Shanghai Pudong Development Bank Co.,Ltd. 2016 Annual Report

Loading...
Shanghai Pudong Development Bank Co.,Ltd. 2016 Annual Report

2016 Annual Report

1

2

2016 Annual Report

2016 Annual Report

Company Profile Headquartered in Shanghai, Shanghai Pudong Development Bank Co., Ltd. (“SPD Bank” or “the Bank”) is a jointstock commercial bank with nationwide presence opened with approval by the People’s Bank of China on August 28, 1992, opened for business on January 9, 1993, and listed on Shanghai Stock Exchange on November 10, 1999 (stock code: 600000). Sound business performance and excellent reputation have made SPD Bank a high-profile and well-respected listed company across the Chinese financial market. Upholding the core values of “Sticking to integrity and striving for excellence””, the Bank makes active explorations for financial innovation, thus expanding its business scale and capacity continuously. As at the end of 2016, its total assets reported RMB5,857.3 billion, the balance of various loans reached RMB2,762.8 billion, the balance of various deposits registered RMB3,002 billion, the net income throughout the year amounted to RMB160.8, and the net profit attributable to shareholders of the parent company posted RMB53.1 billion. So far, the Bank has established 41 tier-1 branches and 1,843 banking outlets across the country, managing to cover all provincial administrative regions. At the same time, its international presence has also grown steadily. With the joint efforts of more than 50,000 employees, it has put in place an operational service network suitable for a nationwide commercial bank. In recent years, SPD Bank, guided by the development ideas of innovation, coordination, integration and sharing, has stuck to serving the real economy, kept customer first, and held fast to innovative and bottom-line thinking. It has worked hard to seek for coordinated development in terms of quality, structure, scale and benefit. At the same time, it has vigorously improved key business areas, developed one-stop integrated financial services, and focused on such strategic task of realizing group-based, professional, digital, light, international and intensive operation. As a result, various business lines of the Bank have advanced steadily. So far, the Bank has extended its reach to many fields as diverse as banking, trust, lease, funds, currency brokerage and overseas investment banking. Thus its group-based comprehensive operation has begun to take shape. In 2016, SPD Bank won further recognition from both the public and market. It was ranked the 29th place among the Top 1,000 World Banks by the British magazine The Banker. By moving up six seats compared with last year, it made its way to the top 30 for the first time and in particular its cost-income ratio even came out first across the rankings. According to the Global 500 list published by the Fortune magazine, the Bank ranked the 227th place, up by 69 seats greatly compared with previous year. It was ranked with 57th by the Forbes magazine in its Global 100 list. Its ranking was 18th among the Top 500 Banking Brands 2017, up by 19 seats over previous year. At the same time, SPD Bank became one of few Chinese joint-stock commercial banks that were rated by the three international rating agencies S&P, Moody’s and Fitch simultaneously. In 2017, SPD Bank will continue pushing forward financial innovation, following trends, and sizing opportunities. Guided by the business philosophy of “New Thinking, Hearty Service”, it will fully enhance its comprehensive financial service capacity and turn itself into a high-performance, versatile banking group.

3

4

2016 Annual Report

Message from Chairman In 2016, the Board of Director was keenly aware of and kept up with the economic and financial situation at home and abroad, and vigorously acted on various state strategies/policies and regulatory requirements. It worked hard to serve the real economy, fulfilled its social responsibilities substantially, advanced strategic transformation and group-based operation steadily, and achieved various operational objectives and tasks satisfactorily. During the reporting period, it quickened its pace in strategic planning and arrangement. By focusing on key matters and building consensus, it devised the 2016-2020 Development Strategy. Specifically, it developed one-stop integrated financial services by improving key business areas and establishing a product mix system, fully enhanced the comprehensive financial service capabilities through completing strategic tasks in flavor of group-based, professional, digital, light, international and intensive operation. During the reporting period, SPD Bank intensified group-wide corporate governance. Upon acquisition of Shanghai Trust, the Bank managed to extend its reach in many financial sectors as diverse as funds, trust, lease, overseas investment banking, technology bank, rural banks, and currency brokerage. Besides, the Bank further reinforced the group-wide capital operation and management, improved the consolidated risk management system, and introduced a complete set of policies and mechanisms. At the same time, it vigorously promoted the group-wide coordinated operation and integrated development so that strategies continued to exert synergy and comprehensive financial service capacity could be enhanced continuously. During the reporting period, SPD Bank carried out stringent risk management, vigorously carried out the group-wide risk appetite for the period between 2016 and 2018, policies and guidelines on various credit businesses and investment towards consolidated institutions, kept adjusting the structure of incremental and existing assets with intensified efforts, and worked harder to manage, address and defuse risks. The Bank continued to strengthen its compliance, internal control and audit management, observed compliance red lines or risk bottom line, and kept upgrading its ability to perform internal control risk management. In the meantime, it actively reinforced capital operation, balanced the structure of assets and liabilities, operated capital with improved efficiency, and laid a solid capital foundation. During the reporting period, SPD Bank gained further recognition from the public and market. As at the end of 2016, the closing price of the Bank’s stock reported RMB16.21, which went up by 0.46% (adjusted) over the year, and outperformed the industry. The total market value of the Bank amounted to RMB350.432 billion, ranking among the leading joint-stock commercial banks. At the same time, the Bank was rated at or above the investment grade by the three major international rating agencies. It is impossible for SPD Bank to gain the aforesaid achievements without the care and support of the vast shareholders, customer and even all walks of life, the endeavors and contribution of the Board of Directors, the Board of Supervisors, the Senior Management, and all employees, or the guidance and assistance of the regulatory authorities. Therefore, I would like to extend the sincerest gratitude to all of them on behalf of the Bank. The year of 2017 is crucial to SPD Bank’s drive to implement the new five-year strategic plan. Confronted with both opportunities and challenges, the Bank is willing and able to act on the state guidelines/policies as well as regulatory requirements, and stick to the principles prescribe by the strategic plan and the general guideline of making progress while maintaining stability. To be specific, it will take an active part in serving real economy and structural reform of the supply front. Driven by innovation and transformation, it will persist in building itself into a modern financial service company with core competitive advantages.

Chairman of Shanghai Pudong Development Bank Co., Ltd.

2016 Annual Report

JI Xiaohui Chairman of the Board

5

6

2016 Annual Report

Message from President The year of 2016 marked that SPD Bank began implementing the 13th five-year plan and its own three-year action program. At the same time, it was also crucial to the Bank’s transformation and development. In the face of the complicated, severe macroeconomic environment, the Bank took the new five-year plan as its overall guideline and focused its efforts on “guaranteeing income and controlling risk”, thus capable of withstanding mounting pressure. While shoring up efforts to advance innovation and transformation, stress the leading role of strategies, and optimize the operational strategies, it made great strides in the year by fulfilling the targets set by the Board of Director and delivering a sound performance in the beginning of the 13th five-year period. The operation of the Bank was mainly characterized as below in 2016: 1. As structural adjustment went on with intensified efforts, the operating income grew greatly. SPD Bank took an active part in promoting the development of real economy and the structural reform on supply side. The Bank made asset investments in key areas, strengthened resource allocation, incentives and guidance, enhanced its ability to acquire high-quality assets, and improved its income structure further. As a result, its operating income throughout the year reported RMB160.792 billion, up by 9.72% over previous year and ranking first among major joint-stock banks in terms of both increment and increasing rate; its net profit attributable to shareholders of the parent company posted 53.099 billion, up 4.93% over previous year; and its cost-income ratio was 23.16%, which remained at the leading level across the world. 2. While the reform and innovation advanced continuously, the transformation gathered its pace as well. SPD Bank launched a host of innovative products including “e Corporate Payment”, cloud funds supervision service, “Financial Smart Robot” investment banking advisor, “Hui Tong Li”, and “WeGold” successively. At the same time, the Bank put in place a sound customer view at an accelerated pace, introduced a customer management system which took “one branch one policy” and “one business one policy” as the main thread, in a bid to enhance the supporting role of comprehensive service plan. Besides, it also took such means as quickening the promotion of smart community and putting major customers under director administration of the Head Office in an effort to introduce an all-around, multiple-layer customer attraction platform, improve the influence of brand, and manage retail customers with new features. At the same time, it also advanced professional marketing unique to financial institutions, carried out cooperation in securities, futures and lease innovatively, and improved the sales of products among major customer clusters. 3. Risk prevention and control efforts built up continuously in the hopes of solidifying operational achievements. SPD Bank intensified its guidance and optimized its risk policy and credit management; devised the group-wide three-year risk appetite and uniform credit measures, and rolled out investment policies targeted at corporate, retail, non-credit, and other businesses; and formulated such policies as risk isolation among consolidated institutions and risk management of overseas branches. The Bank boosted the all-around application of the advanced capital management approach to guide and fuel the bank-wide transformation and development; never overstepped the bottom lines and shored up efforts in compliance, internal control and audit supervision; introduced the sound anti-money laundering mechanism which proposed to strengthen the management for overseas institutions; and worked hard to prevent various cases and investigate into employees’ abnormal behavior. During the reporting period, the Bank’s asset quality and risk remained under control. 4. Fundamental management was continuously reinforced, and remarkable strides were made in group-based, international operation. SPD Bank worked hard to enhance the supporting role of technological operation, observed the bottom line of secure operation, and quickened its pace in building, promoting and utilizing the new-generation information system. The Bank stepped up its human resources management by optimizing managerial personnel management policies; improved a variety of management policies as well as incentive and restraint mechanisms; and introduced post classification and valuation in an effort to put in place a sound salary distribution system. In the meantime, it strengthened the capital, budget and evaluation management on the group level, stressed the business coordination with its subsidiaries, and gathered pace in international operation by advancing the preparatory work of many overseas institutions in Singapore, London and other places steadily. In 2017, commercial banks are faced up with a more complicated external environment and mounting operational challenges. Even so, under the correct leadership of the Board of Directors, SPD Bank is confident in completing the tasks set for this year. Embracing both opportunities and challenges under the new normal, the Bank will go deep in reform and forge ahead with innovative efforts with a view to delivering a satisfying performance as a tribute to its upcoming 25th anniversary.

Vice Chairman and President of Shanghai Pudong Development Bank Co., Ltd.

2016 Annual Report

Liu Xinyi Vice Chairman and President

7

8

2016 Annual Report

Important Notice 1. The Board of Directors, the Board of Supervisors, Directors, Supervisors, and the Senior Management members of the Bank warrant that the information presented in this report is authentic, accurate and complete, contains no false record, misleading statement or material omission, and bear joint and several liability for the information in this report. 2. This Report was reviewed and approved at the 17th meeting of the Sixth Board of Directors held in Shanghai on March 30, 2017. Director Zhu Min was unable to attend the meeting due to official duties and entrusted Director Sha Yuejia by written proxy to vote on her behalf. The Independent Director Tian Suning was unable to attend the meeting for official duties and entrusted Independent Director Yuan Zhigang by written proxy to vote on his behalf. Other Directors attended the meeting in person and exercised their voting rights. 3. The 2016 financial statements prepared by the Bank in accordance with the Accounting Standards for Business Enterprises and International Financial Reporting Standards have been audited by PricewaterhouseCoopers Zhong Tian LLP who issued a standard unqualified opinion. 4. Ji Xiaohui, Chairman of the Board of Directors, Liu Xinyi, President of the Bank, Pan Weidong, Vice President and Chief Financial Officer, and Lin Daofeng, person in charge of accounting institutions, warrant the authenticity, accuracy and completeness of the financial statements in this report. 5. The profit distribution plan for the reporting period approved by the Board of Directors is as follows: Distributing to all shareholders cash dividends at RMB2 (tax inclusive) per 10 shares based on the total number of ordinary shares of 21,618,279,922 at the end of 2016. The total distribution amount is RMB4,324 million. Capital reserve will be converted to share capital by a ratio of three additional shares for each ten shares, with a total capitalization amount of RMB6,485 million. 6. There was no misappropriation of the Bank’s funds by its controlling shareholder or other related parties for non-operating purposes. 7. The Bank provided no external guarantee in violation of the required decision-making process. 8. Risk statement on forward-looking statements: The future plans, development strategies and other prospective description stated in this report do not constitute substantial warranty of the Bank to the investors; the investors and other related persons shall be fully aware of the risks and understand the difference between plans, estimates and commitments. 9. Notes on material risks: The Bank has no foreseeable material risks. Operating risks facing the Bank mainly include credit risk, liquidity risk, market risk and operational risk. The Bank has taken various measures to effectively manage and control various operating risks, which are shown in the “Risks and Risk Management” under Section V “Banking Business and Data”. 10.This Report was compiled in the language of both Chinese and English (or Japanese, French, Russian). If there is any discrepancy of understanding between the versions, the Chinese version shall prevail.

2016 Annual Report

Contents Definitions

11

Company Profile and Main Financial Indicators

13

Business Overview

23

Discussion and Analysis of Business Operation

31

Business Information and Data

55

Important Matters

83

Changes of Ordinary Shares and the Shareholders

93

Overview of Preferred Shares

101

Overview of Directors, Supervisors, Senior Executives and Employees

107

Corporate Governance

119

Financial Report

133

Catalogue of Documents for Inspection

135

9

10

2016 Annual Report

2016 Annual Report

Definitions I. Definitions of Terms and Expressions In this Report, unless the context otherwise requires, the following terms shall have the meaning set out below: SPD Bank, the Company, the Parent Company, the Bank: Shanghai Pudong Development Bank Co., Ltd. The Group: Shanghai Pudong Development Bank Co., Ltd. and its affiliated companies Shanghai Trust: Shanghai International Trust Co., Ltd. SPDB Financial Leasing: SPDB Financial Leasing Co., Ltd. AXA SPDB Investment Managers: AXA SPDB Investment Managers Co., Ltd. SPD Silicon Valley Bank: SPD Silicon Valley Bank Co., Ltd. SPD Rural Banks: The 25 rural banks established by Shanghai Pudong Development Bank Co., Ltd. SPDB International: SPDB International Holdings Limited Central bank/PBC: People’s Bank of China CBRC: China Banking Regulatory Commission CSRC: China Securities Regulatory Commission End of the reporting period: December 31, 2016 Reporting period: From January 1, 2016 to December 31, 2016 Same period of last year: From January 1, 2015 to December 31, 2015 Comparing periods: From January 1, 2015 to December 31, 2015 From January 1, 2014 to December 31, 2014

11

12

2016 Annual Report

2016 Annual Report

Company Profile and Main Financial Indicators I. Company Information Chinese name: 上海浦东发展银行股份有限公司 Chinese name in short: 上海浦东发展银行、浦发银行 English name: SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. English name in short: SPD BANK Legal Representative: Ji Xiaohui Initial registration date: 19 October 1992 Registered & office address: 12, Zhongshan Road (E-1), Shanghai 200002 PRC Uniform Social Credit Code: 9131000013221158XC Financial Institution License Serial Number: B0015H131000001 Website: http://www.spdb.com.cn Email: [email protected] Service hotline: 95528

II. Contact Information Secretary of the Board of Directors Name: Mu Shi Address: Secretariat to the Board of Directors & Supervisors at 12, Zhongshan Road (E-1), Shanghai Telephone: 021-63611226 Fax: 021-63230807 Email: [email protected] Listing Affairs Representative Name: Yang Guoping, Wu Rong Address: Secretariat to the Board of Directors & Supervisors at 12, Zhongshan Road (E-1), Shanghai Telephone: 021-61618888 ex. Secretariat to the Board of Directors & Supervisors Fax: 021-63230807 Email: [email protected], [email protected]

III. Information Disclosure and Access Site Media partners selected for information disclosure: “China Securities Daily”, “Shanghai Securities News”, “Securities Times” Website designated by CSRC to publish this annual report: http://www.sse.com.cn Annual report prepared at: Secretariat to the Board of Directors & Supervisors

IV. Stocks Type Ordinary A-share

Place of listing Shanghai Stock Exchange

Preference share

Shanghai Stock Exchange

Short name SPD Bank SPDB P1 SPDB P2

Code 600000 360003 360008

Short name before change -

13

14

2016 Annual Report

Company Profile and Main Financial Indicators

V. Main Accounting Data and Financial Indicators of the Group in Last Three Years i. Main accounting data In RMB millions

2016 Audited

2015 Audited

Increase/(decrease) compared with the same period of last year (%)

2014 Audited

160,792

146,550

9.72

123,181

Total profit

69,975

66,877

4.63

62,030

Net profit attributable to the Bank's shareholders

53,099

50,604

4.93

47,026

51,687

49,561

4.29

46,650

-191,993

358,820

-153.51

191,158

End of 2016 Audited

End of 2015 Audited

5,857,263

5,044,352

16.12

4,195,924

Net assets attributable to the Bank's shareholders

367,947

315,170

16.75

260,169

Net assets attributable to the Bank's ordinary shareholders

338,027

285,250

18.50

245,209

21,618

18,653

15.90

18,653

15.636

13.902

12.47

11.950

Operating income

Net profit attributable to the Bank's shareholders deducting the non-recurring profit and loss Net cash flows from operating activities

Total assets

Ordinary shares (millions) Net assets per share attributable to the ordinary

Increase/(decrease) over the prior End of 2014 year-end(%) Audited

shareholders of the Bank (RMB) Notes: (1) On 18 March 2016, the Bank issued a total of 999,510,332 RMB ordinary shares to acquire 97.33% equity of Shanghai Trust. Following the acquisition, the Bank's ordinary shares increased to 19,652,981,747. (2) On 23 June 2016, the Bank carried out the 2015 profit distribution plan and the plan on conversion of capital reserve to share capital. On the basis of the 19,652,981,747 ordinary shares following the change on 18 March 2016, a total of 1,965,298,175 shares were converted as per conversion of one share each ten ordinary shares. After the conversion, total ordinary shares of the Bank were increased to 21,618,279,922. (3) Net assets per share attributable to ordinary shareholders of the Bank at the end of the reporting period were calculated on the basis of the Bank's total 21,618,279,922 shares at the period end; net assets per share attributable to ordinary shareholders of the Bank at the end of the comparing period were recalculated on the basis of the Bank's 20,518,818,557 shares after adjustment.

2016 Annual Report

Company Profile and Main Financial Indicators

ii. Key financial indicators In RMB 2016 Audited

2015 Audited

Increase/(decrease) compared with the same period of last year (%)

2014 Audited

Basic earnings per share

2.404

2.422

-0.74

2.292

Diluted earnings per share

2.404

2.422

-0.74

2.292

2.338

2.372

-1.43

2.274

-8.881

17.487

-150.79

9.316

16.35

18.82 Down 2.47 percentage points

21.02

15.90

18.43 Down 2.53 percentage points

20.85

Earnings per share after deducting non-recurring gains and losses Net cash flows from operating activities per share Weighted ROA (%) Weighted ROA after deducting non-recurring gains and losses (%)

Notes: (1) Earnings per share and weighted ROA are calculated according to Company Information Disclosure Rule with Public Offering Securities No. 9—Calculation and Disclosure of ROA and Earnings Per Share (Revised in 2010). Earnings per share during the reporting period is calculated based on the weighted average of 21,368,402,339 ordinary shares issued and net cash flows from operating activities per share is calculated based on the total share capital of 21,618,279,922 shares of the Bank as at the ending of the reporting period. Earnings per share and cash flows from operating activities per share during the comparing period are recalculated based on the adjusted number of 20,518,818,557 shares. (2) The Bank distributed dividends of RMB825 million and RMB900 million of SPDB P1 and SPDB P2, respectively in March and December 2016. When calculating the earnings per share and weighted ROA disclosed in this report, the Bank considered the impact of the distribution of the preferred stock dividends of two phases. (3) Non-recurring gains and losses are calculated based on the definition outlined in China Securities Regulatory Commission Announcement No.43 2008—Public Company’s Information Disclosure Explanatory Notice No.1—Non-recurring Gains and Losses.

15

16

2016 Annual Report

Company Profile and Main Financial Indicators

iii. Supplementary financial ratio

2016

2015

Increase/(decrease) compared with the same period of last year (%)

0.98

1.10

Down 0.12 percentage point

1.20

15.20

17.42

Down 2.22 percentage points

19.18

Fully-diluted ROE excl. non-recurring gains and losses 14.78

17.06

Down 2.28 percentage points

19.02

2014

Profitability indicators (%) Returns on average total assets Fully-diluted ROE Net interest spread

1.89

2.26

Down 0.37 percentage point

2.27

Net interest margin

2.03

2.45

Down 0.42 percentage point

2.50

Cost to income ratio

23.16

21.86

Up 1.30 percentage points

23.12

Cash dividend ratio

8.14

20.00

Down 11.86 percentage points

30.03

Net interest income to operating income

67.24

77.11

Down 9.87 percentage points

79.71

Non-interest income to operating income

32.76

22.89

Up 9.87 percentage points

20.29

Net income of fees and commissions to operating income 25.31

18.97

Up 6.34 percentage points

17.33

1.89

1.56

Up 0.33 percentage point

1.06

169.13

211.40

Down 42.27 percentage points

249.09

3.19

3.30

Down 0.11 percentage point

2.65

Percentage in total operating income (%)

Asset quality indicators (%) NPL ratio Allowance to NPL Allowance to total loans

Notes: (1) Returns on average total assets = net profit/asset average balance, asset average balance = (total assets at period beginning +total assets at period end) /2. (2) Fully-diluted ROE = net profit attributable to the Bank’s shareholders during the reporting period /net assets attributable to the Bank’s ordinary shares shareholders as at the end of the reporting period. (3) Fully-diluted ROE after deducting non-operating gains and losses = net profit attributable to the Bank’s shareholders during the reporting period after deducting non-operating gains and losses /net assets attributable to the Bank’s ordinary shares shareholders as at the end of the reporting period. (4) Net interest spread = average yield on interest earning asset minus average cost on interest earning liability. (5) Net interest income ratio = net interest income/ total interest bearing liability. (6) Cost to income ratio = business and management cost / operating income.

2016 Annual Report

17

Company Profile and Main Financial Indicators

VI. Difference between Financial Reports Prepared as per ASBE and IFRS There is no difference in the net profit, total assets and total liabilities in the reporting period between the Group’s domestic financial report in accordance with the Accounting Standards for Business Enterprises and its international financial report in accordance with International Financial Reporting Standards.

VII. Key Financial Data per Quarter of the Group in 2016 In RMB millions Item

1st quarter 3rd quarter 4th quarter 2nd quarter (Jan. – Mar. )(Apr. – Jun.)(Jul. – Sep.) (Oct.-Dec.)

