%

61.00%

61.00%

Banking

Commercial Bank (the "ZZRCB")

Chaozhou Rural Commercial Bank

Chaozhou, Guangdong

2,633,342

2,633,342

57.72%

57.72%

74.38%

74.38%

Banking

(the "CZRCB")

Province

Nanxiong Rural Commercial Bank

Nanxiong, Guangdong

431,800

431,800

51.00%

51.00%

53.39%

53.39%

Banking

(the "NXRCB")

Province

Shaoguan Rural Commercial Bank

Shaoguan, Guangdong

1,373,718

N/A

50.10%

N/A

50.10%

N/A

Banking

(the "SGRCB")

Province

Zhujiang Financial Leasing

Guangzhou, Guangdong

1,000,000

1,000,000

100.00%

100.00%

100.00%

100.00%

Financial

Co., Ltd. (the "ZJFL")

Province

leasing

  1. The Bank holds less than majority equity interests in these investees. In accordance with the agreements to act in concert entered into by the Bank and the non-controlling shareholders, the non-controlling shareholders vote consistently with the Bank in deciding the financial and operating policies. Hence, the management of the Bank believes that the Bank has controls over these investees.

70 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

This condensed consolidated interim financial information has been prepared in accordance with International Accounting Standard ("IAS") 34 - Interim Financial Reporting issued by the International Accounting Standard Board ("IASB") and the disclosure requirements of the Hong Kong Companies Ordinance.

This condensed consolidated interim financial information has been prepared on an accrual basis and under the historical cost convention except for certain financial instruments that have been measured at fair value. This condensed consolidated interim financial information is presented in RMB and all values are rounded to the nearest thousand except when otherwise indicated.

This condensed consolidated interim financial information of the Group should be read in conjunction with the 2019 annual consolidated financial statements.

Except as described below, the Group's accounting policies applied in preparing this condensed consolidated interim financial information are consistent with those policies applied in preparing the 2019 annual consolidated financial statements.

2.1 Standards, amendments and interpretations effective in 2020

On 1 January 2020, the Group adopted the following new standards, amendments and interpretations. The Group has not early adopted any other standards, interpretations or amendments that have been issued but are not yet effective.

Amendments to IAS 1 and IAS 8

Definition of Material

Amendments to IFRS 3

Definition of a Business

Revised Conceptual Framework for

Revised Conceptual Framework

Financial Reporting

for Financial Reporting

Amendments to IFRS 7, IFRS 9 and IAS 39

Interest Rate Benchmark Reform

The adoption of the above amendments does not have a significant impact on the operation results, comprehensive income and financial position of the Group.

INTERIM REPORT 2020 71

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.2 Standards, amendments and interpretations that are not yet effective and have not been early adopted by the Group in 2020

Effective for

annual periods

beginning on or after

IFRS 17

Insurance Contracts

Originally 1 January 2021, but

extended to 1 January 2023

by the IASB in March 2020

Amendments to IFRS 16

Covid-19-related Rent

1

June 2020

Concessions

Amendments to IAS 1

Classification of Liabilities as

1

January 2022 (possibly

Current or Non-current

deferred to 1 January 2023)

Amendments to IAS 16

Property, Plant and Equipment:

1

January 2022

Proceeds before intended use

Amendments to IFRS 3

Reference to the Conceptual

1

January 2022

Framework

Amendments to IAS 37

Cost of Fulfilling a Contract

1

January 2022

Annual Improvements to

Onerous Contracts

1

January 2022

IFRS Standards 2018-2020

The adoption of the above new IFRS issued but not yet effective is not expected to have a material effect on the Group's operating results, financial position or other comprehensive income.

72 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

3 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of interim condensed consolidated financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.

In preparing this interim condensed consolidated financial information, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2019.

4 OPERATING SEGMENT INFORMATION

4.1 Operating segments

For management purposes, the Group is organized into four different operating segments as follows:

Corporate banking

The corporate banking segment covers financial products and services for corporate customers including deposits, loans, settlement, clearing and other trade-related services.

Retail banking

The retail banking segment covers financial products and services for individual customers including deposits, debit and credit cards, personal and collateral loans and personal wealth management services.

Financial market business

The financial market business segment covers proprietary tradings and agent services including money market placements, investments, repurchases and foreign exchange transactions.

Others

This segment covers businesses other than corporate banking, retail banking and financial market business, of which the assets, liabilities, income and expenses cannot be directly attributable or allocated to certain segment on a reasonable basis.

Inter-segment transfer pricing is in accordance with the sources, funding periods and interest rates announced by the People's Bank of China (the "PBOC") and the interbank market rates. The allocation of expenses between segments above is based on the benefits received.

INTERIM REPORT 2020 73

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

4 OPERATING SEGMENT INFORMATION (CONTINUED)

4.1 Operating segments (continued)

Financial

Corporate

Retail

market

banking

banking

business

Others

Total

Six months ended 30 June 2020

(Unaudited)

Interest income

9,971,195

4,546,218

3,978,605

-

18,496,018

Interest expense

(3,495,249)

(3,352,130)

(2,419,055)

-

(9,266,434)

Inter-segments Interest

(expense)/income

(834,888)

1,952,788

(1,117,900)

-

-

Net interest income

5,641,058

3,146,876

441,650

-

9,229,584

Fee and commission income

426,421

411,546

43,684

-

881,651

Fee and commission expense

(54,510)

(55,004)

(11,371)

-

(120,885)

Net fee and commission income

371,911

356,542

32,313

-

760,766

Net trading gains

-

-

1,035,281

673

1,035,954

Net gains on financial investments

-

-

363,550

-

363,550

Other income, gains or losses

219,468

(2,144)

