BOC Hong Kong () : 2013 results achieved new high - Profit attributable to the equity holders reached HK$22.3 billion

BOC Hong Kong (Holdings) Limited
2013 Annual Results - Financial Highlights

Profit attributable to the equity holders was HK$22,252 million, up 6.3%
(HK$20,930 million in 2012)

Net operating income before impairment allowances was HK$40,313 million, up 13.2%
(HK$35,617 million in 2012)

Operating profit before impairment allowances was HK$28,230 million, up 15.9%
(HK$24,358 million in 2012)

Earnings per share was HK$2.1046
(HK$1.9796 in 2012)

Proposed final dividend was HK$0.465 per share; total dividend was HK$1.010 per share
(Total dividend of HK$1.238 in 2012)

Total assets was HK$2,046.9 billion, up 11.8%
(HK$1,830.8 billion at end-2012)

Total capital ratio was 15.80%; Tier 1 capital ratio was 10.67%
(As a result of the adoption of The Banking (Capital) (Amendment) Rules 2012 and the Banking (Capital) (Amendment) Rules 2013, the capital ratios as at end-2013 and end-2012 are not directly comparable.)

Average liquidity ratio was 37.93%
(41.20% in 2012)

Classified or impaired loan ratio was 0.28%
(0.26% at end-2012)

Return on average total assets was 1.22%
(1.24% in 2012)

Return on average shareholders' equity was 14.37%
(14.91% in 2012)

Cost to income ratio was 29.97%
(31.61% in 2012)

BOC Hong Kong (Holdings) 2013 results achieved new high
Profit attributable to the equity holders reached HK$22.3 billion

BOC Hong Kong (Holdings) Limited ("the Company", stock code "2388"; ADR OTC Symbol: "BHKLY") today announced its 2013 annual results. The Company and its subsidiaries ("the Group") achieved a set of respectable results in 2013, driven by solid growth of its core businesses. Its profit attributable to the equity holders reached a new high. This is a particularly remarkable achievement after taking into account the substantial drop in the property revaluation gain during the period. The satisfactory growth was fuelled by higher net interest income and fee income as well as effective cost control. The Group's financial position remained strong with healthy growth in loans and deposits. It continued to deliver on its strategic objectives and build its customer franchise.

The Group maintains strong market positions in all major businesses. It was named as the Bank of the Year in Hong Kong 2013 by The Banker in recognition of its consistently sound performance and the continuous success in building its franchise, particularly in the development of offshore RMB business.

The Board recommended the declaration of a proposed final dividend of HK$0.465 per share for 2013. This, together with the interim dividend of HK$ 0.545 per share, results in a total dividend of HK$1.010 per share. The dividend payout ratio is 48.0% for the year. The dividend declaration is subject to the approval of shareholders at the forthcoming Annual General Meeting to be held on 11 June 2014.

Operating Environment
In 2013, banks in Hong Kong faced a mixed operating environment as characterised by modest economic growth in Hong Kong, a sluggish property market, volatile financial markets and more stringent regulatory requirements. On the other hand, the offshore RMB business in Hong Kong grew steadily with a number of new initiatives introduced to promote the use of RMB in trade and investment activities. There continued to be good opportunities for lending business driven by strong demand from the Mainland.

Strategy and Achievements
Strive to enhance customer experience
The Group is committed to becoming customers' premier bank with comprehensive solutions and professional services. One of its key competitive advantages is a robust customer base. The sophisticated customer segmentation strategy enables the Group to better cater for the diverse needs of its customers and to attract new customers. For more targeted sales and services, the Group strengthened its wealth management platform with i-Free Banking Service for general customers, the new Enrich Banking Service for the busy mid-segment working population, and the Wealth Management Service targeting high-end customers. Its Private Banking service continues to provide affluent customers with a one-stop integrated service model encompassing investment management, liquidity management and estate planning. It also worked closely with business units of the Group, Bank of China ("BOC") and the Group's Mainland operation on a series of client acquisition and referral activities. Overall, the customer segmentation strategy made good progress for the period by growing the customer base and assets under management.

For corporate customers, the Group continued to deepen its industry expertise to better serve targeted customers of different industries. A Corporate Services Centre was set up to further improve service efficiency and quality. It also worked to enhance its service for SME customers. The corporate internet banking platform, CBS Online, was upgraded with a modern and user-friendly interface. Product offerings in areas such as trade finance, custody service and cash management service were also broadened.