Operating income

42,191

39,981

38,756

39,864

Total profit

18,451

16,871

18,367

16,286

Net profit attributable to ordinary shareholders of the parent company

13,922

12,848

13,912

12,417

13,682

12,521

13,508

11,976

-101,580

-32,469

-15,746

-42,198

Net profit attributable to ordinary shareholders of the parent company after deducting non-recurring gains and losses Net cash flows from operating activities

VIII. Non-recurring gains and losses and amount In RMB millions Item

2016

2015

2014

-13

539

23

1,650

630

292

328

222

187

-491

-348

-126

Total

1,474

1,043

376

Of which: Non-recurring gains and losses attributable to shareholders of the parent

1,412

1,043

376

62

-

-

Proceeds from disposal of non-current assets Proceeds from previous years’ written-off loans Other net non-operating income Income tax effect of non-recurring gains and losses

Non-recurring gains and losses attributable to minority shareholders

18

2016 Annual Report

Company Profile and Main Financial Indicators

IX. Changes in Equities of Shareholders During the Reporting Period and Reasons In RMB millions

Item Balance at 1 January 2016 Increase Decrease Balance at 31 December 2016

Surplus reserve

General risk reserve

60,639

63,651

45,924

5,713

90,670

315,170

-

16,004

15,038

19,569

-

53,099

106,675

-

-

-1,965

-

-

-5,480

-46,453

-53,898

21,618

29,920

74,678

78,689

65,493

233

97,316

367,947

Equity capital

Other equity instruments

18,653

29,920

2,965

Capital reserve

Other comprehensive income

Total equity attributable to shareholders ofthe parent Retained earnings company

The main reason for the change: the issuance of preferred shares and increasing net benefit in this reporting period.

Main reason for the change: the increase of net profits and share issuance in this reporting period.

X. International Credit Rating as at the End of the Reporting Period Rating agency Moody’s

Credit rating Long-term Deposits: Baa2

Rating outlook Stable

Short-term Deposits: Prime-2 Long-term Issuer Credit Rating: BBB Standard & Poor’s Fitch ratings

Short-term Issuer Credit Rating: A-2 Long-term Issuer Default Rating: BBB-

Stable Stable

2016 Annual Report

Company Profile and Main Financial Indicators

XI. Rankings and Awards of the Bank Domestic and overseas rankings The Banker magazine

29th among “Top 1000 global banks” and 7th among Chinese banks on the list. 37th among “Top 500 global bank brands”, 10th among Chinese banks on the list, with brand value of USD6,393 million and the brand rating raised to AAA-.

Fortune magazine

227th among the “Fortune Global 500”, 48th among Chinese enterprises on the list and 9th among Chinese banks.

Forbes magazine

57th among the “Forbes Global 2000”, 12th among Chinese enterprises on the list and 7th among Chinese banks.

Shanghai Municipal 1st among the 2016 Top 100 Enterprises of Tax Payment in Shanghai Tertiary Industry Bureau of Local Taxation Shanghai Enterprise Confederation

3rd among 2016 Top 100 Shanghai Enterprises 2rd among 2016 Top 100 Shanghai Service Enterprises

Comprehensive financial service Shanghai Municipal Government

“spdb+” was awarded as first prize in the “2015 Shanghai Finance Innovation Achievements”

Financial Times

China Financial Institution Gold List “Best Wealth Management Bank of the Year”

Securities Times

2016 Best Investment Bank of China 2016 Best Bond Underwriter of China 2016 Best Syndicated Financing Bank of China

finance.sina

Best Joint-stock Commercial Bank Most Popular Mobile Banking

CBN

2016 China Financial Innovation List “Science & Technology Financial Service Bank of the Year”

2016 Best Asset Management Bank 21st Century Business 2016 Most Popular Wealth Management Product Herald 2016 Emerging Bank of Overseas Financial Service 2016 Best Currency Swap Transaction Award 2016 Most Popular Forward-Swap Market Maker Award China Foreign Exchange 2016 Best Option Member Prize Center 2016 Prize for Members with the Largest Market Making Potential for Options 2016 Best Foreign-Currency Interbank Lending Member Prize

Shanghai Clearing House

I. Comprehensive prizes: Excellent clearing member, Excellent settlement member II. Individual prizes: Bonds net amount clearing excellence prize, Forex self-run clearing excellence prize, Interest rate swap self-run clearing excellence prize, Commodity self-run clearing excellence prize, Interest rate swap agency clearing excellence prize, Commodity agency clearing excellence prize, Excellent underwriter, Excellent issuer (currency market instruments)

Shanghai Gold Exchange

2016 Excellent Member as Financial Institution 2016 Yi Jin Tong Promotion Award 2016 Leasing Business Contribution Award

Shanghai Environment and Energy Exchange

Best Carbon Finance Innovation Award

The Banker magazine

Awarded “Top 10 Internet Financial Innovation Prize” with “Smart Medical Treatment” Q Hospital Exclusive Service Plan Awarded “Top 10 Financial product Innovation Prize” (retail business) with “Big Data Internet Financing Platform”

T h e A s i a n B a n k e r Best Mobile Security Project magazine Best CRM Project Corporate social responsibility China Banking Association

Best Public Charity Contribution Award for 2015 social responsibility of Chinese banking industry

19

20

2016 Annual Report

Company Profile and Main Financial Indicators

XII. Other Related Documents Accounting firm engaged (financial statements prepared as per Accounting Standards for Business Enterprises) Name

PricewaterhouseCoopers Zhong Tian LLP

Office address

F/11, PWC Center, 202 Hubin Road, Shanghai, PRC

Names of signatory accountants

Zhou Zhang, Zhang Wu

accounting firm engaged (financial statements prepared as per International Financial Reporting Standards Name

PricewaterhouseCoopers Zhong Tian LLP

Office address

F/11, PWC Center, 202 Hubin Road, Shanghai, PRC

Sponsor institution performing continuous supervision duties during the reporting period Name

CITIC Securities Co., Ltd.

Office address

CITIC Securities Tower, No. 8, Zhongxinsan Road, Futian District, Shenzhen, Guangdong

Names of sponsor representatives

Liang Zongbao, Liu Yun

Period of continuous supervision

18 December 2014 – 15 December 2016

Name

HAITONG Securities Company Limited

Office address

No.689 Guangdong Road, Shanghai

Names of sponsor representatives

Zhang Yu, Du Juan

Period of continuous supervision

16 December 2016 – 31 December 2016

Name

Guotai Junan Securities

Office address

F/5, Chinese Financial Information Center, 18 Dongyuan Road, Pudong New Area, Shanghai

Names of sponsor representatives

Yu Weijun, Jin Licheng

Period of continuous supervision

18 December 2014 – 31 December 2016

Financial consultant performing continuous supervision duties in the reporting period Name

HAITONG Securities Company Limited

Office address

No.689 Guangdong Road, Shanghai

Names of principal signatory consultants

Zhang Yu, Zhou Wei

Period of continuous supervision

21 March 2016 – 31 December 2016

Depository of ordinary outstanding shares with restrictive sale conditions Name

China Securities Depository and Clearing Co., Ltd Shanghai Branch

2016 Annual Report

Company Profile and Main Financial Indicators

21

22

2016 Annual Report

2016 Annual Report

Business Overview

I. Main Business Approved by the PBC and the CBRC, the main business of the Bank covers: absorption of public deposits, grant of short-term, middle-term and long-term loans, settlement, bill discounting, issuance of financial bonds, agency issuance, agency cashing and underwriting of governmental bonds, buy and sale of governmental bonds, interbank borrowing, L/C and L/G services, agency receipt and payment and agency insurance business, safe box business, foreign exchange proceeds deposits, foreign exchange loans, foreign exchange remittance, foreign currency exchange, international clearing, inter-bank foreign exchange borrowing, acceptance and discounting of foreign exchange instruments, foreign exchange loans, foreign exchange guarantee, settlement and surrendering of exchange, buy and sale of foreign negotiable securities other than stocks per se or as agent, self-operation of foreign exchange trading, foreign exchange trading on an agency basis, credit inquiry, consultation and attestation, offshore banking, portfolio investment and fund custody, national social security fund custody, and other business approved by the PBC and the CBRC.

II. Development of the Banking Industry In 2016, China’s banking industry improved its supports for economic development in quality and efficiency, made achievements in reform and development and maintained the momentum of steady operation. Commercial banks supported the full-fledged advancement of the program of “cutting overcapacity, destocking, deleveraging, reducing corporate costs and identifying growth area”, rolled out inclusive finance in an all-round fashion and better served the real economy. A mechanism was set up for regular establishment of private banks and consumer finance companies; the pilot program on investment-loan linkage was advanced smoothly; the market-oriented debt-for-equity swap was officially initiated; the joint-stock reform on financial asset management companies was fully implemented; wealth management and trust registration systems were continuously improved. With enhanced control of credit risk in key fields, the bottom line of zero systematic risk was upheld. According to statistics from the CSRC, as at the end of December 2016, the balance of assets of financial institutions in the banking industry amounted to RMB226.3 trillion, representing a YoY growth of 15.8%; net profit of RMB2 trillion was realized during the year, up 4% year on year.

III. Performance of Main Business Lines i. Corporate banking During the reporting period, adhering to the customer-oriented approach, the Bank deepened the customer operation, strengthened services for the real economy and provided all-round financial services for customers including but not limited to financing, investment banking, cash management, electronic banking, offshore business, asset custody, and offshore business. Meanwhile, it strengthened scientific management and financial innovation to consolidate its customer base, expand gradually the business scale, and optimize the credit structure continuously. Corporate banking business developed steadily. As at the end of the reporting period, the number of corporate customers reached 1,255,800, an increase of 99,200 or 8.58% over the end of 2015.

1. Big customer operation In the reporting period, the Bank, guided by the strategic guidelines set forth in its 13th Five-Year Program, decided on the first batch of customers under direct administration of the Head Office, built a big customer marketing interaction platform integrating multiple models like “direct operation by the Head Office, Head Office-branch collaborative operation, Group-wide collaborative operation” and gradually formed a marketing ecological system covering big customers of both the Head Office and branches, cross-region, inside and outside the Bank, inside and outside the Group, at home and abroad.

23

24

2016 Annual Report

Business Overview

2. Corporate deposits As at the end of the reporting period, the balance of corporate deposits (including corporate margin deposits, treasury deposits and other deposits) amounted to RMB2,509,718 million, up by RMB74,491 million or 3.06% year on year. The balance of corporate loans (including bill discounting) was RMB1,781,283 million, up by RMB134,760 million or 8.18% year on year. The Bank further optimized the credit customer structure through vigorously supporting upgraded industries, traditional competitive industries, strategic emerging industries, modern services and green industries but strictly curbing financing to industries with high pollution, high energy consumption and overcapacity. As at the end of the reporting period, the balance of green credit was RMB173,812 million, and the balance of syndicated loans was RMB159,801 million.

3. Investment banking During the reporting period, the Bank underwrote 545 bonds worth RMB376,369 million as lead underwriter, and the balance of debt financing instruments in duration amounted to RMB609,985 million. As at the end of the reporting period, there were 109 newly trusted equity funds, a YoY increase of 17.61%; the custody scale went up 57.83% year on year to RMB564,840 million; the M&A finance business developed rapidly with a balance of domestic and overseas M&A loans growing by 159.90% year on year to RMB57,947 million.

4. Transaction banking In the reporting period, the Bank attached importance to key customers featuring “less vulnerableness to economic cycle, massive volume, high frequency, light-asset and business collaboration”, stepped up efforts in product penetration, risk management, resources integration and supportive services, and launched innovative products like the overseas direct loan 2.0 version, “Government Procurement e Loan”--online supply chain finance etc. as well as featured treasury management services like cloud funds supervision service and account keeper. Moreover, “Puheying” direct equity investment fund, a pioneer pilot program in the industry, completed its first investment. During the reporting period, featured transaction banking had a business volume of RMB5.56 trillion, a YoY increase of 133.58%; the volume of e-channel transactions increased by 31.04% year on year to RMB34.63 trillion. As at the end of the reporting period, the number of high-tech corporate customers exceeded 18,000.

5. International business vehicles In the reporting period, the Bank gripped market opportunities to develop international business vehicles (including offshore, free trade zone and Hong Kong branches), with an emphasis placed on developing core customers and accelerating optimization of the business structure. As a result, all businesses were boosted and had good development. As at the end of the reporting period, total assets of all the international business vehicles amounted to RMB243,396 million, representing a YoY increase of 27.23% and accounting for 4.16% of the Group’s total assets. In the reporting period, these vehicles realized business revenues of RMB2,944 million.

ii. Retail banking As for retail banking, the Bank, in implementation of its 13th Five-Year Program, worked on the basic, key links such as customer operation, branding, channel and team building, strived for breakthroughs in innovation, and pushed transformation and upgrading, thereby realizing rapid development of wealth management, retail credit and credit card business. Meanwhile, retail banking channels were made more diversified and convenient through elevating its ability to operate the “spdb+” internet finance service platform, the outlet transformation pilot program and community banks, improving distance smart customer services and promoting the integration of offline outlets and online channels.

2016 Annual Report

Business Overview

1. Personal customer and deposits In the reporting period, the Bank actively advanced the digital operation in a customer-centric fashion and improved the precision marketing; it launched some themed marketing activities, accelerated building a value-added service system and tried to expand the influences of its retail banking brands; more efforts were made to step up integrated operation of liabilities, adjust the liability structure and continuously explore more sources of low-cost liability funds through developing wealth management business, payroll business and payment settlement. As at the end of the reporting period, there were 38.72 million personal customers, an increase of 5.37 million or 16.10% compared with that at the end of 2015; the balance of personal deposits totaled RMB462,687 million.

2. Consumer finance and small and micro enterprise finance In the reporting period, the Bank, with a view to improving people’s livelihood, focused on consumer finance and small and micro enterprise finance, continuously innovated in housing mortgage, internet finance, small and micro enterprise finance etc. and enhanced its capability of rendering inclusive finance services. As at the end of the reporting period, the balance of consumer finance and small and micro enterprise loans amounted to RMB740,484 million, a YoY increase of 40.61%, including that of housing mortgages of RMB457,317 million. In terms of internet finance, it worked on the combination of “SPDB Small Loan + SPDB Quick Loan+ Kao Pu E-investment” and launched an internet investment and financing platform covering a full range of personal and corporate customers and integrating consumer loan, business loan, investment, financing and wealth management products. To upgrade personal business loan products, the Bank launched the “Property Mortgage Quick Loan 2.0” to promote healthy, steady development of small and micro enterprise finance business.

3. Personal wealth management In the reporting period, the Bank expedited the transformation and upgrading of its wealth management products, launched innovative net value-based wealth management products and offered personal customers with three-in-one wealth management product services and experiences composed of the cash management product Daily Gain #1, the fixed-term product “Tong Xiang Ying (Profit Enhancement)” and the net value-based wealth management product. The products and services showed three big characteristics: a complete product line of banks’ wealth management + funds, innovative asset configuration approach through using FQ (financial quotient) robot and humanized customer experience. During the reporting period, the sales of personal wealth management products (including private banking) amounted to RMB5.58 trillion, bringing an income of RMB2,121 million.

4. Debit card and payment settlement In terms of debit card, the Bank launched new products and services such as SLUSH Co-branded Business Startup Card, Apple Pay, Huawei Pay, Mi Pay etc., added the feature of appointment for card issuance to the WeChat channel and accelerated access to basic retail customers through cross-marketing. In the reporting period, the Bank cumulatively issued 6,870,000 new debit cards, a YoY increase of 24.06%, bringing the total number of debit cards in circulation to 52,026,200, a YoY increase of 13.78%. As for merchant collection, the Bank worked closely with merchants and launched innovative products, thereby realizing a rapid development of the business. During the reporting period, the amount of merchant collection settlements went up 17.42% year on year. In terms of goingabroad finance, it added the “Going-abroad finance” channel to the mobile banking app, thereby promoting a steady increase in both volume and income of going-abroad finance and e-commerce cross-border business.

25

26

2016 Annual Report

Business Overview

5. Credit card In the reporting period, the Bank experienced a rapid growth momentum of the credit card business with remarkable increases in all indicators and ongoing enhancement in its risk control capability. As at the end of the reporting period, it cumulatively issued 27,583,100 credit cards and had 16,875,900 in circulation, an increase of 46.00% over the end of last year; the number of accounts in circulation went up 41.81% year on year to 15,107,700; the balance of credit card overdrafts increased by 141.20% year on year to RMB266,776 million. In the reporting period, credit card transactions amounted to RMB676,588 million, a YoY increase of 62.90%; the business generated a total income of RMB21,667 million, a YoY growth of 104.77%. As at the end of the reporting period, the balance of NPLs was RMB3,234 million with an NPL ratio of 1.21%, down 0.35 percentage point over the end of 2015.

6. Private banking In the reporting period, in terms of private banking, the Bank focused on satisfying needs of services related to asset configuration and wealth heritage, integrated the Group’s resources to innovate in investment and financing products, enhanced its capabilities of rendering asset configuration and comprehensive services, consolidated basic works related to team building, midfield support, risk management, market planning, data marketing etc., and formed a diversified, multi-layered product and service system, a professional, comprehensive, schemed-based marketing mode and a multi-level, sophisticated customer operation and management system. All these efforts were designed to increase the contribution of private banking customers. As at the end of the reporting period, the Bank had over 19,000 private banking customers and managed their financial assets worth nearly RMB350 billion. The customer asset quality and scale were on the steady rise.

iii. Financial market and financial institution In the reporting period, the Bank, in line with the regulatory requirements, enhanced the customer operation, stepped up product and business innovation, expanded the business scale, optimized the business structure, and grasped the market opportunity to enhance its financial market business operation and investment capability. As a result, the business cost-effectiveness and risk control were greatly enhanced. As at the end of the reporting period, the scale of fund assets operated by the Bank amounted to RMB2.07 trillion. In the reporting period, its financial market business realized a net income of RMB48,186 million, a YoY increase of 21.99%.

1. Investment transaction In terms of investment transactions, the Bank stepped up studies in the fundamentals of the bond market, kept an eye on hot spots on the market, refined its investment strategies, kept abreast of market fluctuations and improved its investment and transaction. Meanwhile, active efforts were put into business innovation to enrich the product variety. In terms of foreign exchange trading, the Bank, while seizing opportunities brought by liberalization of interest rate and exchange rate, put much efforts into product and model innovation, stepped up collaboration and promotion, and strived to make breakthroughs in structured products. On the basis of steadily developing traditional spot and swap transactions, it vigorously developed non-USD foreign exchange transactions such as dual-currency foreign exchange settlement, foreign currency-denominated options etc. and actively expanded option portfolios such as spread option, “Sea Gull Option” etc., furthered enhanced its capabilities of operating self-operated and agency transactions and increased its overall market influences.

2. Financial institution business In the reporting period, the Bank advanced the financial institution customer operation 2.0 program, deepened layered, classified operation of industries and customers, and continued to build its funds business network, credit

2016 Annual Report

Business Overview

business network and agency business network. As at the end of the reporting period, the Bank had 508 credit customers of various Chinese-funded financial institutions, an increase of 10.19% over the end of last year; the asset and liability portfolios were optimized with a balance of non-deposit liabilities due to financial institutions up 18.99% year on year to RMB712.2 billion; the scale of inter-bank agency business was further expanded and the number of inter-bank agency customers in the CIPS cross-border RMB payment system reached 103; cooperative securities and futures custody had a coverage ratio of over 90%, and the pilot program on cooperation in account opening for banking-securities internet custody kicked off. The Bank successfully launched an exclusive inter-bank online banking platform and saw a remarkable increase in satisfaction of customers from banking, securities, fund management, futures, insurance, trust industries and in the number of cooperative products. The “Bund No.12” interbank cooperation salon witnessed an increasing influence.

3. Asset management In the reporting period, the Bank maintained a sound growth of assets in its management with an advantageous asset structure; great efforts were made to extend wealth management assets to key fields; it also continuously enriched the wealth management product system and optimized the product structure to satisfy customers’ diversified needs; besides, risk management and control were strengthened, standards and guidelines of the regulator were strictly followed, and the internal risk management was enhanced incessantly. As at the end of the reporting period, assets in the Bank’s management amounted to RMB1.82 trillion, an increase of 16.46% over the end of 2015; the asset management business brought an income of RMB12,864 million, up 51.54% year on year. In the reporting period, the sales volume of wealth management products was RMB8.64 trillion, realizing an income of RMB3,964 million, a YoY increase of 27.89%.

4. Asset custody In the reporting period, the Back made active efforts to consolidate the ground for developing asset custody business, strived to pool concerted efforts to develop the business and stuck to the bottom line of compliant and safe operation. At the end of the reporting period, the asset custody business had a scale of RMB7.56 trillion, a growth of 51.81% year on year. In the reporting period, the business generated a total of RMB3,539 million of custody fee income, up 13.32% year on year.

iv. Channel and service 1. Network building In the reporting period, the Bank newly established 198 service institutions, including one tier-1 branch, four tier2 branches and 52 intra-city sub-branches, and 141 community and small & micro sub-branches. 15 institutions ceased to operate. At the end of the reporting period, it established 41 tier-1 branches and 1,843 banking outlets in 31 provinces, municipalities directly under the central government, autonomous regions and Hong Kong Special Administration Region.

2. Electronic banking In the reporting period, the Bank went all out to build the “spdb+” internet platform, launched a new version of the Group’s portal website, integrated the portal website, the online banking website and the credit card website and linked it up with official websites of all the subsidiaries under the Group, and built a unified PC internet access. Besides, it launched a new version of personal online banking, which broke the traditional mode of “logging in before browsing” to overtly present all financial services available to internet users including but not limited to wealth

27

28

2016 Annual Report

Business Overview

management, financing, payment and remittance. We also completed the digital renovation of the mobile service procedure, launched a new version of mobile banking and introduced innovative digital financial service models such as “face swipe login”, “FQ robot”. As one of the first cooperative banks of some big merchants, the Bank launched several “cloud quick pay” services such as Apple Pay, Huawei Pay and Mi Pay as well as a number of mobile finance services like mobile marketing 2.0 service, payment through official WeChat account, remittance through WeChat, and brought in innovative mobile payment methods linking up online and offline consumption scenarios. All these efforts helped us maintain the leading advantage in the mobile finance field. As at the end of the reporting period, the Bank had 19,258,600 personal online banking customers conducting 946 million transactions in a total amount of RMB10.34 trillion in the period; it had 19,000,900 personal mobile banking customers, a YoY increase of 65.24%, and they conducted 381 million transactions worth RMB3.36 trillion during the period; the number of personal customers using card-bound internet payment service reached 13,072,100, up 118.33% year on year, and 774 million transactions in a total amount of RMB490,144 million were conducted; we had 8,209 self-service cash devices in service and 4,801 self-service outlets with an e-channel trading substitution rate of 92.49%.