(110)

186,616

403,830

Operating income

6,232,437

3,501,274

1,872,684

187,289

11,793,684

Operating expenses

(841,390)

(1,664,002)

(155,661)

(59,820)

(2,720,873)

Credit impairment (losses)/reversed

(3,074,855)

(589,798)

(1,312,230)

336

(4,976,547)

Impairment losses on foreclosed assets

(1,000)

(192)

(427)

-

(1,619)

Profit before tax

2,315,192

1,247,282

404,366

127,805

4,094,645

Income tax expense

(772,386)

Net profit for the period

3,322,259

Other segment information

Depreciation and amortization

122,731

254,090

20,602

6,548

403,971

Capital expenditure

42,002

80,726

8,650

3,822

135,200

As at 30 June 2020 (Unaudited)

Segment assets

347,300,320

136,540,038

474,854,194

13,529,418

972,223,970

Segment liabilities

(365,869,222)

(386,004,462)

(144,132,053)

(802,644)

(896,808,381)

Other segment information

Credit commitments

145,958,158

22,248,265

-

-

168,206,423

74 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

4 OPERATING SEGMENT INFORMATION (CONTINUED)

4.1 Operating segments (continued)

Financial

Corporate

Retail

market

banking

banking

business

Others

Total

Six months ended 30 June 2019

(Unaudited)

Interest income

7,939,713

3,010,448

4,801,556

-

15,751,717

Interest expense

(2,203,913)

(1,735,385)

(4,075,116)

-

(8,014,414)

Inter-segments Interest

(expense)/income

(290,795)

2,026,477

(1,735,682)

-

-

Net interest income

5,445,005

3,301,540

(1,009,242)

-

7,737,303

Fee and commission income

405,415

467,921

61,893

-

935,229

Fee and commission expense

(63,110)

(32,384)

(23,113)

-

(118,607)

Net fee and commission income

342,305

435,537

38,780

-

816,622

Net trading gains

-

-

2,000,070

-

2,000,070

Net gains on financial investments

-

-

211,525

-

211,525

Other income, gains or losses

22,732

10,914

(56)

1,000

34,590

Operating income

5,810,042

3,747,991

1,241,077

1,000

10,800,110

Operating expenses

(810,534)

(1,565,517)

(305,965)

(19,034)

(2,701,050)

Credit impairment (losses)/reversed

(2,668,391)

(434,780)

(451,558)

65

(3,554,664)

Impairment losses on foreclosed assets

(327)

(53)

(55)

(1)

(436)

Profit/(losses) before tax

2,330,790

1,747,641

483,499

(17,970)

4,543,960

Income tax expense

(871,259)

Net profit for the period

3,672,701

Other segment information

Depreciation and amortization

129,052

271,567

7,101

16,511

424,231

Capital expenditure

42,512

89,458

2,339

5,439

139,748

As at 31 December 2019

Segment assets

312,376,309

124,736,024

445,175,152

11,866,806

894,154,291

Segment liabilities

(334,129,769)

(327,898,220)

(158,151,288)

(265,703)

(820,444,980)

Other segment information:

Credit commitments

151,159,649

23,927,825

-

-

175,087,474

INTERIM REPORT 2020 75

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

  1. OPERATING SEGMENT INFORMATION (CONTINUED)
    4.2 Geographical information
    The Group mainly operates in Guangdong Province, China. The main customers and non-current assets are located in Guangdong Province, China.
  2. NET INTEREST INCOME

Six months ended 30 June

2020

2019

Interest income

Loans and advances to customers

13,873,323

11,821,760

Financial investments

3,127,567

2,439,646

- Financial assets at amortized cost

1,534,632

1,082,804

- Financial assets at fair value through

other comprehensive income

1,592,935

1,356,842

Financial assets held under resale agreements

298,067

298,922

Due from central bank

524,532

501,022

Placements and deposits with banks and

other financial institutions

672,529

690,367

Subtotal

18,496,018

15,751,717

Interest expense

Customer deposits

(6,967,328)

(5,410,087)

Debt securities issued

(1,376,849)

(1,487,756)

Deposits from banks and other financial institutions

(478,131)

(704,164)

Financial assets sold under repurchase agreements

(89,840)

(99,862)

Borrowings from other banks (i)

(170,886)

(263,714)

Due to central bank

(159,936)

(48,831)

Lease liabilities

(23,464)

-

Subtotal

(9,266,434)

(8,014,414)

Net interest income

9,229,584

7,737,303

Including

Interest income accrued on impaired financial assets

47,833

35,046

  1. The interest expenses for borrowings from other banks were incurred by the ZJFL, a wholly-owned subsidiary of the Bank.

76 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

6

NET FEE AND COMMISSION INCOME

Six months ended 30 June

2020

2019

Fee and commission income:

Bank card

281,065

329,293

Agency and custodian service

231,999

157,825

Advisory and consultancy service

36,130

82,400

Settlement and electronic channel business

76,300

76,340

Guarantee and commitment service

83,515

29,356

Wealth management service

43,679

60,424

Financial lease business

32,621

77,448

Foreign exchange business

19,988

28,262

Others

76,354

93,881

Subtotal

881,651

935,229

Fee and commission expense:

Settlement and electronic channel business fees

(8,256)

(6,683)

Bank card fees

(33,258)

(13,764)

Others

(79,371)

(98,160)

Subtotal

(120,885)

(118,607)

Net fee and commission income

760,766

816,622

7

NET TRADING GAINS

Six months ended 30 June

2020

2019

Debt securities

Unrealised losses from debt securities

(787,076)

(556,663)

Realised gains from debt securities

1,533,943

2,151,526

Subtotal

746,867

1,594,863

Funds

Unrealised gains from funds

12,377

43,574

Realised gains from funds

276,710

361,047

Subtotal

289,087

404,621

Others

-

586

Total

1,035,954

2,000,070

The above amounts include gains and losses arising from the buying and selling of, interest income on, and changes in the fair value of financial assets at fair value through profit or loss.

