Haitong Securities : ANNOUNCEMENT IN RELATION TO PROVISION FOR IMPAIRMENT OF ASSETS

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

(Stock Code: 6837)

ANNOUNCEMENT IN RELATION TO PROVISION FOR

IMPAIRMENT OF ASSETS

This announcement is made by Haitong Securities Co., Ltd. (the "Company") pursuant to Inside Information Provisions (as defined under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules")) under Part XIVA of the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) and Rules 13.09(2) and 13.10B of the Listing Rules.

I. OVERVIEW ON THE PROVISION FOR ASSET IMPAIRMENT

According to relevant provisions under the Accounting Standards for Business Enterprises and the accounting policies of the Company, to truly and fairly reflect the financial position of the Company as of 31 December 2020 and the operating results for 2020, the Company and its subsidiaries made assessment on the expected credit loss of various assets which required provision for impairment as of 31 December 2020. On the basis of the provision for asset impairment made in the first half of 2020 (for details, please refer to the Company's Announcement in Relation to Provision for Impairment of Assets dated 28 August 2020), from July to December 2020, the Company made provision for credit impairment losses of RMB1,565.6409 million in total, accounting for over 10% of the audited net profit of 2019 of the Company, with details set out as follows:

Unit: RMB' 0,000
Provision amount
from July to
Item	December 2020
Advances to customers on margin financing	35,994.69
Financial assets held under resale agreements	15,595.19
Finance lease receivables	64,291.83
Other debt investments	25,575.79
Others	15,106.59
Total	156,564.09

• II. IMPACT OF PROVISION FOR IMPAIRMENT OF ASSETS ON THE COMPANY

  From July to December 2020, the Company made a provision for asset impairment of RMB1,565.6409 million in the consolidated statement, as a result of which, the Company recorded a decrease of RMB1,565.6409 million and RMB1,179.9624 million in the total profit and net profit, respectively.

• III. DETAILS OF PROVISION FOR IMPAIRMENT OF ASSETS

  • 1. Advances to customers on margin financing

    The Company made a provision for impairment of advances to customers on margin financing of RMB360 million from July to December 2020.

    For the business of advances to customers on margin financing, the Company comprehensively assessed the expected recoverable cash flow of financing entities according to the characteristics of financing entities and changes in expected disposal and realization of collateralized securities, calculated the related expected credit loss using Probability of Default (PD)/Loss Given Default (LGD) or an individual impairment assessment, and made the provision for relevant impairment.

  • 2. Financial assets held under resale agreements

    The Company made a provision for impairment of financial assets held under resale agreements of RMB156 million from July to December 2020.

    For stock pledge and repo business, the Company calculated the related expected credit loss using Probability of Default (PD)/Loss Given Default (LGD) or an individual impairment assessment, comprehensively assessed the expected recoverable cash flow of the financing entities according to the expected disposed and realized values of collateralized securities, and made the provision for impairment of the part expected to fail to cover the risk exposure after discount.

  • 3. Finance lease receivables

    The Company made a provision for impairment of finance lease receivables of RMB643 million from July to December 2020.

    For financial leasing business, the Company assessed the related expected credit loss and determined the corresponding provision for credit loss according to the changes in credit risks of finance lease receivables, and, based on individual assessment, calculated the expected credit loss using Probability of Default (PD)/Loss Given Default (LGD) or an individual impairment assessment.

• 4. Other debt investments

  The Company made a provision for impairment of other debt investments of RMB256 million from July to December 2020.

  For the business of other debt investments, the Company comprehensively considered the debtor's credit rating and credit risk changes, and calculated the expected credit loss based on Probability of Default (PD)/Loss Given Default (LGD) or an individual impairment assessment.

• 5. Others

  In addition to the asset impairment losses from the above advances to customers on margin financing, financial assets held under resale agreements, finance lease receivables and other debt investments, the Company identified and assessed other various credit risks it faced in accordance with the nature of other various businesses. According to the Accounting Standards for Business Enterprises and the Company's relevant accounting policies and administrative measures, the Company made a provision for impairment of long-term receivables arising from sale and leaseback business and other items of RMB151 million in total from July to December 2020.

IV. OTHER RELEVANT INFORMATION

The above matters are the Company's preliminary assessments of the provisions for asset impairment. The final provision amount is subject to the audited annual report. At present, the operating management of the Company is normal, its financial position is stable and its liquidity is sufficient. The Company's financial position can be reflected in a more impartial manner after this provision.

This provision for asset impairment was included in the relevant data set out in the announcement on preliminary financial data for the year 2020, which was disclosed by the Company on the same day. The Company will perform its information disclosure obligations in a timely manner in accordance with the relevant laws and regulations and the assessment results. Investors are hereby reminded of the investment risks.

By order of the board of directors

Haitong Securities Co., Ltd.

ZHOU Jie Chairman

Shanghai, the PRC

26 February 2021

As at the date of this announcement, the executive directors of the Company are Mr. ZHOU Jie, Mr. QU Qiuping and Mr. REN Peng; the non-executive directors of the Company are Mr. TU Xuanxuan, Mr. ZHOU Donghui, Ms. YU Liping and Mr. XU Jianguo; and the independent non-executive directors of the Company are Mr. ZHANG Ming, Mr. LAM Lee G., Mr. ZHU Hongchao and Mr. ZHOU Yu.

* For identification purpose only