3. Operation supports In the reporting period, the Bank, aiming at enhancing “efficiency, excellence, value and security”, accelerated building a new operation model featuring “light front office, powerful back office and steady internal control” and forged “great operation support, great service platform and great service channel” to build upgraded operation supports. First, the Bank supported the development of front-office business to empower business development and further enhanced its capability of comprehensive, differentiated operation through refining the front office interaction mechanism, giving full play to its advantages in professional operation and supporting cross-region collaborative marketing efforts. Second, it also steadily pressed forward building “light-asset” outlets, tapped the scale effects through intensive operation, accelerated business dispersion through building more digital channels, enhanced the efficiency of resources allocation through scientific arrangements and sped up the transformation of the outlets. The 6S management was upgraded, quality and innovative services at the hall were stepped up, operation marketing efforts were increased, and a new model was set up for operation and service rendering of the outlets. Third, the Bank refined the intensive operation management model, built a dual-center model of centralized processing, expanded the scope of intensive operation, and advanced the takeover of outlet business processing items, internal control over the outlets, reduction in authorization levels and construction of a teller pool. The practices scored sound effects. Fourth, it took “stable internal control” measures to ensure safe transformation, reconstructed the internal control system, exercised differentiated inspection approaches, intensified the risk early warning mechanism, thereby holding onto the bottom line of risk.

v. Human resources management In the reporting period, the Bank, oriented to the overall goal of forming strategic human resources management, intensified efforts in advancing human resources planning and allocation, construction of human resources foundation and rules, optimization of the position and remuneration system, building of the performance-related pay management system, building of leading team and organization management. Progress was made in all the aspects, and it made a good start for the new five-year period. First, it continuously refined the talent configuration system and optimized the talent structure; second, the leader administration mechanism was optimized to enhance the leading team’s strategic leading capacity; third, the incentives and constraints mechanism was refined to empower strategy implementation; fourth, we also optimized the talent development mechanism to create a positive, inspiring working atmosphere among employees; fifth, the talent introduction mechanism was improved as that new vitality could be injected incessantly; sixth, the basic management was consolidated and operation of human resources was made more intensive.

2016 Annual Report

Business Overview

IV. Analysis of Core Competitiveness Led by the vision of becoming a modern financial service provider with core competitiveness, the Group worked hard towards the strategic goal of fully enhancing the comprehensive financial service rendering capability and turning into a high-performance, versatile banking group, followed the strategic task of advancing “group-based, professional, digital, light-asset, international and intensive” operation, and focused on “making stronger transaction banking, investment banking and asset management, inter-bank business and custody business, making bigger retail banking, small and micro enterprise banking, non-credit assets, subsidiaries’ businesses and international business”. It aimed at enhancing the Group’s overall operation capability and competitive edges. The Group owns financial licenses allowing it to operate in banking, lease, funds, trust, currency brokerage and overseas investment banking, and thus is capable of offering customers with a wide range of financial services. With prudent, efficient risk management capability, the Group has established a relatively complete risk management system and risk culture featuring steadiness, prudence and compliance, actively propelled the implementation and application of the Basel New Capital Accord and managed to maintain a good level of asset quality among the peers. It also boasts a strategic network and efficient marketing channels and the presence of branches and sub-branches fully covering all province-level administrative regions in China. The building of overseas institutions was advanced steadily. Its ability to render cross-border financial services has been substantially enhanced. Meanwhile, the Group promoted digital operation management, built full-dimension digital channels, put in place a new-generation information system, continuously innovated in product, service, channel and business model so as to enhance service efficiency, lower operation costs and improve user experiences. With strong cost control and high operational efficiency, the Group is proud of its global leading cost-to-income ratio. Besides, it owns a veteran management team and high-quality employees who have rich experience in finance practicing and management. Meanwhile, it is working on a competitive incentives and talent development mechanism, aimed at building a professional, high-quality team.

29

30

2016 Annual Report

2016 Annual Report

Discussion and Analysis of Business Operation

I. Discussion and Analysis of Business Operation 2016 was the first year of implementation of the “13th Five-Year Plan” (2016-2020) and the three-year action plan (2016-2018) of the Bank and also a critical year for the transformation and development. Facing a complicated market environment, the Bank overcame multiple pressures, strengthened innovation and transformation, reinforced strategic guidance, improved the business strategy according to the new five-year plan and the core business principle of “guaranteeing income and controlling risk”, thus achieving good results, completing the target of the Board of Directors and assuring a good start of the “13th Five-year Plan”.

i. Operating profits continuously enhanced During the reporting period, the Group achieved an operating income of RMB160.792 billion, an increase of RMB14.242 billion or 9.72% over 2015; a total profit of RMB69.975 billion, an increase of RMB3.098 billion or 4.63% over 2015; the net after-tax profit attributable to shareholders of the parent company was RMB53.099 billion, an increase of RMB2.495 billion or 4.93% over 2015. In 2016, the average return on assets (“ROA”) of the Group amounted to 0.98%, a decrease of 0.12 percentage point from last year; the weighted average return on equity (“ROE”) was 16.35%, a decrease of 2.47 percentage points from last year; the cost-to-income ratio was 23.16%, still keeping the lead all over the world.

ii. Assets & liabilities reported steady growth As at the end of the reporting period, the Group’s total assets amounted to RMB5,857.263 billion, an increase of RMB812.911 billion or 16.12% over the end of 2015; of which, the balance of loans in local and foreign currencies was RMB2,762.806 billion, an increase of RMB517.288 billion or 23.04% over the end of 2015. The Group’s total liabilities amounted to RMB5,484.329 billion, of which, the balance of deposits in local and foreign currencies was RMB3,002.015 billion, an increase of RMB47.866 billion or 1.62% over the end of 2015.

iii. Asset quality risk was controllable As at the end of the reporting period, based on the five-category loan classification criteria, the Group's balance of non-performing loans in the last three categories was RMB52.178 billion, an increase of RMB17.124 billion over the end of 2015, the non-performing loan ratio was 1.89%, an increase of 0.33 percentage point over the end of 2015; the non-performing loan reserve coverage ratio reached 169.13%, a decrease of 42.27 percentage points from the end of 2015; the loan provision ratio (provision-to-loan ratio) was 3.19%, a decrease of 0.11 percentage point as compared with the end of 2015.

iv. Group and international operation was effective During the reporting period, Shanghai Trust managed assets of RMB1,083.958 billion on a consolidated basis and realized an operating income and a net profit of RMB3.889 billion and RMB1.782 billion, respectively; SPDB Financial Leasing reported leased assets at RMB42.327 billion and realized an operating income and a net profit of RMB1.628 billion and RMB695 million, respectively; AXA SPDB Investment Managers managed assets of RMB652.5 billion and realized an operating income of RMB528 million and a net profit of RMB171 million; SPD Silicon Valley Bank had total assets of RMB4.438 billion and realized an operating income of RMB138 million and a net profit of RMB15 million; 25 SPD rural banks scored combined assets of RMB35.582 billion and realized an operating income of RMB1.06 billion and a net profit of RMB308 million; SPDB International registered total assets of RMB3.725 billion and realized an operating income of RMB204 million and a net profit of RMB102 million; Hong Kong Branch had total assets of RMB117.728 billion and realized an operating income of RMB939 million and a net profit of RMB554

31

32

2016 Annual Report

Discussion and Analysis of Business Operation

million. The Company steadily advanced the establishment of overseas institutions. Singapore Branch is to be officially opened for business and the preparation for the establishment of London Branch has kicked off on a full scale.

II. Main Operating Situation during the Reporting Period i. Analysis of principal activities 1. Analysis of change of relevant items in the income statement and cash flow statement In RMB millions Item Operating income Operation and administrative expenses Operating profit

2016

2015

Change (%)

160,792

146,550

9.72

37,238

32,034

16.25

69,660

66,067

5.44

-191,993

358,820

-153.51

Net cash flows paid in investing activities

-64,015

-531,220

N/A

Net cash flows from financing activities

234,342

244,782

-4.27

Net cash flows paid in/generated from operating activities

Main reasons of the change: (1) Reasons for growth of operating income included the continued increase of interest-bearing assets and the significant increase of fee income during the reporting period. (2) Reasons for growth of operation and administrative expenses included the increase of business scale, outlets and personnel during the reporting period. (3) Reasons for growth of operating profit included the growth of operating income and control of costs and expenses during the reporting period. (4) The reason for decrease of net cash flows paid in/generated from investing activities was the increase of cash paid for loans and advances to customers during the reporting period. (5) The reason for increase of net cash flows paid in investing activities was the increase of cash received from disinvestment during the reporting period. (6) The reason for decrease of net cash flows generated from financing activities was the decrease of the net increase of deposit certificates issued by other financial institutions during the reporting period.

2. Operating income and operating profit During the reporting period, the Group realized an operating income of RMB160.792 billion, up RMB14.242 billion or 9.72% year on year; an operating profit of RMB69.660 billion, up RMB3.593 billion or 5.44% year on year.

2016 Annual Report

Discussion and Analysis of Business Operation

In RMB millions Increase/(decrease) Increase/(decrease) (%) compared with (%) compared with Operating income the end of last year Operating profits the end of last year

Region Head Office

47,674

39.38

26,011

43.80

Yangtze River Delta

32,348

-1.16

14,281

48.88

Pearl River Delta and West Side of Taiwan Straits

11,337

-0.89

3,251

-24.76

Bohai Rim

19,416

1.57

9,485

-5.27

Central China

18,425

1.24

6,049

-31.07

Western China

17,524

-9.77

4,117

-58.63

North-east China

7,391

-11.64

3,208

-18.31

Overseas and subsidiaries

6,677

117.00

3,258

133.05

160,792

9.72

69,660

5.44

Total Notes:

For the purpose of the report, the regions and divisions of the Group are defined as follows: (1) Head Office: Headquarters and Credit Card Centre; (2) Yangtze River Delta: Shanghai Branch, Jiangsu Branch and Zhejiang Branch; (3) Pearl River Delta and West Side of Taiwan Straits: Guangdong Branch and Fujian Branch; (4) Bohai Rim: Beijing Branch, Tianjin Branch, Hebei Branch and Shandong Branch; (5) Central China: Shanxi Branch, Henan Branch, Hubei Branch, Hunan Branch, Anhui Branch, Jiangxi Branch and Hainan Branch; (6) Western China: Chongqing Branch, Sichuan Branch, Guizhou Branch, Yunnan Branch, Guangxi Branch, Shaanxi Branch, Gansu Branch, Qinghai Branch, Ningxia Branch, Xinjiang Branch, Inner Mongolia Branch and Tibet Branch; (7) North-east China: Liaoning Branch, Jilin Branch and Heilongjiang Branch; (8) Overseas and subsidiaries: Overseas branches and domestic and overseas affiliates.

3. Change of total business income During the reporting period, the Group realized a business income of RMB270.03 billion, a year-on-year increase of RMB6.72 billion or 2.55%. In RMB millions

Item

Amount

Proportion in the total business income (%)

Loan income

119,231

44.15

-7.05

Income from placements with banks and other financial institutions

5,527

2.05

42.01

Income from balance with central bank

7,422

2.75

-1.75

Income from due from banks and other financial institutions

2,688

1.00

13.27

Income from financial assets purchased under resale agreements

1,012

0.37

-85.26

Income from investment in bonds and receivables

81,004

30.00

4.05

Fee and commission income

43,236

16.01

47.50

Financial leasing income

2,368

0.88

12.55

Other income

7,542

2.79

48.29

270,030

100.00

2.55

Total

Year-on-year increase/ (decrease)

33

34

2016 Annual Report

Discussion and Analysis of Business Operation

ii. Analysis of profit During the reporting period, the Group realized sustained development across all business lines. The net non-interest income grew rapidly with the proportion in the operating income increasing by 9.87 percentage points compared with 2015 to 32.76%; the cost-income ratio was still kept at a relatively low level; the net profit attributable to equity holders of the Bank grew by 4.93% year on year to RMB53,099 million. In RMB millions Item

2016

2015

Operating income

160,792

146,550

Incl.: Net interest income

108,120

113,009

52,672

33,541

4,444

8,976

Operation and administrative expenses

37,238

32,034

Impairment losses on assets

49,104

38,795

346

678

Net non-interest income Tax and surcharges

Other business costs

315

810

Total profit

69,975

66,877

Income tax expenses

16,297

15,880

Net profit

53,678

50,997

Net non-operating income and expenses

579

393

53,099

50,604

Minority interest income Net profit attributable to the Bank's shareholders

1. Interest income During the reporting period, the Group realized an interest income of RMB214.814 billion, a decrease of RMB13.44 billion or 5.89% on a year-on-year basis. In RMB millions 2016 Item

Amount

2015

Percentage (%)

Amount

Percentage (%)

Balance with central bank

7,422

3.46

7,554

3.31

Due from banks and other financial institutions

2,688

1.25

2,373

1.04

Placements with banks and other financial institutions

5,527

2.57

3,892

1.71

Corporate loans

79,751

37.13

94,157

41.25

Personal loans

36,918

17.19

31,169

13.66

2,562

1.19

2,947

1.29

Bonds investment and deposit certificates issued by other financial institutions

21,165

9.85

19,348

8.48

Investment classified as loans and receivables other than bonds investment and deposit certificates issued by other financial institutions

54,956

25.58

57,278

25.09

Financial assets purchased under resale agreements

1,012

0.47

6,866

3.01

Finance lease activities receivables

2,368

1.10

2,104

0.92

445

0.21

566

0.24

214,814

100.00

228,254

100.00

Discounted and rediscounted bills

Others Total

2016 Annual Report

Discussion and Analysis of Business Operation

2. Interest expense During the reporting period, the Group realized an interest expense of RMB106.694 billion, a decrease of RMB8.551 billion or 7.42% on a year-on-year basis. In RMB millions 2016 Item

Amount

Due to central bank Due to and placements from banks and other financial institutions Financial assets sold under repurchase agreements

2015

Percentage (%)

Amount

Percentage (%)

2,142

2.01

1,489

1.29

34,335

32.18

36,464

31.64

1,898

1.78

1,516

1.32

Deposits from customers

47,666

44.68

65,012

56.41

Bonds issued

19,499

18.27

10,140

8.80

Others Total

1,154

1.08

624

0.54

106,694

100.00

115,245

100.00

3. Non-interest income During the reporting period, the Group realized RMB52.672 billion of net non-interest income, an increase of RMB19.131 billion or 57.04% on a year-on-year basis. In RMB millions 2016 Item

Amount

2015

Percentage (%)

Amount

Percentage (%)

Net fee and commission income

40,692

77.26

27,798

82.87

Incl.: Fee and commission income

43,236

82.09

29,313

87.39

-2,544

-4.83

-1,515

-4.52

Profit and loss on investments

7,033

13.35

461

1.37

Profit and loss on changes in fair value

2,812

5.34

2,991

8.92

Fee and commission expenses

Exchange profit and loss Other business income Total

-528

-1.00

-713

-2.12

2,663

5.05

3,004

8.96

52,672

100.00

33,541

100.00

35

36

2016 Annual Report

Discussion and Analysis of Business Operation

(1) Fee and commission income In RMB millions 2016 Item

Amount

2015

Percentage (%)

Amount

Percentage (%)

Wealth management fees

12,872

29.77

8,489

28.96

Fees from bank card

12,670

29.30

6,683

22.80

Custodian fees

6,022

13.93

3,123

10.65

Fees from investment banking activities

3,713

8.59

3,227

11.01

Credit commitment fees

2,261

5.23

2,899

9.89

Agency commissions

1,938

4.48

1,519

5.18

Settlement and clearing fees Others Total

863

2.00

979

3.34

2,897

6.70

2,394

8.17

43,236

100.00

29,313

100.00

(2) Profit and loss on investments In RMB millions 2016 Item

Amount

Return on available-for-sale equity investment Earnings from investments on long-term stock as calculated by equity method Return generated from disposal of long-term equity investment

2015

Percentage (%)

Amount

Percentage (%)

64

0.91

70

15.18

180

2.56

159

34.49

1,068

15.18

-

-

549

7.82

187

40.56

3,117

44.32

978

212.15

1,217

17.30

-

-

Financial asset trading spread Incl.: Financial assets at fair value through profit or loss Available-for-sale financial assets Receivables

74

1.05

-705

-152.93

Net profit and loss on derivative financial instruments

411

5.84

-286

-62.04

Net profit and loss on funds

353

5.02

-

-

Net profit and loss on precious metals

Others Total

-

-

58

12.59

7,033

100.00

461

100.00

2016 Annual Report

Discussion and Analysis of Business Operation

(3) Profit and loss on changes in fair value In RMB millions 2016 Item Derivatives Financial assets at fair value through profit or loss Transaction bonds Hedged bonds

Amount

2015

Percentage (%)

Amount

Percentage (%)

-149

-5.30

3,982

133.14

1,166

41.47

254

8.49

-40

-1.42

76

2.54

-201

-7.15

7

0.23

Precious metals

2,036

72.40

-1,328

-44.40

Total

2,812

100.00

2,991

100.00

4. Operation and administrative expenses During the reporting period, the Group’s operation and administrative expenses stood at RMB37.238 billion, up RMB5.204 billion or 16.25% over the same period of last year. In RMB millions 2016 Item

Percentage (%)

Amount

Percentage (%)

16,851

45.25

14,763

46.08

560

1.50

491

1.53

2,623

7.04

2,457

7.67

Housing fund

970

2.61

890

2.78

Labor union fund and staff education fund

406

1.09

477

1.49

Rental expenses

2,780

7.47

2,531

7.90

Depreciation and amortization expenses

3,184

8.55

2,228

6.96

782

2.10

705

2.20

Wages and salaries, bonuses, allowances and subsidies Welfare fund Social insurance

Electronic equipment operating and maintenance expenses Others Total

Amount

2015

9,082

24.39

7,492

23.39

37,238

100.00

32,034

100.00

37

38

2016 Annual Report

Discussion and Analysis of Business Operation

5. Impairment losses on assets During the reporting period, the Group’s impairment losses on assets increased by RMB10.309 billion or 26.57% compared with the same period of last year to RMB49.104 billion. In RMB millions 2016 Item

Amount

2015

Percentage (%)

Amount

Percentage (%)

46,845

95.40

37,070

95.56

1,209

2.46

955

2.46

Interest receivable

384

0.78

157

0.40

Finance lease receivables

336

0.68

321

0.83

Other receivables

264

0.54

271

0.70

48

0.10

-

-

Loans and advances to customers Investments classified as loans and receivables

Investment securities held-to-maturity Foreclosed assets Total

18

0.04

21

0.05

49,104

100.00

38,795

100.00

6. Income tax expense During the reporting period, the Group’s income tax expense was RMB16.297 billion, an increase of RMB417 million or 2.63% on a year-on-year basis. In RMB millions Item

2016

2015

Profit before income tax

69,975

66,877

Tax calculated at applicable tax rate

17,483

16,719

513

249

-1,713

-1,379

Tax effect of expenses that are not deductible for tax purpose Tax effect arising from income not subject to tax Adjustments on income tax for prior years which affect current profit or loss Income tax expense

14

291

16,297

15,880

2016 Annual Report

39

Discussion and Analysis of Business Operation

iii. Analysis of assets As at the end of the reporting period, the Group’s total assets amounted to RMB5,857.263 billion, an increase of RMB812.911 billion or 16.12% over the end of 2015.

1. Loan structure and loan quality by industries In RMB millions 31 December 2016 Industry Corporate loans

31 December 2015

Proportion Loan NPL ratio in total loans balance (%) (%)

Proportion Loan in total loans balance (%)

NPL ratio (%)

1,731,314

62.66

2.39

1,596,134

71.09

1.71

Manufacturing

337,188

12.21

4.87

350,252

15.61

3.99

Wholesale and retail

303,465

10.98

5.48

299,024

13.32

2.99

Real estate

244,285

8.84

0.27

236,579

10.54

0.35

Lease and commercial services

244,088

8.83

0.15

168,908

7.52

0.11

Construction

125,173

4.53

0.89

125,383

5.58

0.52

Transportation, warehouse and postal services

111,969

4.05

0.73

99,416

4.43

0.44

Water, environment and public utilities management

101,138

3.66

0.19

92,399

4.11

0.18

Mining

65,748

2.38

5.93

60,021

2.67

2.12

Energy and utilities

58,505

2.12

0.13

46,785

2.08

0.14

Agriculture, forestry, farming and fishery

21,590

0.78

2.17

19,924

0.89

0.83

Research and technology services

18,254

0.66

0.25

7,616

0.34

0.54

Information transmission, software and IT services

16,340

0.59

0.78

12,452

0.55

1.59

Public management, social security and social organization

15,421

0.56

-

15,073

0.67

-

Healthcare and social welfare

13,591

0.49

-

11,416

0.51

-

Education

10,191

0.37

0.15

11,204

0.50

0.12

Culture, sports and entertainment

10,024

0.36

1.44

7,717

0.34

0.81

Hotel and catering

9,999

0.36

1.12

11,858

0.53

1.46

Resident services, repairing and other services

9,882

0.36

0.87

11,787

0.52

0.46

Financial services

8,747

0.32

-

4,386

0.20

-

Others

5,716

0.21

-

3,934

0.18

0.86

Discounted bills

61,293

2.22

-

62,080

2.76

-

Discounted bank acceptances

33,514

1.21

-

48,043

2.14

-

Re-discount

20,543

0.75

-

8,785

0.39

-

7,236

0.26

-

5,252

0.23

-

Discounted commercial acceptances Personal loans Total

970,199

35.12

1.11

587,304

26.15

1.32

2,762,806

100.00

1.89

2,245,518

100.00

1.56

40

2016 Annual Report

Discussion and Analysis of Business Operation

2. Loan structure and loan quality by product types As at the end of the reporting period, the proportion of corporate loans was 62.66%, a decrease of 8.43 percentage points from the end of the previous year; the proportion of discounted bills was 2.22%, a decrease of 0.54 percentage point as compared with the end of the previous year; the proportion of personal loans was 35.12%, an increase of 8.97 percentage points as compared with the end of the previous year. In RMB millions 31 December 2016

31 December 2015

Loan balance

NPLs

NPL ratio (%)

Loan balance

NPLs

NPL ratio (%)

Corporate loans

1,731,314

41,409

2.39

1,596,134

27,286

1.71

Discounted bills

61,293

-

-

62,080

-

-

Personal loans

970,199

10,769

1.11

587,304

7,768

1.32

2,762,806

52,178

1.89

2,245,518

35,054

1.56

Product type

Total

3. Loan structure by geography In RMB millions 31 December 2016 Region

31 December 2015

Book balance

Percentage (%)

Book balance

Head Office

331,611

12.00

165,417

7.37

Yangtze River Delta

764,740

27.69

684,878

30.50

Pearl River Delta and West Side of Taiwan Straits

255,951

9.26

189,971

8.46

Bohai Rim

374,460

13.55

306,002

13.63

Central China

384,345

13.91

326,562

14.54

Western China

413,968

14.98

351,284

15.64

North-east China

165,938

6.01

163,123

7.26

Overseas and subsidiaries Total

Percentage (%)