INTERIM REPORT 2020 77

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

8

NET GAINS ON FINANCIAL INVESTMENTS

Six months ended 30 June

2020

2019

Net gains from financial assets at fair value through

other comprehensive income

361,130

211,565

Net gains/(losses) from financial assets at amortized cost

2,420

(40)

Total

363,550

211,525

9

OTHER INCOME, GAINS OR LOSSES

Six months ended 30 June

2020

2019

Net foreign exchange gains

219,953

21,731

Government grants and subsidies

53,210

14,835

Negative goodwill

76,229

-

Net gains/(losses) on disposal of property and equipment

37,571

(1,440)

Net (losses)/gains disposal of foreclosed assets

(610)

1,366

Others

17,477

(1,902)

Total

403,830

34,590

10

OPERATING EXPENSES

Six months ended 30 June

2020

2019

Staff costs (i)

1,719,033

1,649,093

Depreciation and amortization

394,053

412,830

Tax and surcharges

98,966

73,613

Labor dispatch fee

32,071

98,293

Consulting fees

3,126

3,639

Professional service fees

5,174

8,091

Others

468,450

455,491

Total

2,720,873

2,701,050

78 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

10

OPERATING EXPENSES (CONTINUED)

(i)

Staff costs

Six months ended 30 June

2020

2019

Salaries, bonuses and allowances

1,319,067

1,192,901

Social insurance and employee benefits

345,965

388,999

Benefits for early retirement and supplemental retirement

7,730

26,845

Labour union expenditure and education costs

46,271

40,348

Total

1,719,033

1,649,093

11

IMPAIRMENT LOSSES

(a)

Credit impairment losses

Six months ended 30 June

2020

2019

Loans and advances to customers

3,430,982

2,152,864

Placements with banks and other financial institutions

35,009

1,523

Loans and advances at fair value through

other comprehensive income

231,042

366,302

Financial investments

982,786

842,744

Others

296,728

191,231

Total

4,976,547

3,554,664

  1. Impairment losses on Foreclosed assets

Six months ended 30 June

2020

2019

Foreclosed assets

1,619

436

Total

1,619

436

INTERIM REPORT 2020 79

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

12 INCOME TAX EXPENSE

Six months ended 30 June

2020

2019

Current income tax

1,670,991

1,521,249

Deferred income tax

(898,605)

(649,990)

Total

772,386

871,259

Current income tax is calculated based on the statutory rate of 25% of the taxable income of the Group for the respective periods.

The difference between the actual income tax charged in the profit or loss and the amounts which would result from applying the enacted tax rate to profit before income tax can be reconciled as follows:

Six months ended 30 June

2020

2019

Profit before income tax

4,094,645

4,543,960

Tax calculated at a tax rate of 25%

1,023,661

1,135,990

Tax effect arising from income not subject to tax (i)

(261,832)

(268,976)

Tax effect of expenses that are not deductible for tax purposes (ii)

23,596

6,166

Adjustments on income tax for prior years which affect

current period profit or loss

(13,039)

(1,921)

Income tax expense

772,386

871,259

  1. The income not subject to tax mainly represents interest income arising from treasury bonds, which is income tax free in accordance with the PRC tax regulations.
  2. The expenses that are not tax deductible for tax purposes mainly represent certain expenditures, such as entertainment expenses, which are not deductible for tax purposes according to the PRC tax regulations.

80 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

13 DIVIDENDS

Six months ended 30 June

2020

2019

Dividends on ordinary shares declared

1,961,654

1,961,654

Dividend per share (in RMB yuan)

0.20

0.20

Dividends on preference shares declared

664,770

-

  1. Distribution of ordinary dividend for 2019
    A cash dividend of RMB0.2 per ordinary share related to 2019, amounting to RMB1,961,654 thousands in total was approved in the annual general meeting held on 22 May 2020.
    The above dividend was recognized as distribution and paid during the six months ended 30 June 2020.
  2. Distribution of preference dividend
    A cash dividend of preference share, amounting to RMB664,770 thousands in total was approved by the board of directors on 29 April 2020.

The above dividend was recognized as distribution and paid during the six months ended 30 June 2020.

14 EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the net profit for the period attributable to shareholders of the Bank by the weighted average number of ordinary shares outstanding in issue during the periods.

Six months ended 30 June

2020

2019

Profit for the period attributable to shareholders of the Bank

3,085,657

3,591,552

Less: profit for the period attributable to preference shareholders

of the Bank

(664,770)

-

Net profit for the period attributable to ordinary shareholders

of the Bank

2,420,887

3,591,552

Divided: Weighted average number of ordinary shares in issue

9,808,269

9,808,269

Basic and diluted earnings per share (in RMB yuan)

0.25

0.37

For the six months ended 30 June 2020, there were no potential diluted ordinary shares, so the diluted earning per share were the same as the basic earnings per share.

The Bank issued preference shares on 20 June 2019 and the terms and conditions are detailed in Note 34. When calculating the basic earnings per share of ordinary shares, the preferred dividends declared in the current period have been deducted from the net profit for the period attributable to ordinary shareholders of the Bank, RMB664,770 thousand in total. The conversion feature of preference shares is considered to be contingently issuable ordinary shares. The triggering events of conversion did not occur during the period ended 30 June 2020, and therefore the conversion feature of preference shares has no effect on the basic earnings per share calculation.