Extend the reach to drive growth
Capitalising on opportunities arising from the development of the offshore RMB business and increasing demand for cross-border banking services, the Group has successfully expanded its presence outside Hong Kong. This is also attributable to the close collaboration with BOC, its parent bank.

The Group continued to work in conjunction with BOC to explore business opportunities. A business referral channel was established with BOC's branches on the Mainland and overseas for both onshore and offshore businesses. Bank of China (Hong Kong) ("BOCHK") also acts as the Asia-Pacific Syndicated Loan Centre of BOC Group. In 2013, it successfully helped arrange a syndicated loan led by the BOC Group to finance a renowned acquisition. This enhanced the Group's reputation internationally as an arranger bank in both M&A finance and the syndicated loan market.

As the Clearing Bank of the offshore RMB business in Hong Kong, BOCHK continued to enhance its clearing service platform to cater for the needs of both local and global participating banks. During the period, it extended the operating hours for cross-border RMB payments involving Mainland counterparts, introduced time deposit products, launched a tiered interest rate offering for participating banks' settlement accounts and adjusted RMB intra-day repo limits.

The Group maintains its leadership in the offshore RMB business, riding on its strong RMB franchise and experience. It has successfully secured new customer groups, including international companies, public organisations and global financial institutions. In 2013, BOCHK was also designated as a market maker for USD/CNH (offshore RMB) futures by the Chicago Mercantile Exchange Group, being the sole bank among the first group of market makers. BOCHK partnered with FTSE Group to develop the new FTSE-BOCHK Offshore RMB Bond Index Series. During the year, BOCHK was appointed by Clearstream Banking S.A. as its cash correspondent bank for offshore RMB in Hong Kong. All these developments have helped raise the international profile of the Group significantly and extend its reach outside Hong Kong, enabling it to capture more business opportunities.  

Maintain a strong financial position for sustainable development
The Group's top priority continues to be to maintain a strong financial position, which gives it the flexibility to grow and manage its business amid fluctuating market conditions. During the period, the Group maintained its proactive yet prudent approach in managing its balance sheet and driving business development. All key financial ratios were maintained at healthy levels.

Starting from 1 January 2013, the Basel III requirement came into effect. The Group continued to manage its capital and liquidity proactively and maintained its solid capital and liquidity position.

The Group continued to adopt stringent risk management and credit control to deliver quality growth. Overall loan quality remained healthy with the classified or impaired loan ratio staying at a low level. The investment book was prudently managed to optimise risk and return.

Under the persistently low interest rate environment and intense competition, the Group took proactive measures to allocate its assets, enhance the deployment of offshore RMB funds, improve loan pricing and control deposit costs. It reduced securities investments in lower yielding government-related securities. New debt securities investments were made in high-quality financial institutions and corporations. Average yields for its interbank balances and placements, debt securities investments and customer loans all improved from last year's levels. As a result, the Group's net interest margin improved further both year-on-year and half-on-half.

While the Group remains focused on investing in its business platform, it judiciously managed expenditure to ensure cost efficiency and to allow sufficient resources to drive business growth. It also took measures to improve operational efficiency by streamlining and centralising business processes. Cost to income ratio further improved in 2013 on the back of the cost control measures and stronger income growth.

Financial Performance
For the period under review, the Group's net operating income before impairment allowances was HK$40,313 million, up by 13.2% as compared to 2012. The growth was mainly driven by the increase in net interest income and net fee and commission income. Operating expenses rose by 7.3% to HK$12,083 million due to business expansion. Cost to income ratio improved to 29.97% from 31.61%. The net gain from fair value adjustments on investment properties fell considerably by 86.0% or HK$1,621 million. Despite the drop in this non-operating income, profit attributable to the equity holders still reached a new high of HK$22,252 million, up 6.3% year-on-year. Return on average total assets and return on average shareholders' equity were 1.22% and 14.37% respectively compared to 1.24% and 14.91% in 2012.

Net interest income rose by 13.0% year-on-year to HK$27,916 million. The increase was driven by the growth in average interest-earning assets and the widening of net interest margin. Average interest-earning assets expanded by 7.4%, mainly supported by the increase in customer deposits, partly offset by the decrease in RMB funds from the clearing bank business. Net interest margin was 1.68%, up 8 basis points compared to 2012. The increase was mainly attributable to the widening of loan and deposit spread. 