71,793

2.60

58,281

2.60

2,762,806

100.00

2,245,518

100.00

4. Loan structure by collateral types In RMB millions Collateral type

31 December 2016

Percentage (%)

1,157,707

41.90

Guaranteed loans

682,061

24.69

Unsecured loans

744,151

26.93

Pledged loans

178,887

6.48

2,762,806

100.00

Loans secured by mortgages

Total

2016 Annual Report

Discussion and Analysis of Business Operation

5. Personal loan structure In RMB millions 31 December 2016 Loan balance

31 December 2015

Percentage NPL ratio (%) (%)

Loan balance

Percentage (%)

NPL ratio (%)

Personal housing loans

458,215

47.23

0.34

260,568

44.36

0.49

Personal business loans

157,538

16.24

3.12

144,469

24.60

2.92

Credit card and overdraft

267,119

27.53

1.21

111,055

18.91

1.56

87,327

9.00

1.21

71,212

12.13

0.83

970,199

100.00

1.11

587,304

100.00

1.32

Others Total

6. Loans of top ten customers In RMB millions Customer name

31 December 2016

Percentage(%)

Customer A

6,786

0.25

Customer B

5,650

0.21

Customer C

5,036

0.18

Customer D

4,992

0.18

Customer E

4,730

0.17

Customer F

4,448

0.16

Customer G

4,395

0.16

Customer H

4,183

0.15

Customer I

4,175

0.15

Customer J

4,170

0.15

48,565

1.76

Total

7. Migration rate of corporate loans Item (%)

2016

2015

2014

Year-end

Average

Year-end

Average

Year-end

Average

7.21

6.20

5.19

4.27

3.35

2.65

Special-mention loan migration ratio

50.17

49.78

49.40

47.85

46.29

40.44

Substandard loan migration ratio

73.14

52.12

31.10

51.48

71.86

62.64

Doubtful loan migration ratio

67.56

59.07

50.58

31.73

12.89

10.94

Pass loan migration rate

41

42

2016 Annual Report

Discussion and Analysis of Business Operation

8. Financial assets purchased under resale agreements In RMB millions 31 December 2016 Type Bonds Bills Deposit certificates issued by other financial institutions Total

31 December 2015

Balance

Percentage (%)

Balance

2,864

95.43

4,980

Percentage (%) 4.52

-

-

105,238

95.48

137

4.57

-

-

3,001

100.00

110,218

100.00

9. Investment securities - loans and receivables In RMB millions 31 December 2016 Type

Balance

31 December 2015

Percentage(%)

Balance

Percentage(%)

Bonds

82,884

8.20

52,296

3.95

Wealth management products managed by other banks

74,129

7.33

150,066

11.32

821,881

81.34

1,112,886

83.99

Trust and asset management plans Others

37,387

3.70

14,394

1.09

Total impairment allowances

-5,809

-0.57

-4,610

-0.35

1,010,472

100.00

1,325,032

100.00

Total

10. Goodwill On 18 March 2016, the Bank issued a total of 999,510,332 RMB ordinary shares to 11 counterparties including Shanghai International Group Co., Ltd. to acquire 97.33% equity of Shanghai Trust. The difference between fair value of the Bank’s issued shares and net assets of Shanghai Trust attributable to parent company on acquisition date, amounting to RMB6,981 million, is recognized as goodwill. The above goodwill comes from the economic benefits that will be brought to the Group from the good position of Shanghai Trust in the trust industry and the profitability of Shanghai Trust. In RMB millions Goodwill Balance at the beginning of the period Increase due to purchase Less: Allowance for impairment losses Balance at the end of the period

2016 6,981 6,981

At the end of the reporting period, the Group conducted the impairment test on the goodwill out of the purchase of Shanghai Trust. According to the result, the recoverable amount of asset group containing apportioned goodwill was not lower than its book value, there was no sign of impairment. It was unnecessary to set aside impairment losses.

2016 Annual Report

Discussion and Analysis of Business Operation

iv. Analysis of liabilities As at the end of the reporting period, the Group’s total liabilities amounted to RMB5,484.329 billion, an increase of RMB758.577 billion or 16.05% over the end of 2015.

1. Composition of deposits from customers In RMB millions 31 December 2016 Balance Percentage (%)

Item

31 December 2015 Balance Percentage (%)

Current deposits

1,376,149

45.83

1,086,248

36.76

Incl.:Corporate

1,213,075

40.40

956,336

32.37

163,074

5.43

129,912

4.39

Time deposits

1,352,871

45.07

1,516,936

51.35

Incl.:Corporate

1,042,125

34.72

1,144,900

38.76

310,746

10.35

372,036

12.59

Retail

Retail

235,879

7.86

319,832

10.83

Fiscal deposits

33,904

1.13

27,451

0.93

Other deposits

3,212

0.11

3,682

0.13

3,002,015

100.00

2,954,149

100.00

Pledged deposits

Total

2. Due to and placements from banks and other financial institutions In RMB millions Counterparty

31 December 2016 Balance Percentage (%)

31 December 2015 Balance Percentage (%)

Banks

494,611

36.86

339,032

32.51

Non-banking financial institutions

847,352

63.14

703,916

67.49

1,341,963

100.00

1,042,948

100.00

Total

3. Financial assets sold under repurchase agreements In RMB millions Type

31 December 2016 Balance Percentage (%)

31 December 2015 Balance Percentage (%)

Bonds

72,606

77.90

43,756

36.71

Bills

20,344

21.83

74,995

62.91

250

0.27

454

0.38

93,200

100.00

119,205

100.00

Finance lease receivables Total

43

44

2016 Annual Report

Discussion and Analysis of Business Operation

v. Analysis of change of shareholders’ equity As at the end of the reporting period, equity attributable to the Bank’s shareholders was RMB367.947 billion, an increase of RMB52.777 billion or 16.75% over the end of last year. The Group made up the capital through its own accumulation of net profit and issuance of shares. In RMB millions 31 December 2016

31 December 2015

Change (%)

Share capital

21,618

18,653

15.90

Other equity instruments

29,920

29,920

-

Capital reserve

74,678

60,639

23.15

233

5,713

-95.92

Surplus reserve

78,689

63,651

23.63

General risk reserve

65,493

45,924

42.61

Item

Other comprehensive income

Retained earnings Total equity attributable to the Bank's shareholders

97,316

90,670

7.33

367,947

315,170

16.75

4,987

3,430

45.39

372,934

318,600

17.05

Minority interests Total shareholders' equity

vi. Analysis of investment As at the end of the reporting period, the Group’s net investments arrived at RMB1,958.834 billion, with an increase of RMB137.654 billion or 7.56% as compared with the beginning of the period. In RMB millions Item Available-for-sale financial assets Investments classified as loans and receivables Investment securities held-to-maturity Long-term equity investment Total

31 December 2016

31 December 2015

Balance

Percentage (%)

Balance

Percentage (%)

620,463

31.68

254,846

13.99

1,010,472

51.58

1,325,032

72.76

326,950

16.69

239,703

13.16

949

0.05

1,599

0.09

1,958,834

100.00

1,821,180

100.00

1. External equity investment In RMB millions

Investment balance of the Group at the end of the reporting period Change of investment balance at the end of the reporting period compared with the previous year Change of investment balance at the end of the reporting period (%)

3,382 325 10.63

2016 Annual Report

Discussion and Analysis of Business Operation

In RMB millions Item

31 December 2016

31 December 2015

Investment balance in joint ventures

731

625

Investment balance in associates

218

974

Other equity investments

2,433

1,458

Total

3,382

3,057

Notes: (1)Joint ventures include AXA SPDB and SPD Silicon Valley Bank; (2) Associates include China Trust Registration Corporation Limited. Shanghai Trust, a subsidiary of the Bank, sent a director in China Trust Registration Corporation Limited. (3) Other equity investments mainly include Shenlian International Investment, China UnionPay and Laishang Bank.

2. Shares in unlisted financial enterprises In RMB millions Investment Balance

Number of shares held

Stake in the company (%)

Carrying value at the end of the period

Profit/loss during the reporting period

Other changes in owner’s equity during the reporting period

Accounting item

Shenlian International Investment Co., Ltd.

286

-

16.50

500

31

41

Available-for-sale financial assets

China UnionPay Co., Ltd.

104

90,000

3.07

104

6

-

Available-for-sale financial assets

-

-

-

-

1,138

18

-

AXA SPDB Investment Managers

212

-

51.00

212

86

-

Long-term equity investment

Laishang Bank Co., Ltd.

738

-

18.00

992

-

-75

Available-for-sale financial assets

SPD Silicon Valley Bank.

519

-

50.00

519

7

-

Long-term equity investment

China Trust Registration Corporation Limited

100

-

3.33

100

-

-

Long-term equity investment

2,427

1,268

-16

Investee

Fubon Bank Co., Ltd

Total

1,959

Notes: (1)The shares held by the Bank in Fubon Bank Co., Ltd have been transferred on 20 October 2016. (2) Profit/loss during the reporting period refers to the influence of the investment on profit of the Group during the reporting period.

3. Financial assets and other assets at fair value The internal control system in connection with measurement of fair value: For financial instruments traded in active markets, the determination of fair value is based on quoted market prices. For financial instruments not traded in active markets, fair value is determined using appropriate valuation techniques or third-party quotation. The valuation techniques include the techniques referring to prices used in market transactions recently conducted by all parties being familiar with the situation and are willing to make the transaction voluntarily, the current fair value of other financial instruments that are essentially the same, and the discounted cash flow method. The valuation

45

46

2016 Annual Report

Discussion and Analysis of Business Operation

techniques should make use of market parameters as much as possible However, when there are no market parameters, valuation should be made for credit spread, market volatility and correlation of the counterparty. Variation of these relevant assumptions will have impact on fair value of these financial instruments. In RMB millions 31 December 2015

Profit/loss on changes in fair value during the current period

Accumulated changes of fair value recorded into equity

Impairment accrued during the current period

31 December 2016

1. Precious metals

28,724

2,036

-

-

9,548

2. Financial assets at fair value through profit or loss (excluding derivative financial assets)

63,746

1,126

-

-

177,203

3. Derivative financial assets

10,610

5,623

-

-

16,233

Items in connection with measurement of fair value Assets at fair value

4. Available-for-sale financial assets

254,846

-201

89

-

620,463

Total assets

357,926

8,584

89

-

823,447

210

-

-

-

29,526

2. Derivative financial liabilities

7,319

5,772

-

-

13,091

Total liabilities

7,529

5,772

-

-

42,617

Liabilities at fair value 1. Financial liabilities at fair value through profit or loss (excluding derivative financial liabilities)

Notes: This table has no consequent articulation.

4. Analysis of major holding and participating companies (1) Shanghai Trust Shanghai International Trust Co., Ltd., established in 1981, is one of the earliest trust companies in China. In March 2016, the Bank completed the purchase of Shanghai Trust’s equity by issuing ordinary shares to Shanghai Trust’s original shareholder, Shanghai International Group Co., Ltd. and became the controlling shareholder of Shanghai Trust. Shanghai Trust has a registered capital of RMB5 billion, in which the Bank holds 97.33% shares. By actively advancing the business transformation, making every effort to cultivate the active management capability and constantly innovating with business and management modes, Shanghai Trust built up its brand image on the market and witnessed a leading comprehensive strength among trust companies in China. As at the end of the reporting period, assets under the consolidated management of Shanghai Trust amounted to RMB1,083.958 billion. During the reporting period, Shanghai Trust achieved an operating income of RMB3.889 billion and a net profit of RMB1.782 billion. (2) SPDB Financial Leasing SPDB Financial Leasing Co., Ltd., established in May 2012, is China’s first financial leasing Company jointly incorporated by commercial bank, advanced manufacturing enterprise and comprehensive financial holding group. SPDB Financial leasing has a registered capital of RMB2.95 billion, in which the Bank holds 61.02% shares. SPDB Financial Leasing hinged around professionalized, internationalized and characterized guiding principles to enhance the professional level of leasing business and strive to build green finance and a characteristic business pattern in the entire industry chain of aviation.

2016 Annual Report

Discussion and Analysis of Business Operation

As at the end of the reporting period, the total assets of SPDB Financial Leasing reached RMB49.988 billion, including financial leasing asset balance of RMB42.327 billion. During the reporting period, SPDB Financial Leasing achieved an operating income of RMB1.628 billion and a net profit of RMB695 million. (3) AXA SPDB Investment Managers AXA SPDB Investment Managers Co., Ltd. is a fund management joint venture established in August 2007. AXA SPDB Investment Managers has a registered capital of RMB280 million, in which the Bank holds 51% shares. During the reporting period, assets of AXA SPDB Investment Manager scaled up, and the investment performance maintained stable. As at the end of the reporting period, assets under the management of AXA SPDB Investment Managers reached RMB652.5 billion. During the reporting period, AXA SPDB Investment Managers achieved an operating income of RMB528 million and a net profit of RMB171 million. (4) SPD Silicon Valley Bank SPD Silicon Valley Bank Co., Ltd., established in August 2012, is the first bank owning an independent legal person status and committing itself to serving technological innovation enterprises in China and also the first Sino-US bank. SPD Silicon Valley Bank has a registered capital of RMB1 billion, in which the Bank holds 50% shares. SPD Silicon Valley Bank devotes itself to serving China's technological innovation enterprises and builds a “technological innovation eco-system” in China. It strives to become the premier bank of China's technological innovation enterprises and their investors. As at the end of the reporting period, the total assets of SPD Silicon Valley Bank reached RMB4.438 billion, the deposit balance was RMB3.081 billion and the loan balance was RMB1.311 billion. During the reporting period, SPD Silicon Valley Bank achieved an operating income of RMB 138million and a net profit of RMB 15 million. (5) SPD rural banks SPD rural banks are banking financial institutions with an independent legal person status incorporated by the Bank by actively responding to the national call for supporting agriculture, farmers and rural areas and small and microsized enterprises. The Bank incorporated its first SPD rural bank in Mianzhu earthquake stricken area in Sichuan in 2008. As at the end of the reporting period, a total of 25 SPD rural banks were established in counties across 18 provinces and cities of the nation, two thirds of which are located in central and west areas of China. SPD rural banks are committed to serving agriculture, rural areas and farmers and supporting small and micro-sized enterprises in the county areas, with a focus on farmer households and small and micro-sized enterprises; in terms of market positioning, rural banks insist on targeting county economy, making positive efforts and contributions in alleviating the borrowing difficulties of farmers and small and micro-sized enterprises and expanding the reach of financial services to the countryside. In 2016, 10 SPD rural banks were named “China’s Top 100 Rural Banks”. As at the end of the reporting period, the total assets of 25 SPD rural banks reached RMB35.582 billion, the deposit balance was RMB27.703 billion and the loan balance was RMB20.804 billion. 25 SPD rural banks had 592,000 settlement customers and 25,900 loan customers. With the agro-related loans and loans to small and micro-sized enterprises accounting for over 90% of total loans, SPD rural banks faithfully practiced the inclusive finance policy. During the reporting period, 25 SPD rural banks achieved an operating income of RMB1.06 billion and a net profit of RMB308 million.

47

48

2016 Annual Report

Discussion and Analysis of Business Operation

(6) SPDB International SPDB International Holdings Limited (“SPDB International”) was opened officially in Hong Kong in March 2015. SPDB International has licenses of Type 1 “dealing in securities”, Type 4 “advising on securities”, Type 6 “advising on corporate finance” and Type 9 “asset management” in regulated activities from Hong Kong SFC and has established a full-licensed investment banking platform. SPDB International focuses on serving the customers' cross-border investment and financing demands and provides integrated and diversified financial services including listing sponsor, M&A, bond underwriting, financial advisory, investment management, enterprise financing advisory, asset management and securities consultation services, thus achieving the linkage and complementation of investment banking business and commercial banking business. As at the end of the reporting period, the total assets of SPDB International reached RMB3.725 billion. During the reporting period, SPDB International achieved an operating income of RMB204 million and a net profit of RMB102 million.

vii. Items with changes above 30% in the accounting statements and reasons In RMB millions Item

Due from banks and other financial institutions Precious metals

At the end of 2016

At the end of 2015

Change (%)

Main reasons of the change during the reporting period

234,223

111,388

110.28

Increase in due from and placements with domestic banks

9,548

28,724

-66.76

Decrease in agency precious metal trading volume

Financial assets at fair value through profit or loss

177,203

63,746

177.98

Increase in the volume of other trading assets and trading deposit certificates issued by other financial institutions

Derivative financial assets

16,233

10,610

53.00

Caused by the change in valuation of the fair value

Financial assets purchased under resale agreements

3,001

110,218

-97.28

Decrease in bills purchased under resale agreements

143.47

Increase in the purchase of other banks’ wealth management products and the fund investment

Available-for-sale financial assets

Investment securities held-to-maturity Long-term equity investment

620,463

254,846

326,950

239,703

36.40

Increase in the volume of government bonds and policy bank bonds

949

1,599

-40.65

Fubon Bank-bank right offering

Intangible assets

3,396

879

286.35

Adding of corresponding franchise rights of trust business, rights and interests of contract and brand value due to purchase of Shanghai Trust

Goodwill

6,981

-

N/A

Goodwill due to purchase of Shanghai Trust

volume of other trading assets and trading deposit certificates issued by other financial institutions

Financial assets at fair value through profit or loss

177,203

63,746

177.98

Derivative financial assets

16,233

10,610

53.00

by the 2016Caused Annual Report change in valuation of the fair value

Financial assets purchased under resale agreements

3,001

110,218

-97.28

Decrease in bills purchased under resale agreements

Available-for-sale financial assets

Discussion and Analysis of Business Operation 620,463

254,846

143.47

Increase in the purchase of other banks’ wealth management products and the fund investment

vii. Items with changes above 30% in the accounting statements and reasons(Continued) 326,950

239,703

36.40

At the end of 2016 949

At the end of1,599 2015

Change (%) -40.65

234,223

111,388

110.28

Intangible assets

3,396

879

286.35

Precious metals

9,548

28,724

-66.76

Goodwill Financial assets at fair value through profit loss Deferred income taxorassets

6,981

-

N/A

177,203 21,838

63,746 14,427

177.98 51.37

Other assets Derivative financial assets

69,201 16,233

51,648 10,610

33.99 53.00

Financial assets purchased Due to central bank under resale agreements

3,001 147,622

110,218 23,645

-97.28 524.33

29,526

210

13,960.00

620,463

254,846

143.47

13,091

7,319

78.86

Investment securities held-to-maturity Item Long-term equity investment Due from banks and other financial institutions

Financial liabilities at fair value through profit or loss Available-for-sale financial assets Derivative financial liabilities

Investment securities held-to-maturity Bonds issued Long-term equity investment

Deferred income tax liabilities

326,950 664,683

239,703 399,906

36.40 66.21

949

1,599

-40.65

717

7

10,142.86

3,396

879

286.35

Other liabilities Goodwill

36,237

22,067

64.21

6,981

-

N/A

Deferred income tax assets Other comprehensive income

21,838 233

14,427 5,713

51.37 -95.92

Other assets General risk reserve

69,201 65,493

51,648 45,924

33.99 42.61

Minority interests Due to central bank

4,987 147,622

3,430 23,645

45.39 524.33

Financial liabilities at fair value through profit or loss

29,526

210

13,960.00

Derivative financial liabilities

13,091

7,319

78.86

Intangible assets

Increase in the volume of government In RMB bonds and millions policy bank bonds Main reasons of the change during Fubon Bank-bank the reporting period right offering

Adding of corresponding Increase in due from rights of andfranchise placements with trust business, rights domestic banks and interests of Decrease in agency contract and brand precious metal value due to trading volume purchase of Shanghai Trust Increase in the

volume of other Goodwill due to purchase trading assetsTrust and of Shanghai trading deposit Increase in deductible certificates issued temporary differences by other financial institutions Increase in financial lease receivable Caused byand the agency in payment of change valuation trust security of the fair value fund receivable Decrease in bills Increase in financing purchased under scale resale from central banks agreements Increase in in short Increase the positionsofofother spot purchase precious metals banks’ wealth management Caused by the products and the change in valuation fund of theinvestment fair value

Increase in the volume of government volume of green bonds andissued policy financial bonds bonds and depositbank certificates issued by other Fubon Bank-bank financial institutions right offering

Increase in deferred Adding of corresponding income tax liabilities franchise rights of to purchase trust due business, rights Shanghai andofinterests of Trust and appreciation contract and brand on asset evaluation value due to

purchase of Increase in the Shanghai Trust volume of agency transfer Goodwill dueoftosettlement purchase and temporary collection of Shanghai Trust

Changes in the Increase in deductible value of temporaryfair differences available-for-sale Increase in financial financial assets lease receivable and General agency paymentrisk of reserve trust accrued security fund receivable Increase in minority interests due to Increase in financing purchase of scale from central banks Shanghai Trust Increase in short positions of spot precious metals Caused by the change in valuation of the fair value Increase in the

49

50

2016 Annual Report

Discussion and Analysis of Business Operation

vii. Items with changes above 30% in the accounting statements and reasons(Continued) In RMB millions Item

2016

2015

Change (%)

Main reasons of the change during the reporting period

40,692

27,798

46.38

Optimization of income structure and increase of fees and commission income

Return on investment

7,033

461

1,425.60

Increase in earnings from bond investment

Tax and surcharges

4,444

8,976

-50.49

Reason of replacement of business tax with VAT

Other business cost

346

678

-48.97

Decrease in bill trading spread losses

-53.31

Decrease in income from disposal of foreclosed assets and non-current assets

Net fee and commission income

Non-operating income

459

983

-5,479

4,454

-223.01

Decrease in the fair value of available-for-sale financial assets recognized into other comprehensive income

Net cash flows paid in/generated from operating activities

-191,993

358,820

-153.51

Increase in cash paid for customer loans and advances

Net cash flows paid in investing activities

-64,015

-531,220

N/A

Increase in cash from disinvestment

Other comprehensive income after tax, net

viii. Proceeds from fund-raising activities On 23 September 1999, the Bank publicly issued 400 million RMB ordinary shares, with issuing price per share of RMB 10, and after the issuing cost is deducted, the fund actually raised was RMB 3.955 billion. On 8 January 2003, the Bank issued 300 million more RMB ordinary shares with issuing price per share of RMB 8.45, and after the issuing cost was deducted, the fund actually raised was RMB 2.494 billion. On 16 November 2006, the Bank issued 439,882,697 more RMB ordinary shares with issuing price per share of RMB 13.64, and after the issuing cost was deducted, the fund actually raised was RMB 5.91 billion. On 21 September 2009, the Bank privately issued 904,159,132 RMB ordinary shares, with issuing price per share of RMB 16.59, and after the issuing cost was deducted, the fund actually raised was RMB 14.827 billion. On 14 October 2010, the Bank privately issued 2,869,764,833 RMB ordinary shares, with issuing price per share of RMB 13.75, and after the issuing cost was deducted, the fund actually raised was RMB 39.199 billion. On 28 November 2014, the Bank privately issued 150 million preferred shares, with carrying value per share of RMB 100, and after the issuing cost was deducted, the fund actually raised was RMB 14.96 billion.