INTERIM REPORT 2020 81

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

15 CASH AND DEPOSITS WITH CENTRAL BANK

As at

As at

30 June

31 December

2020

2019

Cash on hand

4,707,104

3,085,852

Mandatory reserves with central bank (a)

58,995,656

65,728,258

Surplus reserves with central bank (b)

20,728,153

29,845,402

Fiscal deposits with central bank

1,241,430

910,705

Subtotal

85,672,343

99,570,217

Less:

ECL allowance

(7,285)

(7,876)

Total

85,665,058

99,562,341

  1. The Group is required to place mandatory reserves with the PBOC, and these mandatory reserves with central bank are not available for use in the Group's daily operations. As at 30 June 2020, the ratio of the Bank for RMB deposits mandatory reserves was 8.5% (31 December 2019: 10.5%), and different ratios are applicable to the subsidiaries based on their locations. The ratio for foreign currency deposits was 5% at 30 June 2020 (31 December 2019: 5%). The reserves for RMB and foreign currencies are interest bearing based on the requirement of the PBOC.
  2. Surplus reserves are maintained with the PBOC are mainly for settlement purpose.

16 DEPOSITS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

As at

As at

30 June

31 December

2020

2019

Deposits with banks operating in Mainland China

15,297,379

16,782,835

Deposits with other financial institutions operating in

Mainland China

2,697,840

1,102,940

Deposits with banks operating outside Mainland China

2,724,844

12,691,816

Interest receivable

93,519

141,744

Subtotal

20,813,582

30,719,335

Less:

ECL allowance

(10,580)

(19,017)

Total

20,803,002

30,700,318

82 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

17 PLACEMENTS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS

As at

As at

30 June

31 December

2020

2019

Placements with banks operating in Mainland China

2,552,030

2,612,201

Placements with other financial institutions operating

in Mainland China

28,407,750

16,722,023

Placements with banks operating outside Mainland China

6,581,359

1,215,272

Interest receivable

131,362

61,779

Subtotal

37,672,501

20,611,275

Less:

ECL allowance

(42,052)

(7,043)

Total

37,630,449

20,604,232

18 FINANCIAL ASSETS HELD UNDER RESALE AGREEMENT

As at

As at

30 June

31 December

2020

2019

Notes purchased under resale agreements Securities purchased under resale agreements Interest receivable

Subtotal

Less:

ECL allowance

188,159 1,423,194

41,738,076 27,153,429

26,04319,205

41,952,278 28,595,828

(3,766)(2,335)

Total

41,948,512

28,593,493

INTERIM REPORT 2020 83

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

19 LOANS AND ADVANCES TO CUSTOMERS

  1. Loans and advances to customers:

As at

As at

30 June

31 December

2020

2019

Loans and advances at amortized cost

Corporate loans and advances

Corporate loans

Discounted bills

Personal loans and advances

Personal residential mortgages

Personal business loans

Personal consumption loans

Credit cards overdraft

Gross amount of loans and advances at amortized cost

Less: ECL allowance of loans and advances at amortized cost

Net amount of loans and advances at amortized cost

Loans and advances at fair value through other comprehensive income

Corporate loans and advances

Discounted bills

355,733,004 326,135,408

1,814,752 7,608,189

357,547,756 333,743,597

66,573,024 63,694,134

48,364,976 40,502,802

11,498,033 11,287,473

8,990,768 9,234,471

135,426,801 124,718,880

492,974,557 458,462,477

(18,670,046) (16,916,755)

474,304,511 441,545,722

59,005,012 21,505,649

Net amount of loans and advance to customers

533,309,523

463,051,371

84 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

19 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Loans listed by assessment method for allowance

As at 30 June 2020

Purchased

or originated

credit-

Stage I

Stage II

Stage III

impaired

Total

Gross amount of loans and advances at amortized cost

Corporate loans Personal loans

Less: ECL allowance

Corporate loans

Personal loans

Net amount of loans and advances at amortized cost

Gross amount of loans and advances at fair value through

other comprehensive income

ECL allowance on loans and advances to customers at fair value through other comprehensive income

304,142,385

35,687,831

17,356,490

361,050

357,547,756

131,668,414

1,824,737

1,773,489

160,161

135,426,801

435,810,799

37,512,568

19,129,979

521,211

492,974,557

(1,764,719)

(4,804,442)

(7,904,829)

(3,943)

(14,477,933)

(2,131,934)

(693,069)

(1,364,615)

(2,495)

(4,192,113)

(3,896,653)

(5,497,511)

(9,269,444)

(6,438)

(18,670,046)

431,914,146

32,015,057

9,860,535

514,773

474,304,511

58,356,014

-

648,998

-

59,005,012

(12,622)

-

(515,187)

-

(527,809)

INTERIM REPORT 2020 85

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

19 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Loans listed by assessment method for allowance (continued)

As at 31 December 2019

Purchased

or originated

credit-

Stage I

Stage II

Stage III

impaired

Total

Gross amount of loans and advances at amortized cost

Corporate loans Personal loans

Less: ECL allowance

Corporate loans

Personal loans

Net amount of loans and advances at amortized cost

Gross amount of loans and advances at fair value through

other comprehensive income

ECL allowance on loans and advances to customers at fair value through other comprehensive income

267,058,001

56,399,955

10,197,917

87,724

333,743,597

121,590,758

1,527,041

1,548,626

52,455

124,718,880

388,648,759

57,926,996

11,746,543

140,179

458,462,477

(1,239,986)