Net fee and commission income grew by 15.5% year-on-year to HK$8,965 million. The increase was broad-based, reflecting the Group's continuous efforts in expanding its service capabilities. Fee and commission income from funds distribution, insurance and securities brokerage increased substantially by 52.0%, 33.2% and 15.0% respectively.

Net trading gain decreased 5.5% year-on-year to HK$2,957 million. The decrease was mainly due to the mark-to-market changes of certain debt securities.

As at 31 December 2013, total assets increased by 11.8% to HK$2,046.9 billion compared with end-2012. The Group maintained a flexible deposit strategy to support business growth with cautious control of funding costs in response to market changes. Deposits from customers expanded by 8.0% to HK$1,328.0 billion. Advances to customers grew by 10.3% to a total of HK$858.3 billion. Loan to deposit ratio increased to 64.63%, up 1.31 percentage points from the end of 2012. Overall loan quality remained sound with the classified or impaired loan ratio at a low level of 0.28%.

Effective 1 January 2013, the calculation of the capital ratios was in compliance with the Basel III Accord. The total capital ratio as at 31 December 2013 was 15.80%. The average liquidity ratio for 2013 was 37.93%.

Business Review
Personal Banking business performed strongly in 2013 with broad-based income growth. Net operating income before impairment allowances and profit before taxation increased by 18.3% to HK$13,699 million and 25.6% to HK$6,926 million respectively.

Investment and insurance businesses saw an encouraging performance with strong growth of commission income from securities brokerage, funds distribution and insurance. Credit card business also made good progress with growth in related fee income. It maintained its leadership in the UnionPay International merchant acquiring business and card issuing business in Hong Kong. It also launched an innovative and convenient mobile payment service, BOCHK e-Wallet.

The residential mortgage business was affected by the cooling down of the local residential property market. Competition was intense. The Group's residential mortgage loans grew by 1.8% while it maintained its market leadership in the underwriting of new mortgage loans during the year.

Corporate Banking business continued its growth momentum in 2013. Net operating income before impairment allowances increased by 16.7% to HK$15,842 million while profit before taxation increased by 21.8% to HK$11,844 million.

The strong performance was mainly led by higher net interest income. Corporate loan book grew 11.9% with sound loan quality. While growing the loan business, the Group continued to strengthen its know-your-customer process and close monitoring measures were put in place to ensure that timely precautionary measures can be taken to contain risks.

In collaboration with BOC, the Group has increased its stature in the international syndicated loan market, while it has made good progress in the cross-border direct loan business. In the custody business, the Group continued to expand its client base in different geographical locations and successfully secured mandates to provide custody services for RQFII-ETFs and various types of RQFII and QDII products. The service capabilities of its cash management business were enhanced to reinforce its competitive position as the cross-border fund centre for customers in Hong Kong.

Treasury segment's performance was down slightly compared to 2012 although its second half performance showed a pick-up from the first half. Net operating income before impairment allowances decreased by 1.3% year-on-year to HK$9,497 million while profit before taxation decreased by 0.4% to HK$8,347 million.

The Group prudently managed its banking book investments. It shortened the average portfolio duration and selectively increased investments in high-quality financial institutions, corporate bonds and RMB-denominated bonds.

On the product development front, the Group promoted products suited to customer needs and made encouraging progress in underwriting bonds in different denominated currencies. It completed the first CNH/USD cross-currency swap transaction and successfully acted as the arranger for the issuance of the first certificate of deposit using CNH HIBOR as the benchmark.

The Mainland business delivered a remarkable performance in a tough banking environment. Net operating income increased by 28.5% driven by higher net interest income and fee income. Deposits and loans recorded satisfactory growth of 16.0% and 12.8% respectively.

Product offerings and distribution channels in the Mainland operation were further enhanced. A new series of wealth management products was introduced. During the period, Nanyang Commercial Bank (China) commenced its credit card issuing business on the Mainland. The Group's SME business platform was reinforced by the development of tailor-made products to support targeted SME customers. With its branch network expanding to 41 and enhancements of its personal and corporate e-Banking platform, the Group's distribution capabilities on the Mainland were strengthened.

Insurance business achieved a robust performance in 2013. Net operating income before impairment allowances grew by 66.5% year-on-year to HK$1,404 million. Profit before taxation jumped by 87.8% to HK$1,144 million.