2016 Annual Report

Discussion and Analysis of Business Operation

On 6 March 2015, the Bank privately issued 150 million preferred shares, with carrying value per share of RMB 100, and after the issuing cost was deducted, the fund actually raised was RMB 14.96 billion. On 18 March 2016, the Bank issued 999,510,332 RMB ordinary shares to purchase 97.33% shares of Shanghai Trust with issuing price per share of RMB 16.36 and a consideration of RMB 16.352 billion. All funds raised by the Bank have been used for making up the capital base of the Bank based on the reply of regulatory authorities including the PBC, CBRC and CSRC, which increased the capital adequacy ratio, laid a foundation for the development of the Bank and achieved great benefits.

III. Discussion and Analysis on Future Development i. Industrial landscape and trend Complicated economic environment at home and abroad posed higher requirements on the operation capacity of banks. Internationally, the global economy is still correcting and becoming more complicated, volatile and uncertain. Back to China, regional economy and industrial trend continue to be divergent, supply-side structural reform is deepening and the enterprise operating risk in some sectors is still to be mitigated, which requires the commercial banks to properly handle the relationship between risk prevention and growth stabilization. Prudent monetary policies call for accelerating transformation of development approaches of commercial banks. The tone of monetary policies in 2017 is to remain prudent and neutral with timely and moderate fine-tuning based on the actual conditions of economic operation and fundamental changes. Efforts should be made to maintain the basic stability of liquidity, support continued steady development of real economy and create a favorable monetary environment for the promotion of supply-side structural reform. In this context, the commercial banks need to change their development approaches from expansion of scale to enhancement of quality and benefit. More regularized financial supervision policies are translated into higher requirements on the business development of banking sector. The regulatory authorities require the commercial banks defending the risk bottom line, earnestly advancing the prevention and control of risks in key areas such as credit risk, liquidity risk and cross-financial risk and intensifying the supervision over regulations, legal persons and behaviors. According to the policies, the commercial banks must return to their origin, achieve the development while satisfying the pain point demand of real economy, strengthen the compliant operation and propel the transformation and development. With the technological progress accelerating, FinTech has brought profound impact on the development of banking sector. The rise of FinTech led by big data, cloud computing, block chain and artificial intelligence has brought and will bring a profound change to the products & services, business models and operating concept of banks. The commercial banks need to actively cope with the challenges of FinTech enterprises, accelerate the application and integration of FinTech and propel their own digital reforms.

ii. Development strategy of the Group The Group will carry out the overall development requirements of the CPC Central Committee and the State Council for the 13th Five-year Plan period, strive to build itself into a modern financial service enterprise with core competitive edge, address the key financial needs, seize the structural opportunities in economic transformation and upgrading, constantly increase its comprehensive financial service capabilities, actively exploit new modes for scientific development and achieve the sound and fast development at the same time of providing better service to the real economy.

51

52

2016 Annual Report

Discussion and Analysis of Business Operation

The overall strategic goal of the Group from 2016 to 2020 is to fully improve the comprehensive financial service capabilities and build itself into a universal bank group with high performance. The Group will preliminarily establish a bank-controlled group operation framework under the guidance of the strategic goal, constantly advance the construction of financial flagship enterprises in Shanghai International Finance Center, promote an integrated and coordinated development of multi-licensed financial businesses while consolidating the core competitive edge of main businesses, and work hard to achieve remarkable progress in strengthening the diversified operation, improving the market competitiveness, forging development edge and enhancing the level of asset-light operation. The Group will adhere to the development ideas of innovation, coordination, integration and sharing, insist on serving the real economy, keep customer first and hold fast to innovative and bottom-line thinking. The Group will make significant progress in comprehensive operation, continue to enhance the market competitiveness of main businesses and subsidiaries, realize the development and operation mode of asset-light bank and keep a coordinated development in quality, structure, scale and benefit. The Group will improve key business areas, build up a product pool system, develop one-stop integrated financial services and focus on the strategic tasks of group, professional, digital, light, international and intensive in order to fully enhance the comprehensive financial service capabilities.

iii. 2017 business plan of the Bank 1. The total asset scale plans to reach RMB 6.15 trillion at the end of 2017, up around 6.5% over the end of 2016; 2. The balance of loans in local and foreign currencies plans to reach RMB 3.15 trillion at the end of 2017, up around 15% over the end of 2016; 3. Net profit will maintain a positive growth in 2017 over 2016; 4. NPL ratio will be controlled at around 2% and allowance to NPL above 150% at the end of 2017. Special Reminding: The 2017 business plan does not constitute a substantial commitment of the Bank to investors. Investors should keep adequate awareness of risks and understand the difference between the plan, prediction and commitment.

iv. Potential risks In terms of economic and financial situation, amid continued uncertainty in global political and economic picture, weak economic recovery, L-shape trend of domestic economy, prudent and neutral monetary policies, supply-side structural reform, economic restructuring and in-depth promotion of overcapacity management, risks still exist in some industries and regions and the operating risk facing by banks cannot be overlooked. In terms of supervision environment, the commercial banks are imposed more prudential regulatory requirements in areas such as credit expansion in the broader sense, comprehensive risk management and real estate finance, so they must strengthen deleverage and accelerate the transformation of operation mode. As for competition environment, with the interest rate liberalization and financial disintermediation deepening, the banks face more challenges in terms of product pricing, asset acquiring and risk management; the rise of FinTech enterprises has also brought impact on traditional banking businesses.

2016 Annual Report

Discussion and Analysis of Business Operation

v. Management measures in 2017 Guideline: Fully carry out the major decisions and arrangements of the CPC Central Committee and the State Council and the spirit of the Central Economic Working Conference, thoroughly study and follow the spirit of General Secretary Xi Jinping’s key speeches, maintain the general tone of seeking progress amid stability based on regulatory requirements and the Bank’s strategy, actively serve the real economy and supply-side structural reform, advance the strategic task of “digitization and integration” and strategic key projects, focus on “three strong and three big” key businesses, make full efforts in guaranteeing income, controlling risk and adjusting structure, achieve good operating benefits on the basis of holding on to the bottom line, accelerate the implementation of the Group's new five-year development plan and greet the successful holding of the 19th National Congress of the CPC and the 25th anniversary of the Bank. Major measures: 1. Improve the development structure of major businesses and promote the rapid growth of operating income. Increase the desirable assets placement, grasp the structural opportunities; strengthen the expansion of fundamental liabilities and adapt to the tight liquidity; vigorously develop innovative businesses, upgrade traditional businesses and expand the source of fee-based business income. 2. Improve the customer operation mode and consolidate the foundation of development and transformation. Promote the overall operation and structural adjustment in corporate banking area; enhance the customer attraction and operation capabilities in retail banking area; build up a competitive customer operation system in financial market area. 3. Establish a long-acting mechanism for risk management and constantly improve the risk operation capability. Drill down the leading of risk policies and intensify the asset portfolio management; constantly deepen the structural adjustment and disposal and mitigation of NPLs; improve the credit management mechanism and the comprehensive risk management system; implement the “Sky Eye” plan as a whole and advance the application of IRB advanced approach; strengthen the compliance internal control and audit and consolidate the development foundation. 4. Deepen the foundation work and enhance the long-term development capability. Further improve the management of resource allocation; promote the substantial breakthrough in outlet transformation; intensify the operation management of tier-two branches; strengthen the information technology and operation management; deepen the group and international management. 5. Strengthen the talent team building and enhance the Bank’s competitive strength. Improve the allocation of human resources, promote the adjustment of personnel structure; strengthen the human resource management with a focus on capability and quality; ramp up the building of work style and make every effort to overcome difficulties.

53

54

2016 Annual Report

2016 Annual Report

Business Information and Data I. Key Accounting Data of the Group in the Past Three Years In RMB millions Item

31 December 2016

31 December 2015

31 December 2014

Total assets

5,857,263

5,044,352

4,195,924

Total liabilities

5,484,329

4,725,752

3,932,639

Total deposits

3,002,015

2,954,149

2,793,224

Of which: current deposits of enterprises

1,213,075

956,336

801,622

1,042,125

1,144,900

1,086,841

Current saving deposits

163,074

129,912

111,674

Time saving deposits

310,746

372,036

363,714

Total loans

2,762,806

2,245,518

2,028,380

Of which: Normal loans

2,710,628

2,210,464

2,006,795

Non-performing loans

52,178

35,054

21,585

Due from and placements with banks and other financial institutions

97,132

99,589

63,098

Allowance for impairment of loans

88,249

74,105

53,766

Time deposits of enterprises

Notes: (1)Total deposits include short-term deposits, short-term saving deposits, short-term margin deposits, drafts and telegraphic transfers payable and temporary deposits, long-term deposits, long-term saving deposits, long-term margin deposits received and entrusted deposits. (2) Total loans include short-term loans, import and export bills purchased, discounting, medium and long-term loans, overdue loans, overdrafts and advances and factoring facilities. (3) According to relevant provisions of the regulator, the on-balance-sheet wealth management products are included into statistics of structured deposits during the reporting period, and relevant data as at the end of 2014 are adjusted accordingly based on the same standard.

55

56

2016 Annual Report

Business Information and Data

II. Capital Structure, Leverage Ratio and Liquidity Coverage Ratio i. Capital structure As calculated based on relevant provisions in Capital Management Measures for Commercial Banks (Trial) as promulgated by CBRC: In RMB millions 31 December 2016

31 December 2015

Item The Group

The Bank

The Group

The Bank

Total capital

461,713

453,534

414,306

408,996

Of which: Core tier-one capital

340,728

334,904

288,760

284,578

Other tier-one capital

30,103

29,920

30,018

29,920

Tier-two capital

90,882

88,710

95,528

94,498

Capital deduction items

10,032

23,472

565

4,053

Of which: Core tier-one capital deduction items

10,032

23,472

565

4,053

-

-

-

-

Other tier-one capital deduction items Tier-two capital deduction items

-

-

-

-

451,681

430,062

413,741

404,943

Minimum capital requirement (%)

8.00

8.00

8.00

8.00

Requirement for capital reserve and counter-cyclical capital (%)

2.50

2.50

2.50

2.50

-

-

-

-

Risk-weighted assets

3,878,740

3,782,418

3,367,834

3,310,015

Of which: Credit risk-weighted assets

3,542,942

3,463,474

3,089,433

3,035,671

44,773

39,695

35,257

34,968

Net capital

Additional capital requirement

Market risk-weighted assets Operational risk-weighted assets

291,025

279,249

243,144

239,376

Core tier-one capital adequacy (%)

8.53

8.23

8.56

8.48

Tier-one capital adequacy (%)

9.30

9.02

9.45

9.38

11.65

11.37

12.29

12.23

Capital adequacy ratio (%)

Notes: (1) The above are capital adequacy data and information of the Bank and the Group as measured based on Capital Management Measures for Commercial Banks (Trial) as promulgated by CBRC. Net core tier-one capital=core tier-one capital-core tier-one capital deduction items; net tier-one capital=net core tier-one capital + other tier-one capital-other tier-one capita deduction items; net total capital=net tier-one capital + tier-two capital-tier-two capital deduction items. (2) According to the Regulatory Requirements for Disclosure of Capital Composition of Commercial Banks as promulgated by CBRC, the Bank discloses information of capital composition in the reporting period, explanations of relevant items and main features of capital instruments under the special column of investor relations on the official website (www.spdb.com.cn). (3) Capital instruments enjoying preferential policy for transition period: According to relevant provisions in the Capital Management Measures for Commercial Banks (Trial) as promulgated by CBRC, the unqualified tier-two capital instruments issued by commercial banks before 12 September 2010 can enjoy preferential policies, that is, a progressive decreasing of 10% each year since 1 January 2013. At the end of 2012, the book value of unqualified tier-two capital of the Bank was RMB38.6 billion, which was decreased by 10% progressively each year since 2013 to come to RMB23.16 billion as at the end of the reporting period.

2016 Annual Report

Business Information and Data

ii. Leverage ratio At the end of the reporting period, according to the Management Measures of Commercial Banks for Leverage Ratio (Amended) promulgated by CBRC, the Group’s leverage ratio was 5.47%, up 0.16 percentage point over the end of the previous year; the Bank’s leverage ratio went up 0.01 percentage point from the end of 2015 to 5.25%. In RMB millions 31 December 2016

Item

The Bank

The Group

The Bank

360,799

341,352

318,213

310,445

6,600,363

6,503,713

5,988,358

5,920,689

5.47

5.25

5.31

5.24

Net tier-one capital Balance of on- and off-balance-sheet assets after adjustment

31 December 2015

The Group

Leverage ratio (%)

The Bank discloses detailed information of the leverage ratio for the reporting period under the special column of investor relations on official website of the Bank (www.spdb.com.cn).

iii. Liquidity coverage ratio In RMB millions The Group

31 December 2016

Quality liquidity assets

390,886

Net cash outflow

463,668

Liquidity coverage ratio

84.30

III. Other Regulatory Financial Indicators of the Bank for the Past Three Years Standard value

Item (%)

2016 Year-end

2015 Average Year-end

2014 Average Year-end

Average

Capital adequacy ratio (%)

•9.7

11.37

11.90

12.23

11.69

11.25

10.94

Tier-one capital adequacy ratio (%)

•7.7

9.02

9.27

9.38

9.29

9.05

8.64

Core tier-one capital adequacy ratio (%)

•6.7

8.23

8.42

8.48

8.41

8.52

8.54

RMB

•25

37.67

35.57

34.06

34.95

30.68

34.87

Total in local and foreign currencies

•25

37.05

35.06

33.50

35.91

32.93

36.03

Proportion of borrowing funds (%)

•4

2.01

1.87

2.42

1.84

1.56

1.66

Proportion of lending funds (%)

•8

4.16

4.85

4.59

3.05

1.13

1.44

Proportion of loans to the single biggest client (%)

•10

1.58

1.44

1.43

1.58

1.54

1.77

Proportion of loans to the top ten clients (%)

•50

10.93

10.99

10.87

11.31

11.69

12.22

Capital Management Measures for Commercial Banks (Trial)

Asset liquidity ratio (%)

Proportion of borrowing and lending funds (%)

57

58

2016 Annual Report

Business Information and Data

Notes: (1) In the table, the capital adequacy ratio, liquidity ratio, proportion of borrowing and lending funds, proportion of loans to the single biggest client and proportion of loans to the top ten clients are calculated based on data submitted to the regulator, under the data standard of the parent company. (2) According to the Notice of CBRC on Arrangement for Transition Period of the Capital Management Measures for Commercial Banks (Trial), the requirements in the transition period are: the capital adequacy ratio no lower than 9.7%, tier-one capital adequacy ratio no lower than 7.7% and the tier-one capital adequacy ratio no lower than 6.7% at the end of 2016.

IV. Level-to-level Administration of the Bank, and the Quantity and Regional Distribution of Branches at All Levels The Bank implements a first-class legal entity system and adopts a mechanism of head office and branches. According to principles of economic efficiency and economic divisions and based on the layout of commercial banks across the nation, the Bank established branches and sub-branches in medium and large cities, and important central cities in coastal areas, the northeast, the central and west areas. As at the end of the reporting period, the Bank had a total of 1,843 branches and sub-branches, which are shown in detail in the following table: Region

Organization name Head Office

Head Office

Credit Card Center

Address

3,535

1,558,817

1,842

SPD Bank Building, No.588 Pudong South Road, Shanghai

9,075

266,288

-

12,610

1,825,105

1,842

Shanghai Branch

No.588 Pudong South Road, Shanghai

4,225

825,014

199

Hangzhou Branch

No.129 Yan’an Road, Hangzhou

2,329

178,935

90

Ningbo Branch

No.21 Jiangxia Street, Ningbo

1,496

112,639

41

Nanjing Branch

No.90, Zhongshan East Road, Nanjing

3,033

323,371

99

Wenzhou Branch

Floor 1-3, Union Building, Station Avenue, Wenzhou

707

43,717

25

Suzhou Branch

No.718, Zhongyuan Road, Industrial Park, Suzhou

850

105,846

34

Floor 22, SPD Bank Building, No.588 Pudong South Road, Shanghai

34

5,241

-

Shanghai Free Trade Zone Branch Subtotal

12,674

1,594,763

488

No.12, Zhujiang West Road, Tianhe District, Guangzhou

1,649

212,667

64

Shenzhen Branch

International Commerce Center, Fuhua Third Road, Futian District, Shenzhen

1,326

253,951

63

Fuzhou Branch

No.222, Hudong Road, Fuzhou

757

76,628

78

Xiamen Branch

No.666-1 Xiahe Road, Xiamen

298

28,779

17

4,030

572,025

222

Guangzhou Branch

Pearl River Delta and the West Side of the Straits Region

Number of Asset size organs under (RMB million) its jurisdiction

No.12, Zhongshan Dongyi Road, Shanghai

Subtotal

Yangtze River Delta Region

Number of employees (Person)

Subtotal Beijing Branch

No.18, Taipingqiao Avenue, Xicheng District, Beijing

1,717

511,125

79

Tianjin Branch

Block D, No.9+ Binshui Avenue, Hexi District, Tianjin

1,336

249,208

44

Jinan Branch

No.139, Hehuquan West Road, Jinan

1,330

98,213

63

Qingdao Branch

No.188 Haier Road,

734

74,376

35

Bohai Rim Region

Head Office Head Office

Credit Card Center

No.12, Zhongshan Dongyi Road, Shanghai

3,535

1,558,817

1,842

SPD Bank Building, No.588 Pudong South Road, Shanghai

9,075

266,288

-

12,610

1,825,105

1,842

Subtotal

Yangtze River Delta Region

2016 Annual Report

Shanghai Branch

No.588 Pudong South Road, Shanghai

4,225

825,014

199

Hangzhou Branch

No.129 Yan’an Road, Hangzhou

2,329

178,935

90

Ningbo Branch

No.21 Jiangxia Street, Ningbo

1,496

112,639

41

Nanjing Branch

No.90, Zhongshan East Road, Nanjing

3,033

323,371

99

707

43,717

25

Wenzhou Branch

Business Information and Data

Floor 1-3, Union Building, Station Avenue, Wenzhou

No.718, Zhongyuan Road, IV. Level-to-level Administration and the Quantity and Regional Distribution34of Suzhou Branch of the Bank, 850 105,846 Industrial Park, Suzhou Branches at All Levels(Continued)

Region

Shanghai Free Trade Zone Branch Organization name Subtotal Guangzhou Head Office Branch

Head OfficeDelta Pearl River and the West Side of the Straits Region

Credit CardBranch Center Shenzhen Subtotal Fuzhou Branch Shanghai Branch Xiamen Branch Subtotal Branch Hangzhou Ningbo Branch Beijing Branch Nanjing Branch Tianjin Branch

Yangtze River Delta Region

Wenzhou Branch Jinan Branch

Bohai Rim Region Suzhou Branch Qingdao Branch Shanghai Free Trade Shijiazhuang Zone Branch Branch Subtotal Subtotal Guangzhou Branch Wuhu Branch Pearl River Delta and the West Side of the Straits Region

Central Region

ZhengzhouBranch Branch Shenzhen Wuhan Branch Fuzhou Branch Taiyuan Branch Branch Xiamen Subtotal Changsha Branch Beijing Branch Nanchang Branch Tianjin Branch Hefei Branch HaikouBranch Branch Jinan

Bohai Rim Region

Subtotal Qingdao Branch Chongqing Branch Shijiazhuang Branch Kunming Branch Subtotal Wuhu Branch Chengdu Branch

Central Region West Region

Zhengzhou Branch Xi’an Branch Wuhan Branch Nanning Branch Taiyuan Branch Urumqi Branch Changsha Branch Hohhot Branch Nanchang Branch

Floor 22, SPD Bank Building, No.588 Pudong South Road, Shanghai Address

No.12, Zhujiang West Road, No.12, Zhongshan Tianhe District, Dongyi Road, Guangzhou Shanghai International Center, SPD Bank Commerce Building, No.588 FuhuaSouth ThirdRoad, Road,Shanghai Futian Pudong District, Shenzhen No.222, Hudong Road, Fuzhou No.588 Pudong South No.666-1 Xiahe Road, Xiamen Road, Shanghai No.129 Yan’an Road, Hangzhou No.18,Jiangxia Taipingqiao Avenue, No.21 Street, Ningbo Xicheng District, Beijing No.90, Zhongshan Block No.9+ Binshui EastD, Road, Nanjing Avenue, Hexi District, Tianjin Floor 1-3, Union Building, No.139, Hehuquan Station Avenue, Wenzhou West Road, Jinan No.718, Zhongyuan Road, No.188 Haier Industrial Park, Road, Suzhou Laoshan District, Qingdao Floor 22, SPD Bank Building, 101No.588 Fangbei Shopping Mall, Pudong South Yuhua EastShanghai Road No.133, Road, Chang’an District, Shijiazhuang No.12, Zhujiang West Road, A3 Building, Wanjiang Fortune Tianhe District, Guangzhou Plaza, No.88 Ruixiang Road, Wuhu International Commerce Center, No.299, Jinshui Fuhua ThirdRoad, Road,Zhengzhou Futian District, Shenzhen No.218 Xinhua Road, Jianghan District, Wuhan No.222, Hudong Road, Fuzhou No.5, Qingnian Road, Taiyuan No.666-1 Xiahe Road, Xiamen No.478, Section I Furong Central Road, Changsha No.18, Taipingqiao Avenue, No.1402, Hongguzhong Xicheng District, Beijing Avenue, Nanchang Block D, No.9+ Binshui No.2608Hexi Hangzhou Avenue, District,Road, Tianjin Binhu New Area, Hefei No.139, Hehuquan No.26, Yusha Road, Haikou West Road, Jinan No.188 Haier Road, No.78,District, Star Avenue, Laoshan Qingdao High-tech Park, Northern 101 Fangbei Shopping Mall, New District, Chongqing Yuhua East Road No.133, No.156, Dongfeng West Chang’an District, Shijiazhuang Road, Kunming No.22 East II Section, A3 Building, Wanjiang Fortune 2nd Ring Ruixiang Road, Chenghua Plaza, No.88 Road, Wuhu District, Chengdu No.299, Jinshui Road, Zhengzhou No.6 Jinye Road, High-tech No.218 Xinhua Zone, Xi’anRoad, Jianghan District, Wuhan No.22, Jinpu Road, Nanning No.5, Qingnian Road, Taiyuan No.379, Xinhua South No.478, Section I Furong Road, Urumqi Central Road, Changsha Block B Dongfang Junzuo, No.1402, Hongguzhong No.18 Chilechuan Street, Hohhot Avenue, Nanchang No.101, Guangchang South