(7,048,784)

(5,173,062)

-

(13,461,832)

(1,685,516)

(532,606)

(1,236,801)

-

(3,454,923)

(2,925,502)

(7,581,390)

(6,409,863)

-

(16,916,755)

385,723,257

50,345,606

5,336,680

140,179

441,545,722

20,756,976

-

748,673

-

21,505,649

(3,014)

-

(393,428)

-

(396,442)

86 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

19 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Movements in ECL allowance
    Movements in ECL allowance on corporate loans and advances to customers at amortized cost

Six months ended 30 June 2020

Purchased

Stage I

Stage II

Stage III

or originated

12-month

Lifetime

Lifetime

credit-

Corporate loans and advances

ECL

ECL

ECL

impaired

Total

ECL allowance as at 1 January 2020

1,239,986

7,048,784

5,173,062

-

13,461,832

Originated or purchased

603,354

-

-

-

603,354

Derecognition or settlements

(227,792)

(121,698)

(110,109)

-

(459,599)

Remeasurement

- Parameter changes

147,791

631,092

1,248,222

3,943

2,031,048

- Stage transfer

(1,199,626)

724,178

1,942,104

-

1,466,656

Write-off

-

-

(2,581,685)

-

(2,581,685)

Transfers

1,201,006

(3,477,914)

2,276,908

-

-

Transfer from Stage I to Stage II

(33,780)

33,780

-

-

-

Transfer from Stage I to Stage III

(3,090)

-

3,090

-

-

Transfer from Stage II to Stage I

1,237,876

(1,237,876)

-

-

-

Transfer from Stage II to Stage III

-

(2,324,950)

2,324,950

-

-

Transfer from Stage III to Stage II

-

51,132

(51,132)

-

-

Transfer from Stage III to Stage I

-

-

-

-

-

Others

-

-

(43,673)

-

(43,673)

ECL allowance as at 30 June 2020

1,764,719

4,804,442

7,904,829

3,943

14,477,933

INTERIM REPORT 2020 87

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

19 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Movements in ECL allowance (continued)
    Movements in ECL allowance on corporate loans and advances to customers at amortized cost

Year ended 31 December 2019

Purchased

Stage I

Stage II

Stage III

or originated

12-month

Lifetime

Lifetime

credit-

Corporate loans and advances

ECL

ECL

ECL

impaired

Total

ECL allowance as at 1 January 2019

1,161,864

4,935,028

2,540,606

-

8,637,498

Originated or purchased

737,621

3,449,173

216,828

954,331

5,357,953

Derecognition or settlements

(467,640)

(1,165,590)

(155,253)

-

(1,788,483)

Remeasurement

- Parameter changes

(104,328)

(215,072)

610,236

-

290,836

- Stage transfer

(2,189,075)

2,140,716

3,270,329

-

3,221,970

Write-off

-

-

(1,247,921)

(954,331)

(2,202,252)

Transfers

2,101,544

(2,095,471)

(6,073)

-

-

Transfer from Stage I to Stage II

(124,511)

124,511

-

-

-

Transfer from Stage I to Stage III

(39,023)

-

39,023

-

-

Transfer from Stage II to Stage I

2,265,078

(2,265,078)

-

-

-

Transfer from Stage II to Stage III

-

(264,866)

264,866

-

-

Transfer from Stage III to Stage II

-

309,962

(309,962)

-

-

Transfer from Stage III to Stage I

-

-

-

-

-

Others

-

-

(55,690)

-

(55,690)

ECL allowance as at 31 December 2019

1,239,986

7,048,784

5,173,062

-

13,461,832

88 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

19 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Movements in ECL allowance (continued)
    Movements in ECL allowance on personal loans and advances to customers at amortized cost

Six months ended 30 June 2020

Purchased

Stage I

Stage II

Stage III

or originated

12-month

Lifetime

Lifetime

credit-

Personal loans and advances

ECL

ECL

ECL

impaired

Total

ECL allowance as at 1 January 2020

1,685,516

532,606

1,236,801

-

3,454,923

Originated or purchased

659,161

-

-

-

659,161

Derecognition or settlements

(282,149)

(115,854)

(27,271)

-

(425,274)

Remeasurement

- Parameter changes

104,335

14,339

50,493

2,495

171,662

- Stage transfer

(140,703)

482,310

375,391

-

716,998

Write-off

-

-

(381,197)

-

(381,197)

Transfers

105,774

(220,332)

114,558

-

-

Transfer from Stage I to Stage II

(22,250)

22,250

-

-

-

Transfer from Stage I to Stage III

(17,691)

-

17,691

-

-

Transfer from Stage II to Stage I

141,118

(141,118)

-

-

-

Transfer from Stage II to Stage III

-

(108,714)

108,714

-

-

Transfer from Stage III to Stage II

-

7,250

(7,250)

-

-

Transfer from Stage III to Stage I

4,597

-

(4,597)

-

-

Others

-

-

(4,160)

-

(4,160)

ECL allowance as at 30 June 2020

2,131,934

693,069

1,364,615

2,495

4,192,113

INTERIM REPORT 2020 89

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

19 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Movements in ECL allowance (continued)
    Movements in ECL allowance on personal loans and advances to customers at amortized cost

Year ended 31 December 2019

Purchased

Stage I

Stage II

Stage III

or originated

12-month

Lifetime

Lifetime

credit-

Personal loans and advances

ECL

ECL

ECL

impaired

Total

ECL allowance as at 1 January 2019

2,659,922

435,016

1,288,503

-

4,383,441

Originated or purchased

752,653

137,446

46,022

84,340

1,020,461

Derecognition or settlements

(1,403,954)