The Group continued to broaden its product offerings to meet customers' diverse needs. It continued to maintain its leading position in the Hong Kong RMB insurance market. The Group also actively developed new distribution channels and established partnerships with brokerage houses to reach a wider range of customers.

Comments by Mr Tian Guoli, Chairman
"It gives me great pleasure to report that the Group's profitability reached a new high in 2013. Commendable performance was witnessed in all business segments with earnings quality improvement. Despite the challenging operating environment, the Group acted on business opportunities in a timely manner and continued to enhance our competitiveness, which enabled us to secure our leading positions in various business areas. During the period, we optimised our assets and liabilities proactively and employed stringent risk management controls. Loans and deposits registered healthy growth. Asset quality remained benign. We also took an active approach to managing our capital and liquidity.

The Group reinforced its leading position in the offshore RMB business by bolstering its integrated capabilities with new products and enhanced service platforms. As the sole RMB Clearing Bank in Hong Kong, we have been constantly upgrading our clearing service infrastructure to cater for the needs of participating banks. We also capitalised on the business potential arising from Mainland enterprises going abroad and foreign companies investing on the Mainland, through stronger collaboration with our parent bank, BOC, and its overseas branches.

Heading into 2014, prospects for the banking sector appear to be more favourable. The Group will embrace new business opportunities arising from the RMB's increasing role as an international currency, reforms in China gradually taking shape and steady developments in regional financial reform pilots. We will continue to manage asset-liability, capital and liquidity of the Group proactively with stringent control over risks. We endeavour to achieve our long-term goals by strengthening and deepening full-scale collaboration with BOC to create higher value for our shareholders."

Comments by Mr He Guangbei, Vice Chairman and Chief Executive
"The proactive strategies that we have implemented have put us in a strong position to continue our growth trajectory. This year is the tenth anniversary of BOCHK operating as the RMB Clearing Bank in Hong Kong. The Group has made great strides in its business development and firmly established its market leadership in the offshore RMB business. Capitalising on its strong RMB franchise, the Group will continue to expand and deepen our customer base and drive product and service innovation to strengthen our market position. We also endeavour to enhance our service capabilities and efficiency to cope with the growing volume of RMB cross-border trade settlement cleared via Hong Kong's clearing platform.

Our increasing collaboration with BOC has enabled us to strengthen our service capabilities, expand our customer base and extend our geographical reach. This will enable us to better fulfil our role as the product manufacturing and service support centre for BOC Group. Major collaboration and business referral mechanisms have also been established. This strategy has proved to be successful in capturing new business and securing quality customers.

To serve the global needs of our leading corporate customers, we will continue to upgrade our global service platform. We will also increase our collaboration in product innovation and distribution to meet the great demand for cross-border wealth management solutions from our personal customers.

Maintaining a strong financial position will continue to be a key priority of the Group, especially in view of the considerable opportunities we have going forward. We will proactively manage our capital and liquidity. We will also continue to focus our investments on areas that will enhance our total solution capabilities and drive future growth. Looking forward, the Group will continue to be well positioned to capture quality growth opportunities ahead. We are deeply committed to our vision to be our stakeholders' premier bank and to strive for continual improvement."

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About BOC Hong Kong (Holdings) Limited

BOC Hong Kong (Holdings) Limited ("the Company") was incorporated in Hong Kong on 12 September 2001 to hold the entire equity interest in Bank of China (Hong Kong) Limited ("BOCHK"), its principal operating subsidiary. The Company is a subsidiary of Bank of China Limited (HK Stock Code: "3988") which holds approximately 66.06% equity interest in the Company.

The Group is a leading listed commercial banking group in Hong Kong. With over 260 branches, more than 600 ATMs and other distribution channels in Hong Kong, the Group offers a comprehensive range of financial products and services to personal and corporate customers. BOCHK is one of the three note issuing banks in Hong Kong. In addition, the Group and its subsidiaries now have 41 branches and sub-branches in the Mainland of China to provide cross-border banking services to customers in Hong Kong and the Mainland. BOCHK is appointed by the People's Bank of China as the Clearing Bank for Renminbi (RMB) business in Hong Kong. On 13 July 2010, BOCHK was authorised as the Clearing Bank of RMB banknotes business for the Taiwan region.

The Company began trading on the main board of the Stock Exchange of Hong Kong on 25 July 2002, with stock code "2388", ADR OTC Symbol: "BHKLY".

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