34 Number of employees 12,674 (Person)

5,241 Number of Asset size organs under (RMB million) 1,594,763 488 its jurisdiction

1,649 3,535

212,667 1,558,817

64 1,842

9,075 1,326

266,288 253,951

63-

12,610 757

1,825,105 76,628

1,842 78

298 4,225

28,779 825,014

17 199

4,030 2,329

572,025 178,935

222 90

1,496 1,717

112,639 511,125

41 79

3,033 1,336

323,371 249,208

99 44

707 1,330

43,717 98,213

25 63

850 734

105,846 74,376

34 35

34 712

5,241 68,351

33

12,674 5,829 1,649 352

1,594,763 1,001,273 212,667 60,073

488 254 64 11

1,880 1,326

184,300 253,951

88 63

845 757

73,212 76,628

41 78

298 873

28,779 54,810

17 61

4,030 951

572,025 82,427

222 57

1,717 673

511,125 55,072

79 38

1,336 621

249,208 72,104

44 32

169 1,330

23,529 98,213

10 63

6,364 734 774

605,527 74,376 67,786

338 35 32

712 737 5,829

68,351 90,889 1,001,273

33 51 254

352 1,007

60,073 117,748

11 44

1,880 923 845 567 873 515 951

184,300 83,897 73,212 59,283 54,810 39,223 82,427

88 60 41 27 61 28 57

557 673

30,390 55,072

27 38

59

Chang’an District, Shijiazhuang Subtotal Wuhu Branch Zhengzhou Branch

60

2016 Annual Report

Central Region

1,880

184,300

88

No.5, Qingnian Road, Taiyuan

873

54,810

61

Changsha Branch

No.478, Section I Furong Central Road, Changsha

951

82,427

57

Nanchang Branch

No.1402, Hongguzhong Avenue, Nanchang

673

55,072

38

621

Haikou Branch Organization name Subtotal

Credit Card Center Kunming Branch

Hangzhou Branch Xi’an Branch Ningbo Branch Nanning Branch Nanjing Branch Urumqi Branch Wenzhou Branch Hohhot Branch

Shanghai Free Trade Guiyang Branch Zone Branch Subtotal Xining Branch Guangzhou Branch Yinchuan Branch Shenzhen Branch Lhasa Branch Fuzhou Branch Xiamen Branch Subtotal Subtotal Dalian Branch Beijing Branch Shenyang Branch Tianjin Branch Harbin Branch Jinan Branch Changchun Branch Subtotal Qingdao Branch Hong Kong Branch Shijiazhuang Branch Overseas

11

Taiyuan Branch

Suzhou Branch Lanzhou Branch

Bohai Rim Region

60,073

41

Chengdu Branch Shanghai Branch

Northeast Region

352

73,212

Subtotal

Pearl River Delta and the West Side of the Straits Region

254

845

Head OfficeBranch Chongqing

Yangtze River Delta Region West Region

1,001,273

No.218 Xinhua Road, Jianghan District, Wuhan

Hefei Branch

Head Office

No.299, Jinshui Road, Zhengzhou

5,829

Wuhan Branch

Business Information and Data

Region

A3 Building, Wanjiang Fortune Plaza, No.88 Ruixiang Road, Wuhu

Singapore Branch Subtotal (in preparation) Wuhu Branch London Branch (in preparation) Zhengzhou Branch

No.2608 Hangzhou Road, Binhu New Area, Hefei

72,104

32

Number of 169 employees 6,364 (Person)

23,529 Asset size (RMB million) 605,527

Number10 of organs under 338 its jurisdiction

3,535 774

1,558,817 67,786

1,842 32

9,075 737

266,288 90,889

51

12,610

1,825,105

1,842

1,007 4,225

117,748 825,014

44 199

No.6 Jinye Road, High-tech No.129 Yan’an Road, Hangzhou Zone, Xi’an No.21 Jiangxia Street, Ningbo No.22, Jinpu Road, Nanning No.90, Zhongshan No.379, Xinhua South East Road, Nanjing Road, Urumqi Floor 1-3, Union Building, Block Dongfang Junzuo, StationB Avenue, Wenzhou No.18 Chilechuan Street, Hohhot No.718, Zhongyuan Road, No.101, Guangchang South Industrial Park, Suzhou Road, Lanzhou Floor 22, SPD Bank Building, No.20-1 Yan’an Central No.588 Pudong South Road,Shanghai Guiyang Road,

2,329 923 1,496 567 3,033 515

178,935 83,897 112,639 59,283 323,371 39,223

90 60 41 27 99 28

707 557

43,717 30,390

25 27

850 500

105,846 47,834

34 39

34 390

5,241 42,417

20

Yanan Building,1-7 No.1 Weibo Lane, West Chengxi No.12, Zhujiang Road, TianheDistrict, District,Xining Guangzhou

12,674 190 1,649

1,594,763 19,185 212,667

488 12 64

130 1,326

10,509 253,951

3 63

69 757

5,063 76,628

78-

298 6,359 4,030 1,116

28,779 614,224 572,025 120,791

17 343 222 70

1,717

511,125

79

805 1,336 682

52,155 249,208 72,795

37 44 30

1,330 494 3,097 734

98,213 56,004 301,745 74,376

63 19 156 35

163 712

117,728 68,351

33

5,829 29

1,001,273-

254-

352 12 1,880 204 845 -

60,073 184,300 117,728 73,212 -860,644

11 88 41 -

No.26, Yusha Road, Haikou Address No.78, Avenue, No.12,Star Zhongshan High-tech Park,Shanghai Northern Dongyi Road, New District, Chongqing SPD Bank Building, No.588 No.156, Dongfeng West Pudong South Road, Shanghai Road, Kunming No.22 East II Section, 2nd Ring Road, Chenghua No.588 Pudong South District, Chengdu Road, Shanghai

No.51, Xinhua East Street, International Commerce Center, Qingxing District, Yinchuan Fuhua Third Road, Futian District, Shenzhen No.1 Commerce Building, Beijingzhong No.222, HudongRoad Road,No.48, Fuzhou Chengguan District, Lhasa No.666-1 Xiahe Road, Xiamen No.45, Huizhan Road, Shahekou District,Avenue, Dalian No.18, Taipingqiao Xicheng District, Beijing No.326 Fengtian Street, Shenhe District, Block D, No.9+Shenyang Binshui Avenue, Hexi District, Tianjin No.226, Hongqi Street, Nangang Harbin No.139,District, Hehuquan West Road, Jinan No.3518, Renmin Street, Changchun No.188 Haier Road, Laoshan District, Qingdao 15th Floor, Bank of America Tower, No.12 101 Fangbei Shopping Mall, Harcourt Yuhua EastRoad, RoadCentral No.133, Kong Chang’an Hong District, Shijiazhuang A3 Building, Wanjiang Fortune Plaza, No.88 Ruixiang Road, Wuhu No.299, Jinshui Road, Zhengzhou

Subtotal Wuhan Branch

No.218 Xinhua Road, Jianghan District, Wuhan

Taiyuan Branch

No.5, Qingnian Road, Taiyuan

Aggregate adjustment

873 54,810 61 51,167 5,771,746 1,843 No.478, Section I Furong Central Region Changshatotal Branch 82,427 57 Note: The total number of employees, assets and total number organs under the jurisdiction951 do not include that of the holding Central of Road, Changsha Total

subsidiaries.

Nanchang Branch Hefei Branch Haikou Branch

No.1402, Hongguzhong Avenue, Nanchang

673

55,072

38

No.2608 Hangzhou Road, Binhu New Area, Hefei

621

72,104

32

No.26, Yusha Road, Haikou

169

23,529

10

2016 Annual Report

Business Information and Data

V. Loan Quality of the Group i. Five-tier risk classification In RMB millions Five-tier risk classification

31 December 2016

Proportion (%)

Increase/(decrease) over the prior year-end (%)

2,605,124

94.29

21.41

105,504

3.82

63.15

Substandard

20,625

0.75

4.05

Doubtful

15,781

0.57

65.38

Loss

15,772

0.57

177.24

Total

2,762,806

100.00

23.04

Pass Special mention

In RMB millions Category Restructured loans Overdue loans

31 December 2016

Proportion (%)

31 December 2015

110

-

133

82,194

2.98

59,185

ii. Management of LGFV loans During the reporting period, the Bank further strengthened its management of debt financing to local governments according to requirements of CBRC and based on its own operation and management needs, and kept control of key businesses like local government financing vehicles (LGFV) and local government bonds. First, in strict accordance with state polices on management of local government debt financing, we implemented classified management of local government debt financing based on an LGFV list as required by the regulator. Second, we refined the assessment indicators for comprehensive affordability of local governments, made an allround assessment on their debt affordability based on economic size, fiscal income, solvency, regional credit environment, local political and social stability of cities, counties or development zones (parks) and the according branch’s management level. Besides, region-specific access criteria were spelled out. Third, based on limit monitoring and concentration management over LGFV business, the Bank put on the control list those branches with a high proportion of LGFV business and provinces and cities with great debt repayment pressure, and kept them under special administration in terms of policy orientation, resources allocation etc. Forth, while properly addressing subsequent financing needs of projects in construction of LGFV companies, the Bank continued to support financing needs of projects related to people’s livelihood, actively pushed the transformation of the business model and rolled out financing projects in key fields in cooperation with local and social capital, with a view to serving local economic construction. Fifth, the Bank continued to implement the requirements of laws, regulations and policies concerning local government budget management, debt management, debt limit management etc., and underwrote some selected local government bonds in line with the return-risk balance principle. It properly realized the interconnection of key links in the process of debt replacement, which guaranteed its own interests and rights.

61

62

2016 Annual Report

Business Information and Data

During the reporting period, the LGFV loan business ran stably, with risks being controllable and meeting regulatory requirements.

iii. Year-end non-performing loans and corresponding measures taken At the end of the reporting period, based on the criteria of five-tier loan classification, the balance of substandard, doubtful and loss loans of the Group was RMB52,178 million, an increase of RMB17,124 million over the end of 2015; the NPL ratio was 1.89%, up 0.33 percentage point over the prior year-end. The Bank adopted the following measures: First, it increased credit facilities to key industries and regions, ensured credit newly extended were of high quality, vigorously compelled those industries under control to exit and made according adjustment to customers, and accelerated the optimization of the industry structure of credit assets. Second, it kept portfolio limit management and strengthened differentiated control over risk industries, key businesses to optimize the asset structure and effectively control lending concentration. Third, it continuously increased efforts to adjust the credit business structure and to withdraw cash from those businesses with focal risks. On the one hand, it tried to mitigate risks of existing credit assets through cash recovery; on the other hand, it optimized its credit extension to increase earnings, reduce expected loss and vitalize the existing assets. Fourth, it continued to optimize the early warning mechanism for corporate and retail credit businesses, and made early warnings more timely and effective. Fifth, the Bank stepped up risk inspection of various businesses from conventional credit business to new-typed business with a widened coverage, monitored business risks based on the penetration principle and tried to solidify the asset quality. Sixth, it stepped up building a mechanism of moving asset preservation efforts to earlier stages, protected and disposed of NPAs through various channels and means, intensified risk control over key fields and increased professional guidance for key branches in debt recovery.

iv. Credit extension to group customers For group customers, the Bank insisted on the principles of “unified credit extension, moderate credit limit and differentiated administration”. Credit line granted to specific group customer was based on its risk conditions and ability to undertake risks. In this way, we could prevent over-concentration risk. Based on business development realities and in full consideration of differentiated management of group customers, the Bank further refined the classified management model for group customers with balance between risk and efficiency. It ensured general stability of credit extension to group customers and satisfied the regulator’s requirements for credit concentration of group customers through continuously refining the credit extension management system for group customers, optimizing the credit extension management procedure and stepping up early warning and post-lending management.

2016 Annual Report

Business Information and Data

VI. Provisions for Loan Impairment In RMB millions The Group

2016

2015

Year-beginning balance

74,105

53,766

Provision in the year

46,845

37,070

Write-off in the year

-15,290

-10,044

Transfer-out in the year

-17,949

-6,432

1,650

630

-1,166

-914

Recovery of loans written off in previous years Unwind of discount on impairment allowance Exchange difference Year-end balance

54

29

88,249

74,105

Description of provisions for loan impairment: (1) The Bank inspects the book value of loans on the balance sheet date. When there is objective evidence to show that a loan is impaired, and the loss event has reliably estimated impacts on expected future cash flow of the loan, the Bank will write down the book value of the loan into the expected future cash flow. The present value of expected future cash flow will be determined by discounting the original actual interest rate of the loan, with the value of the relevant collateral taken into consideration. (2) For loans with a significant single amount, the Bank conducts impairment test separately; for loans without a significant single amount, combined assessment is conducted on the whole portfolio. For loans without impairment found in separate test, the Bank includes them into loan portfolios with similar credit risk characteristics before conducting a combined assessment. (3) After the impairment loss is recognized, if there is objective evidence to show that the loan value has been recovered and the recovery has objective correlation with event occurred after the loss recognition, the originally recognized impairment loss will be reversed and recorded into current profit and loss.

VII. Interest Receivables In RMB millions The Group

31 December 2016

31 December 2015

12,243

10,828

Loans

7,877

7,604

Balance with central bank and interbank transactions

2,311

1,650

Financial assets purchased under resale agreements

2

-

478

355

22,911

20,437

Investment in bonds and receivables

Financial lease receivables Total

63

64

2016 Annual Report

Business Information and Data

VIII. Debt-offsetting Assets In RMB millions 31 December 2016 The Group Real estate Corporate shares Others Total

31 December 2015

Amount

Balance of allowance for impairment

Amount

Balance of allowance for impairment

1,499

595

1,259

548

20

18

129

43

18

-

25

4

1,537

613

1,413

595

IX. Main Interest-accruing Liabilities and Interest-bearing Assets i. Main deposit categories In RMB millions The Group

2016

2015

Average balance

Average interest rate (%)

Average balance

Average interest rate (%)

Current deposits of enterprises

1,050,425

0.67

828,623

0.75

Time deposits of enterprises

1,145,160

2.57

1,219,177

3.34

Current saving deposits

145,719

0.29

111,609

0.32

Time saving deposits

335,071

2.23

368,658

2.88

Margin deposits

272,043

1.19

361,396

1.95

ii. Main loan categories In RMB millions The Group

2016

2015

Average balance

Average interest rate (%)

Average balance

Average interest rate (%)

1,650,203

4.83

1,581,252

5.95

746,531

4.95

522,602

5.96

82,159

3.12

67,796

4.35

General short-term loans

1,166,830

4.92

1,113,321

5.87

Medium and long-term loans

1,229,904

4.82

990,533

6.06

Corporate loans Retail loans Discounted bills

2016 Annual Report

Business Information and Data

iii. Others In RMB millions The Group

2016

2015

Average balance

Average interest rate (%)

Average balance

Average interest rate (%)

Balance with central bank

504,356

1.47

499,712

1.51

Due from and placements with banks and other financial institutions

310,556

2.64

241,033

2.60

36,808

2.75

163,483

4.20

Investment in bonds and receivables

1,966,221

3.87

1,509,399

5.08

Due to and placements from banks and other financial institutions

1,292,475

2.66

1,064,661

3.43

Financial assets sold under reverse repurchase agreements

79,723

2.38

53,905

2.78

593,675

3.28

246,515

4.11

Financial assets under reverse repurchase agreements

Bonds and securities issued

X. Top Ten Financial Bonds Held in Terms of Face Value In RMB millions The Group

Face value

Annual interest

Maturity date

Impairment loss reserve

6th issue of financial bonds of NDB in 2016

7,320

2.96

2/18/2021

-

3rd issue of financial bonds of ADBC in 2016

5,990

3.01

1/6/2021

-

16th issue of financial bonds of ADBC in 2016

4,120

3.26

4/22/2021

-

2nd issue of financial bonds of CGB in 2016

4,000

3.52

5/25/2021

-

Green finance bond of BOCOM in 2016

4,000

3.25

11/22/2021

-

2nd issue of financial bonds of TEIBC in 2016

3,910

3.07

2/22/2021

-

27th issue of financial bonds of NDB in 2014

3,630

4.08

11/20/2019

-

9th issue of financial bonds of NDB in 2014

3,440

5.44

4/8/2019

-

11th issue of financial bonds of ADBC in 2016

3,400

3.10

3/11/2021

-

1st issue of financial bonds of CMBC in 2012

3,250

4.30

2/14/2017

-

65

66

2016 Annual Report

Business Information and Data

XI. Derivative Financial Instruments Held In RMB millions Fair value

Contractual/nominal amount

Assets

Liabilities

952,453

13,130

10,499

46,729

423

472

Interest rate swap contracts

783,631

581

875

Option contracts

108,015

618

871

57,127

1,005

336

6,109

275

-

The Group Non-hedging derivative products:

Currency swap contracts Foreign exchange forward contracts

Precious metal derivative financial instruments Commodity contract Derivative financial instruments designated as hedging instruments at fair value: Cross-currency interest rate swap Interest rate swap contracts

790

37

-

15,082

164

38

16,233

13,091

Total

XII. Entrusted Asset Management, Asset Securitization and Various Agency and Custody Businesses as well as Their Profit and Loss Within the Reporting Period i. Review on wealth management business in the reporting period Aiming at “boosting sales and optimizing assets”, the Bank intensified collaborative operation, made concurrent advancement in terms of sales and assets, enriched the product system, optimized the asset structure, and increased efforts to promote cash management products, net value-based, consumer service-oriented and other featured products, thereby realizing a rapid growth of the wealth management business. As at the end of the reporting period, assets under management (AUM) of the Bank amounted to RMB1.82 trillion, an increase of 16.46% over the prior year-end; in the reporting period incomes stood at RMB12,864 million, up 51.54% year on year. During the reporting period, sales volume of wealth management products reached RMB8.64 trillion, including personal wealth management products (including private banking) of RMB5.58 trillion, corporate wealth management products of RMB2.54 trillion and interbank wealth management products of RMB0.52 trillion. Sales revenue arrived at RMB3,964 million, representing a Y-o-Y increase of 27.89%.

ii. Asset securitization and its profit and loss in the reporting period In the reporting period, the Bank actively facilitated corporate loan securitization projects to further intensify active management of assets and liabilities by means of securitization. In August 2016, it issued the Phase-I Xin Pu credit asset securitization products in 2016 with an amount of RMB5,453 million in the interbank market; in November 2016, it issued the Phase-II Xin Pu credit asset securitization products of RMB4,410 million in the interbank market in 2016. As the lead underwriter and lead bookrunner, the Bank issued RMB14,812 million of securities backed by personal housing provident fund loans in the interbank market.

2016 Annual Report

Business Information and Data

iii. Custody business and its profit and loss in the reporting period During the reporting period, the Bank carried out customer funds custody, trust custody, security investment funds custody, special QDII assets custody, insurance funds custody, custody for special fund accounts, custody for assets of securities companies, custody for assets of futures companies, private fund custody, direct equity custody, custody for banks’ wealth management products, enterprise annuity custody, benefit scheme custody etc. As at the end of the reporting period, assets under its custody amounted to RMB7.56 trillion, a Y-o-Y increase of 51.81%; the custody business brought an income of RMB3,539 million, up 13.32% year on year.

iv. Funds and securities (agency) business and its profit and loss in the reporting period In terms of agency funds and securities business, the Bank focused on marketing custody business and openended fund products of subsidiaries, “Fortune and Intelligence Combination” online investment services, “Pu Fa Bao” business and special account of standard asset funds. Personal agency fund business brought a fee-based income of RMB424 million in the reporting period. We introduced demand “Pu Fa Bao” business for the new generation of agency-based customers, which enabled automatic incoming transfer of money market funds, rapid redemption and consumption etc. so as to satisfy their needs for cash management services. As for the agency insurance business, it generated a paid-in premium income of RMB30,181 million, up 385.86% year on year, and a non-interest income of RMB696 million, up 327.44% year on year. As for precious metal trading business, the Bank introduced account foreign exchange, two-way foreign exchange, “Zan Jin Bao” and other featured businesses, which further enriched the product chain. The business generated an income of RMB180 million, a Y-o-Y increase of 51.26% in the reporting period.

XIII. Off-balance-sheet Items Causing Significant Impact on Financial Condition and Operating Results In RMB millions The Group

31 December 2016

31 December 2015

Credit commitments

962,092

1,052,564

Of which: Bankers’ acceptance bill

510,767

645,273

Acceptance bills under L/C

125,121

154,902

L/G issued

124,507

122,459

12,975

11,641

188,722

118,289

Operating lease commitment

9,867

9,120

Capital commitments

1,506

155

L/C issued Credit card and other commitments

XIV. Various Risks and Risk Management i. Risks facing the Bank As a special enterprise dealing in currencies and credit, the Bank faces the following major risks in operation: credit risk, liquidity risk, market risk (including interest rate risk and exchange rate risk, etc.), operational risk (including settlement risk, technical risk, system risk, etc.) as well as compliance risk, legal risk, IT risk, strategic risk, reputational risk, country risk etc.

67

68

2016 Annual Report

Business Information and Data

ii. Statement on credit risk conditions 1. Definition of credit risk Credit risk refers to the potential possibility of losses caused by the borrower’s or counterpart’s failure to fulfill its obligation as stipulated in the agreement that has been reached in advance as well as the possibility of losses arising from changes to market value of debts in the wake of changes to the borrower’s credit rating and contractual capability. Credit risk may take the following forms: default risk, counterpart risk, credit migration risk, credit event risk, settlement risk attributable to credit risk etc.

2. Objectives of credit risk management The Bank’s main objective of credit risk management is to maximize risk-adjusted capital returns. To achieve this objective, the Bank developed and implemented a complete set of policies and procedures to identify, measure, monitor and control its credit risk. To this end, when designing the credit risk management policies and rules, it tried to exercise prudent procedures and management to ensure adequate, independent supervision and control over credit risk.