(138,306)

(152,327)

-

(1,694,587)

Remeasurement

- Parameter changes

(281,260)

(34,758)

138,374

-

(177,644)

- Stage transfer

(91,973)

301,095

447,711

-

656,833

Write-off

-

-

(649,565)

(84,340)

(733,905)

Transfers

50,128

(167,887)

117,759

-

-

Transfer from Stage I to Stage II

(25,410)

25,410

-

-

-

Transfer from Stage I to Stage III

(18,425)

-

18,425

-

-

Transfer from Stage II to Stage I

92,123

(92,123)

-

-

-

Transfer from Stage II to Stage III

-

(111,620)

111,620

-

-

Transfer from Stage III to Stage II

-

10,446

(10,446)

-

-

Transfer from Stage III to Stage I

1,840

-

(1,840)

-

-

Others

-

-

324

-

324

ECL allowance as at 31 December 2019

1,685,516

532,606

1,236,801

-

3,454,923

90 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

19 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED)

  1. Movements in ECL allowance (continued)
    Movements in ECL allowance on loans and advances to customers at fair value through other comprehensive income

Six months ended 30 June 2020

Stage I

Stage II

Stage III

12-month

Lifetime

Lifetime

Discounted bills

ECL

ECL

ECL

Total

ECL allowance as at 1 January 2020

3,014

-

393,428

396,442

Originated or purchased

11,849

-

-

11,849

Derecognition or settlements

(2,311)

-

-

(2,311)

Remeasurement

- Parameter changes

70

-

221,434

221,504

- Stage transfer

-

-

-

-

Write-off

-

-

(99,675)

(99,675)

Transfers

-

-

-

-

Transfer from Stage I to Stage II

-

-

-

-

Transfer from Stage I to Stage III

-

-

-

-

Transfer from Stage II to Stage I

-

-

-

-

Transfer from Stage II to Stage III

-

-

-

-

Transfer from Stage III to Stage II

-

-

-

-

Transfer from Stage III to Stage I

-

-

-

-

ECL allowance as at 30 June 2020

12,622

-

515,187

527,809

Year ended 31 December 2019

Stage I

Stage II

Stage III

12-month

Lifetime

Lifetime

Discounted bills

ECL

ECL

ECL

Total

ECL allowance as at 1 January 2019

12,059

95,488

164,182

271,729

Originated or purchased

3,014

-

-

3,014

Derecognition or settlements

(9,457)

(43,989)

(164,182)

(217,628)

Remeasurement

- Parameter changes

-

-

-

-

- Stage transfer

-

-

339,327

339,327

Transfers

(2,602)

(51,499)

54,101

-

Transfer from Stage I to Stage II

-

-

-

-

Transfer from Stage I to Stage III

(2,602)

-

2,602

-

Transfer from Stage II to Stage I

-

-

-

-

Transfer from Stage II to Stage III

-

(51,499)

51,499

-

Transfer from Stage III to Stage II

-

-

-

-

Transfer from Stage III to Stage I

-

-

-

-

ECL allowance as at 31 December 2019

3,014

-

393,428

396,442

INTERIM REPORT 2020 91

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

20 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

As at

As at

30 June

31 December

2020

2019

Government bonds

10,951,604

13,775,230

Bonds issued by policy banks

8,116,544

13,807,955

Bonds issued by financial institutions

2,958,797

3,204,462

Certificates of deposit issued by other financial institutions

6,178,233

399,681

Assets backed securities issued by other banks and

non-bank financial institutions

996,744

1,029,534

Corporate bonds

1,832,123

751,953

Trust and asset management plans

23,770,782

31,321,554

Fund and other investments

19,387,303

19,401,208

Interest receivable

1,418,774

1,740,601

Total

75,610,904

85,432,178

21 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

As at

As at

30 June

31 December

2020

2019

Government bonds

25,751,392

22,604,131

Bonds issued by policy banks

36,678,510

24,587,039

Bonds issued by financial institutions

1,232,236

2,213,074

Assets backed securities issued by other banks and

non-bank financial institutions

166,000

190,332

Corporate bonds

6,022,427

3,201,728

Certificates of deposit issued by other financial institutions

952,240

499,810

Trust and asset management plans

13,723,882

14,971,879

Interest receivable

1,752,804

1,438,120

Total

86,279,491

69,706,113

92 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

21 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (CONTINUED)

  1. Movements in ECL allowance are summarised as follows:

Six months ended 30 June 2020

Stage I

Stage II

Stage III

12-month

Lifetime

Lifetime

ECL

ECL

ECL

Total

ECL allowance as at 1 January 2020

89,162

173,841

1,211,722

1,474,725

Originated or purchased

20,014

-

-

20,014

Derecognition or settlements

(7,728)

(203)

(41,018)

(48,949)

Remeasurement

- Parameter changes

9,243

88,818

103,391

201,452

- Stage transfer

-

303,444

508

303,952

Transfers:

(34,255)

34,205

50

-

Transfer from Stage I to Stage II

(34,205)

34,205

-

-

Transfer from Stage I to Stage III

(50)

-

50

-

Transfer from Stage II to Stage I

-

-

-

-

Transfer from Stage II to Stage III

-

-

-

-

Transfer from Stage III to Stage II

-

-

-

-

Transfer from Stage III to Stage I

-

-

-

-

ECL allowance as at 30 June 2020

76,436

600,105

1,274,653

1,951,194

Year ended 31 December 2019

Stage I

Stage II

Stage III

12-month

Lifetime

Lifetime

ECL

ECL

ECL

Total

ECL allowance as at 1 January 2019

148,361

329,802

292,843

771,006

Originated or purchased

48,927

-

-

48,927

Derecognition or settlements

(48,555)