3. Policy making First, the Bank, in full implementation of its 13th Five-Year Program and strategic risk management plan, developed the 2016-2018 risk appetite at the Group level, annual corporate banking policy, business direction policy for consolidated institutions, non-credit business risk policy and retail credit policy, which constituted part of the risk policy system that were consistent with the 13th Five-Year Program and the three-year action plan. Second, the credit policy contained pertinent guidance on corporate client view and client positioning. More credit sources were slanted towards retail customers on the basis of increasing pricing level and comprehensive returns. Third, considering the features of a downward economy, the Bank intensified the combined management in the industry dimension, and exercised the classified management of “advancing, protecting, controlling and compressing” industries according to risk-adjusted returns and actual risk exposures in an industry. As a result, it witnessed a greater growth in the asset business with “advanced” industries than the average level, while the balance of the business with “controlled and compressed” industries was cut down. Fourth, the Bank substantively advanced the classified customer operation based on an industry-differentiated approach, continuously refined the industry credit policy and customer classification criteria, highlighted the structural adjustment to customers in traditional industries and the selection of new entrants upon access, and rolled out the pilot program on differentiated operation of some industries and featured regions under the guidance of special policies. Fifth, we stepped up efforts to study and formulate special policies, and increased supports for hot areas such as key infrastructure construction financing, finished project refinancing, M&A financing, green credit, supply chain financing and cross-border financing service through rendering targeted guidance on professional operation of customers from specified industries or key regions and featured customer groups. Sixth, administrative policy toolkit was enriched and strictly implemented. A credit extension tracking and assessment mechanism was established to integrate credit extension control requirements into resources allocation, review and approval formalities etc. and to strengthen constraints of the policy.

2016 Annual Report

Business Information and Data

Seventh, the Bank actively explored the Group-based unified credit extension management, put in place a complete set of credit management requirements covering the full process from unified credit extension policy, credit rating, risk limits, credit extension policy to post-lending management, developed annual credit extension guides in the form of a negative list, and tailored annual credit extension strategy for each consolidated institution on the “one strategy for one institution” basis, so as to clarify the bottom line of the Group’s credit extension policy. Meanwhile, the subsidiary’s individualized credit extension plan was taken into consideration as well. In this way, we’ve attained the goal of Group-based credit extension management that is simultaneously unified and individualized.

4. Credit extension management First, the Bank enhanced studies and judgment on the domestic and overseas macroeconomic and financial situations as well as studies on national macro policies, earnestly implemented the corporate credit policy and the credit extension principle of “advancing, protecting and exiting” and continuously optimized its credit structure on the precondition of prudent control of business risks. Second, actively adapting itself to the changing economic situation and business needs, the Bank optimized and adjusted the organizational structure for credit extension management and enhanced the timeliness and costeffectiveness of credit review in various businesses. Third, great achievements were made in institutional building for credit extension, and the credit extension mechanism and review & approval procedures were perfected, empowering development of the business and helping with risk prevention and control. Fourth, professional forces were organized to increase credit supports for innovative businesses and carry out studies on risk management, and diversified fund business models were introduced in the exploration of innovative business models. Fifth, the Bank also studied and refined its loan review standards, and rolled out on-site inspections on credit extension management of its branches and sub-branches with a view to enhancing the whole Bank’s full-process control over credit quality. Sixth, diversified, systematic training of credit business was launched to enhance the professionalism of the loan reviewers, and team building was stepped up as well.

5. Risk early-warning First, the Bank continuously refined its risk early-warning mechanism, strengthened cross-warning management in the credit business and deepened the collaborative warning mechanism for the business. Second, the credit business risk warning system was officially launched. With scientifically set warning indicators, the system enabled automatic warning and enhanced the efficiency of risk warning. Third, the Bank intensified effective application of risk warning information and stepped up effective interaction between risk earning and credit review & approval, risk classification, credit rating and credit inspection. Fourth, it continued to reduce and exit loans to customers with high risks, further optimizing the credit structure.

69

70

2016 Annual Report

Business Information and Data

6. Asset preservation The Bank made greater efforts in collecting and resolving NPLs, striving to increase the efficiency of disposing riskbearing loans. First, it exercised the list-based classified management of risk-bearing loans. Second, it made full use of various disposal means such as cash recovery, debt repayment with non-cash assets, debt restructuring, loss write-off, risk elimination and exit, and spelled out the debt liquidation plan for each account and advanced the implementation. Third, the Bank intensified the management of key branches’ risk dissolution of NPAs, continuously refined the asset preservation mechanism and strived to increase the effect and efficiency of NPA disposal.

iii. Statement on liquidity risk conditions 1. Definition of liquidity risk Liquidity risk refers to the risk of a company, though with solvency, failing to timely or failing to obtain adequate capital at a reasonable price to cope with asset growth or pay off due debts. It mainly includes the following two types: i. Financing liquidity risk means the risk of a company’s failure to timely, effectively satisfy its funding needs without affecting its daily operation or financial standing. ii. Market liquidity risk means the risk of a company’s failure to sell out assets at a reasonable price to obtain funds due to the lack of market depth or market volatility.

2. Objectives and important policies of liquidity risk management The liquidity risk management objective is to ensure the Bank’s ability to perform the obligations to provide funds when customers want to withdraw and to make payment to customers, as well as realize a balance between total assets and liabilities and the structure; through active management, the liquidity cost can be reduced, liquidity crisis can be avoided, and the systemic liquidity risk can be coped with effectively. According to the dual requirements of the internal management and the regulator, the Bank established its liquidity risk appetite and management principle, formed an authorization and limit management mechanism, and spelled out assessment and approval procedures for new products, new businesses, new institutions and new technologies. Besides, it intensified the measurement and monitoring of liquidity risk indicators and over-limit management. The Bank also improved the pressure test program and operating rules, organized emergency drills and advanced the optimization of the liquidity risk management system. The liquidity risk management strategies, policies and procedures basically cover all on- and off-balance-sheet businesses within the scope of consolidated balance sheet of the Bank (the Group).

3. Liquidity risk management system The Bank’s liquidity risk management system is composed of two parts: routine liquidity management and emergency management. The specific contents mainly involve ten aspects, namely, policies and strategies, management framework, rules and regulations, management instruments, daily operation, pressure testing, system building, risk

2016 Annual Report

Business Information and Data

monitoring, risk report, emergency management and emergency drills.

4. Division of responsibilities for liquidity risk management The liquidity risk organizational structure consists of three levels, the Board of Directors and the Board of Supervisors, the Senior Management and the executors. First, the Board of Directors is responsible for reviewing and approving the Bank’s liquidity risk management system, risk appetite, risk limit, emergency plan, and undertaking the final responsibilities of liquidity risk management. The Board of Supervisors is responsible for supervising the Board of Directors and the Senior Management in performing liquidity risk management responsibilities. Second, authorized by the Board of Directors, the Senior Management performs specific works related to liquidity risk management. The Asset and Liability Management Committee is accountable for reviewing the liquidity risk management policy, risk limit, pressure test plan and emergency plan, organizing functional departments to carry out pressure test and reviewing pressure test report, etc. Third, the Asset and Liability Management Department is responsible for routine management of liquidity risk, including but not limited to identification, measurement, monitoring, analysis and control, review and approval of liquidity risk management policies and procedures for new products, businesses and organizations, drafting of pressure test plan and emergency plan, identification of liquidity emergency events and treatment of emergencies; determination of liquidity risk appetite and formulation of rules and regulations, measurements, monitoring and reporting of liquidity risk indicators, and allocation and management of liquidity assets and collaterals; implementation of pressure tests and preparation of emergency plan. The Financial Market Department is responsible for carrying out daytime liquidity management across the Bank, ensuring daytime and day-end safety of provisioning; arranging for configuration of funds-based assets and liabilities in connection with liquidity, and submitting liquidity risk indicators in connection with the function.

5. Routine liquidity risk management During the reporting period, the Bank kept layered beforehand balanced management of liquidity risk in line with the principle of aggregate balance and structural equilibrium; it carried out real-time monitoring on daily position accounts in home and foreign currencies, and made centralized allocation of positions in local and foreign currencies; it established a beforehand declaration system for large-amount positions, and established a monitoring mechanism for total liquidity level; it prepared a cash flow gap table on a daily basis, used the gap management method to predict cash flow gap changes in future assets and liabilities’ on- and off-balance sheet items, and regularly (irregularly in case of major events) conducted liquidity risk assessment for assets and liabilities’ on- and off-balance sheet items; the Bank also considered its own liquidity risk policies and risk limit requirements to make active financing arrangement and make adjustments to asset and liability portfolios, enabling it to realize a gross balance and structure equilibrium in the business development and effectively meeting the requirements for appropriate liquidity management goals. The Bank’s routine liquidity risk management methods and instruments include but are not limited to the following ones. First is the market regulation. The Bank absorbed and released liquidity funds through conducting transactions on the capital market and its branches doing treasury business on behalf of the Head Office. Second is the price guiding. The Bank considered its own liquidity risk conditions to adjust the liquidity risk premium price for internal capital transfer pricing, thus leading the branches to properly carry out various asset and liability businesses, and realizing the goal of regulating the liquidity. Third is the adjustment by plan. The Bank resorted to business plan and capital budget management to regulate liquidity risk. Forth is the window guidance. For branches and head offices with individual asset and liability businesses out of balance, the Bank offered window guidance.

71

72

2016 Annual Report

Business Information and Data

6. Pressure testing and corresponding risk mitigation arrangement The pressure test scenarios used by the Bank at present include liquidity risk pressure test scenario caused by its own events and pressure test scenario caused by systematic events. In terms of the degree of pressure, there are three categories, namely, mild, moderate and severe. The Asset and Liability Management Department is responsible for submitting liquidity risk pressure test report based on the test result, and the report content covers pressure scenario, hypothesis, test result and relevant suggestions on adjustment. The liquidity risk pressure test report should be submitted to the Asset and Liability Management Committee, the Senior Management and the Board of Directors, on a level-to-level basis. Liquidity emergency events and handling procedure: The Bank formulated detailed liquidity risk emergency response plan, and based on its liquidity risk emergency management procedure, all its departments undertook relevant duties in the liquidity risk emergency management. Emergency measures under a pressure scenario include but are not limited to borrowing from banks and other financial institutions and positive repo of securities through money market, absorbing deposits through the interbank market, issuing interbank C/Ds and positive repo of bills; expanding foreign exchange long exposures (applicable to foreign currency); selling liquidity assets, carrying out currency swaps, and applying to the central bank for utilizing monetary policy instruments, etc.

7. Liquidity risk management conditions The Bank kept a close eye on the macro-economic changes, kept abreast of the regulation effects of credit policies and monetary policies, took into consideration its own structure of asset and liability and general capital balance, timely adjusted the direction, size and structure of cash flow gap, and actively prevented liquidity risk, thereby realizing an overall sound business operation and keeping the liquidity at a reasonable and balanced level. Specifically, the Bank took accumulated cash flow gap as a tool for liquidity risk management to conduct centralized and dynamic management over cash flow changes, through calculating the size and direction of the accumulated cash flow gap. It made adjustment to its asset and liability portfolios and carried out market financing to mitigate cash flow fluctuations and manage liquidity risk. As at the end of the reporting period, the proportion of liquidity in all currencies converted to RMB as calculated based on the regulation standard was 37.05%, an increase of 3.55 percentage points over the end of 2015; the proportion of medium and long term RMB loans was 51.07%, an increase of 3.38 percentage points over the end of 2015. The ratio of excessive allowance for loan losses at the PBC was maintained at 2.64%, 0.03 percentage point up as compared with the end of 2015, demonstrating an overall moderate and sound liquidity status.

iv. Statement on market risk 1. Definition of market risk Market risk refers to the risk of loss from on- and off-balance-sheet businesses of a bank due to unfavorable changes of the market price (interest rate, exchange rate, stock price and commodity price). Market risk faced by the Bank mainly existed in its trading account and banking account, including interest rate risk, exchange rate risk and commodity risk. The Bank also faced the risk of stock price fluctuations in off-balance-sheet businesses like wealth management business. With the continued development of the Bank’s financial market business, it continuously improved its market risk management system and made continued improvement in the organizational structure, measurement capacity, limits management and pressure testing so as to adapt itself to the gradual liberation of interest rate and exchange rate and a new environment with accelerated innovation in financial market business.

2016 Annual Report

Business Information and Data

2. Market risk management system The Bank has established a relatively sophisticated market risk management system, and enhanced the market risk management level and the capacity in identifying, measuring, monitoring and controlling market risk based on the business development, thus advancing various work related to market risk management on an orderly basis. It kept the trading account under market risk management mainly through measuring value at risk (VaR) on a daily basis, conducting return tests and pressure tests and making sensitivity analysis and limits management. The Bank also established supporting policies regarding VaR measurement, model validation and data management, improved the counterparty credit risk monitoring and measurement system, measuring off-balance-sheet risk exposures for specific risks and derivative products.

3. Division of responsibilities for market risk management The Bank’s organizational structure for market risk management consists of three levels, the Board of Directors, the Senior Management and the execution level. First, the Board of Directors takes the final responsibility of monitoring the market risk management, ensuring that the entire Bank can effectively identify, measure, monitor and control various types of market risk undertaken by all businesses. Second, with authorization of the Bank’s Board of Directors, the Senior Management is responsible for building a Bank-wide market risk management system, establishing an organizational structure for market risk management, and authority structure and accountability mechanism with clearly specified division of duties. Third, all departments at the execution level are responsible for executing work related to market risk management in terms of policy and procedure, measurement approach, measurement model, analysis report and limit control, timely and accurately identifying, measuring, monitoring and controlling the market risk in the jurisdiction, and submitting reports to the Board of Directors and the Senior Management. Meanwhile, the Bank adopted an approach of combining internal control and external supervision in market risk management. All the business departments are accountable for routine internal control in relevant market risk management, as a part of the three lines of defense together with the market risk management department, the compliance department and the audit department.

4. Market risk management conditions In 2016, the Board of Directors decided on the market risk appetite for 2016 to 2018. In the reporting period, the Bank closely tracked market risk exposures and market changes, stepped up dynamic monitoring and risk prejudgment, and managed to keep the market risk monitoring indicators within the scope of risk appetite. The pressure test result showed that under an extreme unfavorable scenario, the Bank would face certain negative influences, which were within the controllable range. In the reporting period, the Bank strengthened the Group-based management of market risk. First, it established a monthly reporting mechanism for Group-wide market risk and included market risk of consolidated subsidiaries into such monthly report; second, it developed the Measures for Market Risk Management of the Group to form a framework for Group-based market risk management and clarify principles and requirements for market risk management of consolidated subsidiaries; third, it worked on connecting its system with the subsidiary’s system and completed the connection of its system with Shanghai Trust’s market risk system.

73

74

2016 Annual Report

Business Information and Data

As at the end of the reporting period, the Bank’s consolidated market risk capital was RMB3,591 million under the standard approach, and capitals occupied by general risk and specific risks1 are as follows. In RMB millions General risk capital Interest rate risk

Exchange rate risk

Risk of future

Risk of commodity

Risk of stock

1,169.53

1,320.59

4.66

72.29

7.58

Specific risk capital 1,016.81

Total 3,591.46

v. Statement on operational risk 1. Definition of operational risk Operational risk refers to the risk of losses caused by an imperfect or problematic internal procedure, staff or IT system and external events. Operational risk includes legal risk but excludes strategy risk and reputation risk.

2. Operational risk management system In the reporting period, the Bank further refined its operational risk management system, including: optimizing the operational risk management tools, enriching information of operational risk events that should be entered into the system, cleansing data of loss events in 2016; optimizing and enriching key risk indicators, updating the threshold values and widening the coverage of the indicators to all the business sections; summarizing all its product lists, refining the self-assessment library and organizing self-assessments on operational risk conditions and risk control regarding regular, special, new products and some business lines; carrying out operational risk capital measurements on a consolidated and a non-consolidated basis; perfecting the operational risk management system to increase the system’s support for operational risk management; stepping up online training on operational and IT risk management and launching field inspection and training on some branches; guiding the subsidiaries to establish their own operational risk management system, conducting training and surveys and requiring the 31 subsidiaries to submit monitoring and analysis reports on a quarterly basis.

3. Operational risk management conditions In 2016, with increasing external fraud risk and regulatory punishments as well as increasingly rich and complicated businesses and business procedures, the Bank witnessed mounting operational risk. In the reporting period, it had no major operational risk events, but the number of loss events and amounts involved had a slight increase over the previous year. Relevant departments and branches have developed corrective measures to address some key risk indicators with abnormal changes. Operational risk was controllable in large.

vi. Statement on other risks 1. Compliance risk Oriented to its 13th Five-Year Program and upholding the tenet of “regarding the whole Bank as on a chess board”, the Bank continuously enhanced the Head Office’s control and supports, focused on deepening compliance risk management of the branches, explored building a Group-wide compliance management model, improved its digital, intensive management of compliance and internal control to ensure sustained and steady business development. During the reporting period, the overall situation of the Bank’s compliance risk management was good, without major risk events and major cases violating rules and laws. 1 Specific

risks refer to risks related to the bond issuer in trading account, which, in substance, is credit risk in trading account.

2016 Annual Report

Business Information and Data

2. AML The Bank, in strict implementation of the regulator’s requirement for “risk-oriented”, strengthened procedural management and risk control and deepened AML work with an aim of striking “effectiveness of compliance”. It promoted integrated management of domestic and overseas institutions, strengthened management of financial sanction risk and strictly implemented relevant resolutions passed by the UN Security Council and the Chinese government. Besides, it set up a money-laundering risk co-management mechanism to embed AML management requirements into its business procedure, tried to build a three-in-one AML assessment system combining customers, products and institutions, and refined its information system according to the AML management requirements. Moreover, we also helped competent authorities to crack down on illegal activities such as telecommunication frauds, underground banks and illegal fundraising, strengthened control over customers with high money-laundering risk and effectively performed our social responsibilities and AML obligations.

3. Legal risk The Bank stepped up overall planning on legal risk management with a focus on giving the Head Office a bigger guiding role, making the branches’ legal work more effective and accelerating the execution of legal risk management policies. Besides, we built a Group-wide law popularization platform to promote Group-wide, multi-level and alldimension law popularization and education through starting with disseminating the Bank’s 7th five-year legal education program; a mechanism for pooling, analyzing and sharing legal risk information was established as well; more efforts were put into legal review and aids in key risk fields; contract management and intellectual property system were strengthened to prevent systematic legal risk.

4. IT risk IT risk was on the rise as banks became increasingly dependent on information technology and there was a growing variety of IT means. In the reporting period, the Bank worked hard on improving its IT risk management system, conducted IT risk assessments on system development, sensitive data protection, IT risk related to credit card and technology outsourcing risk, and put forward the suggestions on enhancing IT risk management; efforts were put into monitoring and reporting IT risk indicators; we also further strengthened the Head Office and subsidiaries’ business continuity management, released a contingency plan on business interruptions at the Head Office, completed its implementation at some branches and conducted a business continuity drill.

5. Strategic risk Sticking to the strategic management model of “strategy-planning-budget-appraisal”, the Bank, after completing the preparation of a new five-year development strategy, advanced promotion and implementation of the strategic plan, increased the leading role of strategies in the development and closely followed two main lines of risk control and income guarantee in work. In overall, the Bank’s strategic mentality is in line with the situation changes and state strategy, with increasing force of strategy execution and ability to control strategic risk. The strategic risk was kept steady and controllable in the period.

6. Reputational risk The Bank persistently improved its reputational risk management mechanism, carried out reputational risk screening, intensified the public opinion management at key nodes, and intensified a full-course management of reputational risk, thus making reputation management more systematic. Besides, it intensified new media management and application, thus continuously raising the scale and influence of positive publicity. During the reporting period, the reputational risk was controllable with a steady trend, without any repercussions of major reputational risk.

75

76

2016 Annual Report

Business Information and Data

7. Country risk The Bank exercised limit management over country risk, paid close attention to conditions in high-risk countries and regions, and timely monitored changes to country risk exposures of high-risk countries. During the reporting period, the implementation of the country risk exposure limits was satisfactory, and the country risk was controllable in general. To assist with the internationalized development strategy, the Bank established country risk assessment methodologies and models, carried out regular country risk assessments and further optimized its country risk management.

XV. Related-party Transactions According to relevant provisions in the Administrative Measures on Related-Party Transactions of Commercial Banks and Insiders and Shareholders, the Accounting Standards for Business Enterprises and relevant provisions governing related-party transactions formulated by CBRC and Shanghai Stock Exchange, the Bank developed its own Administrative Measures on Related-Party Transactions. According to the Measures, there are no related parties that are controlled by the Bank. In the reporting period, the Bank further consolidated its related-party transaction management, identified related parties on a dynamic basis, built a database of related-party transactions, optimized the related-party transaction review procedure, pushed refined management of related-party transactions, and stepped up daily monitoring, statistics and analysis of related-party transactions to ensure the regularity of related-party transactions and compliance of information disclosure. Transactions between the Bank and its related parties observed the principles of integrity and equity, powerfully promoting the synergy of the Bank, other companies under the Group and related shareholders.

i. Related legal persons and transaction balance 1. Loans and advances In RMB millions

Associates and joint ventures Other related parties: Companies with significant influence by

'HFHPEHU

'HFHPEHU

44

41

-

49

324

637

368

727

2016

2015

16

21

key management personnel (excluding shareholders) Other related parties: Group companies of major shareholders (excluding shareholders) Total

Interest income

2016 Annual Report

Business Information and Data

2. Due from and placements with banks and other financial institutions In RMB millions 'HFHPEHU

'HFHPEHU

-

60

2016

2015

-

2

Associates and joint ventures

Interest income

3. Deposits from customers In RMB millions 'HFHPEHU

'HFHPEHU

5,317

4,583

8,058

5,673

35,414

37,454

48,789

47,710

2016

2015

1,445

1,568

Major shareholders Other related parties: Companies with significant influence by key management personnel (excluding shareholders) Other related parties: Group companies of major shareholders (excluding shareholders) Total

Interest expense

4. Due to and placements from banks and other financial institutions In RMB millions

Associates and joint ventures





4,566

814

3,103

3,325

7,669

4,139

2016

2015

113

190

Other related parties: Group companies of major shareholders (excluding shareholders) Total

Interest expense

5. Commission income In RMB millions 



-

6

Associates and joint ventures

66

20

Total

66

26

Other related parties: Group companies of major shareholders (excluding shareholders)

77

78

2016 Annual Report

Business Information and Data

6. Operating expenses In RMB millions

Major shareholders





5

3

200

266

205

269

Other related parties: Group companies of major shareholders (excluding shareholders) Total

7. Letters of guarantee issued In RMB millions 'HFHPEHU

'HFHPEHU

5,950

6,299

-

3

5,950

6,302

Other related parties: Group companies of major shareholders (excluding shareholders) Associates and joint ventures Total

8. Related parties that are controlled by the Bank Related parties that are controlled by the Bank are the subsidiaries of the Bank. Major transactions with these subsidiaries are eliminated in the consolidated financial statements, and are summarized as follows: %DODQFHVDW\HDUHQG

'HFHPEHU

'HFHPEHU

1,316

910

33

-

6,246

5,660

Due from and placements with banks and other financial institutions Interest receivables Due to and placements from banks and other financial institutions Interest payables

24

4

138

48

Loans to other banks

3,047

-

Loans and advances to customers

1,250

223

40

-

Deposits from customers

Others

In RMB millions 7UDQVDFWLRQVIRUWKH\HDU





Interest income from due from banks and other financial institutions

15

21

Interest income from placements with other banks and financial institutions

18

40

120

105

Interest income

25

1

Fee and commission income

30

15

Fee and commission expense

43

-

7

-

Interest expense from due to and placements from banks and other financial institutions

Other operating expense

2016 Annual Report

Business Information and Data

ii. Related legal persons and transaction balance Related natural persons of the Bank include its directors, supervisors, senior management members of both the Head Office and the branches, other persons with authority to decide on or participate in credit extension and asset transfer and their close relatives, as well as directors, supervisors, senior management members and the like of the Bank’s related legal entities (major shareholders). As at the end of the reporting period, related-party transactions between the Bank and its related natural persons were as follows: In RMB millions 'HFHPEHU Number of related natural persons Balance of related-party transactions

6,208 1,010.98

iii. Significant related-party transactions with joint outward investment In the reporting period, the Bank made no joint outward investments with related parties.