(13,511)

(11,108)

(73,174)

Remeasurement

- Parameter changes

(4,383)

(28,986)

(90,413)

(123,782)

- Stage transfer

-

119,766

731,982

851,748

Transfers:

(55,188)

(233,230)

288,418

-

Transfer from Stage I to Stage II

(24,223)

24,223

-

-

Transfer from Stage I to Stage III

(30,965)

-

30,965

-

Transfer from Stage II to Stage I

-

-

-

-

Transfer from Stage II to Stage III

-

(257,453)

257,453

-

Transfer from Stage III to Stage II

-

-

-

-

Transfer from Stage III to Stage I

-

-

-

-

ECL allowance as at 31 December 2019

89,162

173,841

1,211,722

1,474,725

INTERIM REPORT 2020 93

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

22

FINANCIAL ASSETS AT AMORTIZED COST

As at

As at

30 June

31 December

2020

2019

Government bonds

25,904,578

26,268,742

Bonds issued by policy banks

22,588,429

26,609,634

Bonds issued by financial institutions

430,000

430,000

Certificates of deposit issued by other financial institutions

12,457,806

11,776,155

Assets backed securities issued by other banks and

non-bank financial institutions

-

358,000

Corporate bonds

2,222,576

2,399,981

Trust and asset management plans

12,248,690

14,049,518

Interest receivable

1,019,337

1,331,309

Subtotal

76,871,416

83,223,339

Less:

ECL allowance

(1,193,569)

(687,252)

Total

75,677,847

82,536,087

  1. Movements in ECL allowance are summarised as follows:

Six months ended 30 June 2020

Stage I

Stage II

Stage III

12-month

Lifetime

Lifetime

ECL

ECL

ECL

Total

ECL allowance as at 1 January 2020

142,820

311,645

232,787

687,252

Originated or purchased

8,899

-

-

8,899

Derecognition or settlements

(55,906)

(1,970)

-

(57,876)

Remeasurement

- Parameter changes

4,178

62,510

50,894

117,582

- Stage transfer

-

174,476

263,236

437,712

Transfers:

(37,542)

(92,952)

130,494

-

Transfer from Stage I to Stage II

(33,648)

33,648

-

-

Transfer from Stage I to Stage III

(3,894)

-

3,894

-

Transfer from Stage II to Stage I

-

-

-

-

Transfer from Stage II to Stage III

-

(126,600)

126,600

-

Transfer from Stage III to Stage II

-

-

-

-

Transfer from Stage III to Stage I

-

-

-

-

ECL allowance as at 30 June 2020

62,449

453,709

677,411

1,193,569

94 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

22 FINANCIAL ASSETS AT AMORTIZED COST (CONTINUED)

  1. Movements in ECL allowance are summarised as follows: (continued)

Year ended 31 December 2019

Stage I

Stage II

Stage III

12-month

Lifetime

Lifetime

ECL

ECL

ECL

Total

ECL allowance as at 1 January 2019

228,647

72,840

-

301,487

Originated or purchased

92,204

-

-

92,204

Derecognition or settlements

(153,321)

(72,840)

-

(226,161)

Remeasurement

- Parameter changes

16,840

-

-

16,840

- Stage transfer

-

279,104

223,778

502,882

Transfers:

(41,550)

32,541

9,009

-

Transfer from Stage I to Stage II

(32,541)

32,541

-

-

Transfer from Stage I to Stage III

(9,009)

-

9,009

-

Transfer from Stage II to Stage I

-

-

-

-

Transfer from Stage II to Stage III

-

-

-

-

Transfer from Stage III to Stage II

-

-

-

-

Transfer from Stage III to Stage I

-

-

-

-

ECL allowance as at 31 December 2019

142,820

311,645

232,787

687,252

INTERIM REPORT 2020 95

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

23

PROPERTY AND EQUIPMENT

Properties

and

Construction

Leasehold

Office

Motor

buildings

in progress

improvements

equipment

vehicles

Total

Cost

As at 1 January 2020

5,773,065

170,377

585,727

1,242,634

51,734

7,823,537

Additions

9,247

72,078

550

23,940

170

105,985

Transfer from construction

in progress

12,266

(33,159)

1,185

19,708

-

-

Transfer from investment

properties

4,410

-

-

-

-

4,410

Acquisition of a subsidiary

94,571

-

-

6,432

1,189

102,192

Other transfer-in

-

-

-

-

-

-

Disposals

(9,676)

-

(341)

(29,855)

(5,633)

(45,505)

Other transfer-out

-

(20,397)

(481)

-

-

(20,878)

As at 30 June 2020

5,883,883

188,899

586,640

1,262,859

47,460

7,969,741

Accumulated depreciation

As at 1 January 2020

3,433,199

-

497,978

922,690

48,032

4,901,899

Charge for the period

133,054

-

16,831

71,947

3,002

224,834

Transfer from investment

properties

4,410

-

-

-

-

4,410

Other transfer-in

-

-

-

-

-

-

Disposals

(9,589)

-

(169)

(28,377)

(5,288)

(43,423)

As at 30 June 2020

3,561,074

-

514,640

966,260

45,746

5,087,720

Net book value

As at 30 June 2020

2,322,809

188,899

72,000

296,599

1,714

2,882,021

As at 1 January 2020

2,339,866

170,377

87,749

319,944

3,702

2,921,638

96 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

23

PROPERTY AND EQUIPMENT (CONTINUED)

Properties

and

Construction

Leasehold

Office

Motor

buildings

in progress

improvements

equipment

vehicles

Total

Cost

At 1 January 2019

4,975,186

204,293

557,083

1,249,964

67,838

7,054,364

Additions

42,854

192,166

25,638

78,673

1,139

340,470

Transfer

106,807

(204,362)

3,006

94,549

-

-

Acquisition of a subsidiary

673,546

17,051

-

10,902

2,251

703,750

Other transfer-in

-

-

-

-

-

-

Disposals

(25,328)

-

-

(191,454)

(19,494)

(236,276)

Other transfer-out

-

(38,771)

-

-

-

(38,771)

At 31 December 2019

5,773,065

170,377

585,727

1,242,634

51,734

7,823,537

Accumulated depreciation

At 1 January 2019

3,187,342

-

456,209

967,522

61,550

4,672,623

Charge for the year

-

-

-

-

-

-

Other transfer-in

-

-

-

-

-

-

Depreciation

265,023

-

41,769

132,554

4,233

443,579

Disposals

(19,166)

-

-

(177,386)

(17,751)

(214,303)

Other transfer-out

-

-

-

-

-

-

At 31 December 2019

3,433,199

-

497,978

922,690

48,032

4,901,899

Net book value

At 31 December 2019

2,339,866

170,377

87,749

319,944

3,702

2,921,638

At 1 January 2019

1,787,844

204,293

100,874

282,442

6,288

2,381,741

The original value and net value of the property and equipment that have been used but are in the process of applying for the right certificates and that have been used but have not yet applied for the right certificates are listed as follows:

As at

As at

30 June

31 December

2020

2019

Original value

1,578,529

1,575,300

Net value

825,612

847,057

Management expects that the aforesaid matter would not affect the rights of the Group to these assets or have any significant impact on the business operation of the Group.

INTERIM REPORT 2020 97

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020

(All amounts expressed in thousands of RMB unless otherwise stated)

24

GOODWILL

As at

As at

1 January 2020

Additions

30 June 2020

ZZRCB

382,216

-

382,216

CZRCB

476,181

-

476,181

Impairment allowance (i)

(124,160)

-

(124,160)

734,237

-

734,237

As at

As at

31 December

1 January 2019

Additions

2019

ZZRCB

382,216

-

382,216

CZRCB

-

476,181

476,181

Impairment allowance (i)

(124,160)

-

(124,160)

258,056

476,181

734,237

  1. Impairment
    The recoverable amount of the asset group is based on the five-year budget approved by the management, which is then estimated based on a fixed growth rate (as described in the table below) and calculated using the cash flow forecast method.
    The assumptions of the future cash flow discount method are as follows:

As at

As at

30 June

31 December

2020

2019

Growth rate

3%

3%

Discount rate

15%

15%

The growth rate is the weighted average growth rate used by the Group to forecast the cash flow after five years, which is consistent with the forecast data contained in the industry report and does not exceed the long-term average growth rate of each business. The management uses the interest rate of profit-before-tax as the discount rate which can reflect the specific risks of the relevant asset groups and the portfolio of asset groups. The above assumptions are used to analyse the recoverable amounts of each asset group and portfolio of asset groups within the business division.

98 GUANGZHOU RURAL COMMERCIAL BANK

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION

For the six months ended 30 June 2020 (All amounts expressed in thousands of RMB unless otherwise stated)

25 DEFERRED INCOME TAXES

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset income tax assets against income tax liabilities and when the deferred income taxes are related to income taxes levied by the same taxation authority. The deferred tax assets and liabilities recognised are as follows:

30 June 2020

31 December 2019

Deductible/

Deductible/

Deferred

(taxable)

Deferred

(taxable)

tax assets/

temporary

tax assets/

temporary

(liabilities)

difference

(liabilities)

difference

Deferred income tax assets:

Impairment allowances for assets

4,983,891

19,935,570

4,498,397

17,993,586

Provisions

147,222

588,886

94,767

379,067

Changes in the expected credit losses

of financial assets at FVOCI

487,799

1,951,194

368,681

1,474,725

Changes in fair value of financial assets at FVOCI

211,498

845,994

80,803

323,210

Changes in the expected credit losses of

loans and advances to customers at FVOCI

131,953

527,809

99,111

396,442

Changes in fair value of loans and advances to

customers at FVOCI

10,810

43,231

9,314

37,256

Changes in fair value of financial assets at FVPL

137,985

551,940

-

-

Staff salary and welfare payable

480,682

1,922,727

463,166

1,852,664

Others

66,051

264,205

49,266

197,065

Subtotal

6,657,891

26,631,556

5,663,505

22,654,015

Deferred income tax liabilities:

Changes in the expected credit losses of

financial assets at FVOCI

(487,799)

(1,951,194)

(368,681)

(1,474,725)

Changes in the expected credit losses of

loans and advances to customers at FVOCI

(131,953)

(527,809)

(99,111)

(396,442)

Changes in fair value of financial assets at FVPL

(3,762)

(15,048)

(40,172)

(160,687)

Adjustment of book value of assets and

liabilities on the date of acquisition

(127,840)

(511,360)

(100,475)

(401,901)

Unrealized gains of foreclosed assets

(162)

(646)

(162)

(646)

Subtotal

(751,516)

(3,006,057)

(608,601)

(2,434,401)

Net deferred income tax

5,906,375

23,625,499

5,054,904

20,219,614

INTERIM REPORT 2020 99

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Guangzhou Rural Commercial Bank Co. Ltd. published this content on 18 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 18 September 2020 08:54:06 UTC