XVI. Business Innovation, New Business Varieties Launched or Derivative Finance Business Conducted i. Investment banking Seizing the opportunity for issuing green finance bond, the Bank launched the first green private debt financing instrument; the launch of “Xin Pu” series of asset securitization products signified the actualization of the first personal housing mortgage backed securities project of over RMB10 billion and the first commercial property rents backed bill in the market; with greater efforts to innovate the equity business, the Bank introduced the innovative “Pu Gong Ying” series of equity funds; multiple major projects were put in place in the M&A finance field closely connected to market hotspots such as the mixed ownership reform and integration of state-owned assets, M&A and reorganization of listed companies and privatization of China concept stocks.

ii. Transaction banking and international business We launched the first “cloud capital supervision service” in the industry; a series of featured, innovative products were launched to attract and mobilize settlement funds such as “e Corporate Payment”, “Cloud Bill”, “Pu Shang Ying”, “Smart Port”, “Smart Campus” and “Smart Community”; we also innovated in cross-border, light-asset financing products such as overseas direct loan, “Payment Participation Express”, international forfeiting on the secondary market, risk participation under cross-border trade financing etc.; innovative overseas M&A and overseas asset management businesses were launched to cater to financing and asset management needs of quality enterprises through cooperating with other companies within the Group; further breakthroughs were made in offshore cross-border financing lease factoring, offshore direct loan domestic financing business; we also innovated operation models for overseas interbank business, offshore wealth management, free trade zone business, and launched indirect participation in FT account in free trade zone, cross-border interbank risk participation, offshore interbank forfeiting etc.

79

80

2016 Annual Report

Business Information and Data

iii. Retail banking and electronic banking We supported small and micro start-ups through building a SME customer nurturing system and launching innovative products such as “Business Startup Loan”, “Entrepreneurship Card” etc.; new-typed consumer loans were launched such as “Elite Loan” and “Good Property Loan” and the coverage of housing provident fund loan was widened. Besides, we innovated private banking products and introduced customized products exclusively for special asset management accounts. At the same time, we advanced the construction of the “spdb+” Internet platform and built up the digital service capability; launched the new version of Group-wide portal website, a new version of online banking and a new version of mobile banking; introduced the first intelligent investment counseling system in the industry—“Financial Smart Robot” and an offline intelligent asset configuration system “Financial Smart Quick Match”; launched an innovative Internet store operation mechanism for our WeChat Store and “Dream Loan” under nine hot consumption scenarios.

iv. Financial market business The Bank increased cooperation with government bodies to put in place the poverty alleviation fund project; actively advanced cooperation with Internet enterprises, introduced innovative asset backed securities investments such as 360buy IOU, “Wei Li Loan” etc., and launched “WeGold” jointly with WeBank; launched unnegotiated RMB domestic securities and asset management investment products, advanced the ABS product pilot program and innovated in the full-exposure model; stepped up innovation in the agency business and launched “Hui Tong Li”, “Hu Cun Ying” products; boosted the bulk commodity derivative trading business, “Shang Rong Tong” business and paper gold business, and initiated the proprietary bulk commodity business; worked with securities and futures agencies to carry out account opening for Internet custody and account trading brokerage; completed the first cooperation in financial bond underwriting that allowed participation of joint-stock commercial banks.

XVII. Significant Impacts of Changes in Interest Rate, Exchange Rate, Tax Rate, and New Policies and Regulations on Commercial Banks’ Operation and Profitability i. The interest rate liberalization reform continued to deepen. The central bank flexibly employed various monetary policies and increased the frequency of open market operations. On the one hand, it strengthened liquidity management on the money market and made short-term interest rates more stable. On the other hand, it gradually increased the role of short-end interest rates in leading long-end interest rates, smoothened the interest rate transmission mechanism and further drove financing costs down. The changed monetary policy required commercial banks to step up income structure transformation and strengthen management over assets, liabilities and liquidity.

ii. RMB exchange rates were made more flexible. As the market-oriented RMB exchange rate formation mechanism continued to be refined, the central bank strengthened management over exchange rate expectations and promoted general stability of RMB exchange rate against a basket of currencies at a reasonable, balanced level. In addition, as RMB was officially included into IMF’s SDR basket, RMB presented itself as a steady, strong currency in the global currency system, playing a key role in maintaining stable RMB exchange rates. As a result, market risk facing commercial banks was reduced, and risk management efforts produced better effects. Meanwhile, RMB exchange rates maintained “two-way volatilities” within a reasonable range, which posed higher requirements for commercial banks to roll out new businesses such as hedging business, agency foreign exchange trading, foreign-currency wealth management products etc.

2016 Annual Report

Business Information and Data

iii. The prudent macro policy framework was implemented. The Chinese central bank included bond investment, equity and other investments and financial assets under reverse repurchase agreements into the prudent macro policy framework, which was beneficial for effective prevention of systematic financial risks. Meanwhile, it gave macro policies a bigger role in adjusting the economy in counter-cyclic period and better entertained commercial banks’ development trend of diversified assets. But it also raised higher requirements for commercial banks in terms of asset and liability configuration, risk management etc.

iv. The taxation reform on replacing business tax with value-added tax had mild influence. Since 1 May 2016, the pilot program on replacing business tax with value-added tax was rolled out throughout the whole country. The state taxation authorities timely adjusted the policy based on soliciting opinions from all walks of life and released a series of documents, thereby effectively lowering negative impacts of banks’ taxation.

81

82

2016 Annual Report

2016 Annual Report

Important Matters I. Plan on Ordinary Shares’ Profit Distribution or Capitalisation of the Capital Reserve i. Making and implementation of cash bonus policy In order to further implement the requirements of regulators like CSRC and SSE in respect of cash bonus of listed companies, and truly protect the legitimate interests of investors, the Articles of Association of the Bank defines the basic principle for profit distribution, the specific and decision making procedures, the organization and implementation and the profit distribution policy changes, and states that the Bank’s cash bonus scheme shall meet relevant rules of the regulators, and except for special cases, the accumulated distribution of profit from the cash bonus in past three years shall be no less than 30% of yearly average distributable profit realized in past three years. As for the profit distribution scheme of the Bank proposed by the Board of Directors and approved by the shareholders’ meeting in past three years (2014-2016), the accumulated profit distributed from the cash bonus accounted for 56.86% of the yearly average distributable profit realized in past three years, meeting relevant requirements in articles of association of the Bank. The Bank’s relevant decision making procedure for profit distribution met relevant requirements in the Articles of Association of the Bank and decisions made on the shareholders’ meeting, and the cash bonus’s criteria and proportions were clear and well defined, and all Independent Directors expressed opinions on the profit distribution scheme. The Bank listened to the opinions and claims of minority shareholders, and the profit distribution scheme considered the industry features, development stage, profitability, and capital needs of the Bank, as well as the investors’ requirements for sharing the Bank’s growth, development achievements and obtaining reasonable return on investment.

ii. Plan or scheme of the Bank for ordinary shares profit distribution and for conversion of capital reserve to ordinary shares in past three years In RMB millions

Number of bonus shares per 10 shares

Number of dividend payout per 10 shares (RMB) (tax inclusive)

Number of capital increase per 10 shares

Amount of cash bonus (tax inclusive)

Net profit attributable to ordinary shareholders of the parent company in the consolidated statements in the bonus year

2016

-

2.00

3

4,324

53,099

8.14

2015

-

5.15

1

10,121

50,604

20.00

2014

-

7.57

-

14,121

47,026

30.03

Bonus year

Proportion of net profit attributable to ordinary shareholders of the parent company in the consolidated statements in the bonus year (%)

Note: the 2016 profit distribution plan can be implemented only when it is approved by the shareholders’ meeting.

Note: the 2016 profit distribution plan can be implemented only when it is approved by the shareholders’ meeting.

iii. 2016 profit distribution plan of the Bank 1. 2016 profit distribution plan of the Bank The audited 2016 accounting statement showed that, the parent company realized a total net profit of RMB51.697 billion, and after deducting the preferred stock SPDB P1 and SPDB P2 dividends of RMB1.725 billion issued in the year, the actual profit distributable to ordinary shareholders this year would be RMB49.972 billion.

83

84

2016 Annual Report

Important Matters

The Bank has finished the issuance of 0.3 billion preferred shares in two stages. Since the preferred shares were issued, the Bank’s business operation was normal and in order, the financial operation was standard-compliant and steady, maintaining a good momentum of sustainable development, so the Board of Directors has reason to believe that the Bank has the ability to fully pay the preferred shares’ dividends in the future. Later, the Bank will hold Board meeting at least 10 working days before interest payment date of the preferred shares to review relevant matters about the dividend payout, and will make announcement to the preferred shareholders. Based on above facts, the Bank proposed the 2016 distribution plan as follows: 1. To withdraw discretionary surplus reserve at 30% of after-tax profit of the year, RMB15.509 billion in total; 2. To withdraw RMB9.855 billion from general reserve; 3. To distribute to all shareholders cash dividend at RMB2 (tax inclusive) per 10 shares based on the total number ordinary shares of 21,618,279,922 at the end of 2016. The total distribution amount is RMB4.324 billion, and capital reserve will be converted to ordinary shares based on a ratio of three additional share for each 10 shares, with a total amount of transfer of RMB6.485 billion. After the above distribution plan is implemented, the remaining undistributed profit will be retained as replacement capital according to requirements of CBRC on capital adequacy of commercial banks.

2. Statement of cash bonus ratio The Bank mainly takes into the following factors into consideration in respect of cash bonus to be distributed: first, both international and domestic regulatory requirements for external capital become increasingly stringent. In particular, central banks’ macro and prudential regulatory system articulate higher requirements for commercial banks’ capital adequacy ratio; second, with continuous promotion of the Bank’s collectivization and internationalization strategy, the Group and all subsidiaries’ demand for capital supplement rises; third, under the influence of external economic environment, China continually pushes forward the reform of cut overcapacity, destock, deleverage, resulting in on-going rise of domestic banking risk control pressure. To this end, the Bank appropriately raised the proportion of retained profits and determined the above profit distribution plan after comprehensive considering regulators’ relevant requirements, the Group’s profitability and capital supplement and improving risk-resisting capacity and investors’ expectations for sharing the Bank’s growth and obtaining reasonable return on investment.

II. Situation of the Bank Acquiring Controlling Stake of Shanghai Trust On 18 March 2016, the Bank issued a total of 999,510,332 ordinary shares to 11 counterparties including the Shanghai International Group and acquired 97.33% shares of Shanghai Trust, with issue price per share of RMB16.36 and trading consideration of RMB16.352 billion. The Bank’s total ordinary shares would be increased from 18,653,471,415 to 19,652,981,747 after the transaction. Of which, the shareholding ratio of Shanghai International Group to the Bank was increased from 16.93% before the transaction to 19.53%; the consolidated shareholding ratio of Shanghai International Group and its holding subsidiaries to the Bank was increased from 24.32% before the transaction to 26.55%, and the status of Shanghai International Group as the largest shareholder of the Bank in the consolidated shareholding remained unchanged.

2016 Annual Report

Important Matters

III. Private Issuing of Ordinary Shares To adapt to increasingly strict capital regulation requirements in banking industry, establish financial service enterprises with core competitive advantages and strengthen the Bank’s risk-resisting capacity, the Bank’s 53rd session of the fifth Board meeting deliberated and approved the plan for private issuing of ordinary shares on 10 March 2016. Ordinary shares were issued to specific targets including Shanghai International Group and its subsidiary Shanghai Guoxin Investment Development Limited in a private manner, with a restricted trade period of 36 months. The subscribed shares respectively amounted to RMB10.003 billion and RMB4.827 billion. The fund raised in this issuance would all be used to supplement the Bank’s core tier one capital after being deducted the issuing cost to improve core tier one capital adequacy. In April 2016, the Bank was notified by Shanghai International Group, the subscriber of the private issuing that it had received the Reply to Issues Concerning Private Issuing of Shares of Shanghai Pudong Development Bank Co., Ltd. provided by the State-Owned Assets Supervision and Administration Commission of Shanghai Municipal Government, which in principle approved the plan for Shanghai International Group and Shanghai Guoxin Investment Development Limited to subscribe the ordinary shares issued by the Bank this time. In April 2016, the Bank’s 2015 Annual General Meeting deliberated and approved proposals relating to the private issuing of ordinary shares one by one. In June 2016, the Bank implemented 2015 annual profit distribution plan and the plan for transfer of capital reserve to ordinary shares. As a result, the issue price of the shares issued this time was adjusted to RMB14.16/share, and the issue quantity was adjusted to no more than 1,047,316,383 shares. In December 2016, the Bank received the Reply of China Banking Regulatory Commission to Private Issuing of Ordinary Shares of Shanghai Pudong Development Bank (Y.J.F. [2016] No. 417), approving the Bank’s plan for private issuing of ordinary shares. In March 2017, the Bank’s application for non-public issuance of ordinary shares was approved by the CSRC’s Stock Issuance Examination and Verification Committee upon examination and verification. The private issuing of ordinary shares shall be implemented upon receiving the verification and approval of CSRC.

IV. Issuance of Green Financial Bonds At the end of 2015, the Bank was successively approved by CBRC and CSRC in relation to the issuance of green financial bonds at no more than RMB50 billion in interbank bond market nationwide, provided that the funds raised shall be specially used for loans extended to green industry projects. On 27 January 2016, the Bank enabled the first issue of green financial bonds. The bonds issued this time amounted to RMB20 billion in size, with the bond period of three years and nominal interest rate of 2.95%. The funds raised were credited into the account on 29 January 2016. The issue of green financial bonds was also the first batch in China. Its successful issuance marked the official implementation of green financial bonds from a framework to product launch. On 25 March 2016, the Bank launched the second issue of green financial bonds. The bonds issued this time amounted to RMB15 billion in size, with the bond period of five years and nominal interest rate of 3.20%. The funds raised were credited into the account on 29 March 2016.

85

86

2016 Annual Report

Important Matters

On 14 July 2016, the Bank carried out the third issue of green financial bonds. The bonds issued this time amounted to RMB15 billion in size, with the bond period of five years and nominal interest rate of 3.40%. The funds raised were credited into the account on 18 July 2016.

V. Issuance of Financial Bonds In December 2016, the Bank received the reply of CBRC and CSRC in succession regarding the approval of issuance of financial bonds at no more than RMB50 billion in interbank bond market nationwide. On 22 February 2017, the Bank enabled the first issue of financial bonds. The bonds issued this time amounted to RMB15 billion in size, with the bond period of three years and nominal interest rate of 4.00%. The funds raised were credited into the account on 24 February 2017.

VI. Cooperation between the Bank and Its Strategic Investor China Mobile During the reporting period, the Bank signed a new five-year strategic cooperation agreement with China Mobile. Under this agreement, both parties will deepen the building of “HE Finance” system, develop “internet+” market, give play to the industrial advantages of 4G mobile internet and internet finance, and promote the strategic cooperation to a new height. During the reporting period, both parties carried out cooperation in multiple aspects including internet-based new media marketing, customers’ scenarios-oriented online and offline payment, consumer finance and mobile phone security solutions: launching online “Low Interest Loan” supply chain financing in a number of provinces and cities, providing financing services for customers at upstream and downstream of communications industry and facilitating industrial development of real economy; jointly releasing “Huawei P9 Pre-buying Finance” and “iPhone7 Pre-buying Finance” to drive financial and manufacturing product consumption by virtue of brand effects; realizing online connection of Global Club platform of China Mobile so as to provide online financial services for Global Club members; innovating the cooperation in NFC mobile payment business, launching digitized safe transaction authentication instrument “Mobile Phone SIM Shield” and improving the supporting capability for large-amount payment and settlement business via mobile terminals; joining hands with Migu Culture to launch the “SPD Dream Card: Migu Teddy Bear Credit Card”, carrying out large public welfare activity “Run for Love”, practicing corporate social responsibilities and blending into new-generation customers’ cultural life.

VII. Change of Registered Capital On 18 March 2016, the Bank issued a total of 999,510,332 ordinary shares to 11 counterparties including the Shanghai International Group, and the Bank’s total shares thus increased from 18,653,471,415 to 19,652,981,747. On 30 June 2016, the Bank received CBRC’s reply, approving the increase of the Bank’s registered capital from RMB18,653,471,415 to RMB19,652,981,747. On 23 June 2016, the Bank implemented the 2015 profit distribution plan and the plan for transfer of capital reserve to ordinary shares, and converted 1,965,298,175 shares based on the total number ordinary shares of 19,652,981,747 after the change on 18 March 2016 and a ratio of one additional share for each 10 shares. The Bank’s total ordinary shares expanded to 21,618,279,922 after implementation.

2016 Annual Report

Important Matters

VIII. Appointment of and Termination of Relationship with Accounting Firms In RMB10,000 :KHWKHUDQHZDFFRXQWLQJILUPVLVDSSRLQWHG 1DPHRIDFFRXQWLQJILUP

1R 3ULFHZDWHUKRXVH&RRSHUV=KRQJ7LDQ//3

5HPXQHUDWLRQIRUDFFRXQWLQJILUP






In RMB10,000 Accounting firm for internal control audit Financial advisor

1DPH

5HPXQHUDWLRQ

PricewaterhouseCoopers Zhong Tian LLP

184

HAITONG Securities Company Limited

600

IX. The Bank’s Actual Controller, Shareholders, Related Parties and Buyers, and Commitments Made by the Bank and Other Related Parties during the Reporting Period or Till the Reporting Period On 18 March 2016, the Bank issued shares to 11 counterparties including the Shanghai International Group and acquired the controlling stake of Shanghai Trust they held jointly. 11 counterparties including Shanghai International Group Co., Ltd. undertook: (1) Not to transfer the Bank’s shares subscribed in this transaction within 12 months from the date of shares issuance ending and shares listing; (2) To regulate related-party transactions: strictly abide by relevant laws, regulations, normative documents and relevant provisions of the Articles of Association after this transaction, and reduce the related-party transactions with the Bank as far as possible; follow the market principle of justice, fairness and openness on the basis of equality and voluntariness and perform legal procedures in the case of related-party transactions conducted in a reasonable manner, and not damage legal rights and interests of the Bank and other shareholders via related-party transactions. (3) To completely separate with and be independent from the Bank in terms of personnel, asset, finance, institution and business, without any confusion or mix.

X. Punishment and Rectification Imposed on Listed Companies and Their Directors, Supervisors, Senior Executives, Controlling Shareholders, Actual Controllers and Buyers At the end of the reporting period, the Bank and its other Directors, Supervisors, senior executives, the largest shareholder, and shareholders holding 5% or more shares did not have the following circumstances: being investigated by competent organs, being imposed with mandatory measures by judicial offices or discipline inspection authorities, being transferred to judicial organs or being investigated for criminal responsibility, being registered and investigated by CSRC or imposed with administrative punishment, being forbidden to enter a market, being deemed as inappropriate candidate, being imposed with punishment by administrative department and being publicly condemned by stock exchange. During the reporting period, the Bank was not subject to any administrative supervision measures by CSRC and its agencies or request for rectification within a time limit.

87

88

2016 Annual Report

Important Matters

XI. Active Performance of Social Responsibility i. Poverty alleviation by listed companies 1. Overview of annual targeted poverty alleviation To practically implement the CPC Central Committee’s strategic spirit of targeted poverty alleviation, respond to the call of governments at all levels on fighting against poverty and persist in performing social responsibility, during the reporting period, the Bank improved financial poverty alleviation mechanism, innovated financial poverty alleviation products and modes, took multiple measures adapting to local conditions, actively accomplished various targeted poverty alleviation tasks, and carried out 19 donation projects to donate poverty alleviation funds of RMB5.419 million in total. As at the end of 2016, the Bank set up 25 rural banks in total. Its subsidiary AXA SPDB Investment Managers actively assisted the Bank’s branches with national poverty alleviation fund projects, resulting in a total amount of RMB200 billion poverty alleviation funds with a contract signed. The balance of targeted poverty alleviation loans was RMB3.561 billion.

2. Targeted poverty alleviation projects 3URMHFW

'HWDLOV

Public welfare project of children insurance gifts

The Bank donated RMB2 million to the China Children and Teenagers Foundation (CCTF) and presented insurance for 99,641 needy children at the age of 0-14 who were filed and issued a card in Wenshan City of Wenshan autonomous prefecture, Zhenxiong County of Zhaotong City, Jianchuan County of Dali autonomous prefecture, Qiaojia County of Zhaotong City and Baoshan City in Yunnan Province. The type of insurance included payment-based major disease insurance and reimbursment-based hospitalization expense insurance, totaling about RMB6.5 billion.

Dalian Branch’s targeted assistance to Liantun Village

As at the end of 2015, Dalian Branch donated about RMB230,000 to the targeted object Liandun Village in Wafangdian City. In February 2016, Dalian Branch donated RMB30,000 for helping and supporting the targeted object.

Hefei Branch’s targeted assistance to Shaolou Village

Hefei Branch donated RMB100,000 to the poverty alleviation contact unit Shaolou Village, Letu Town, Mengcheng County.

Jingzhou Branch under the jurisdiction of Wuhan Branch providing targeted assistance and support for Hegang Village in Wangqiao Town

Jingzhou Branch under the jurisdiction of Wuhan Branch participated in the establishment of a supervision team appointed to Hegang Village, Wangqiao Town, Jianli County, responsible for donating RMB100,000 as annual poverty alleviation fund to the village for five consecutive years. In 2016, RMB100,000 was donated.

Urumchi Branch’s targeted assistance to Guer Kure Village

Urumchi Branch provided targeted assistance and support for Guer Kure Village, Halajun Township, Atushi City, Xinjiang, and donated RMB280,000 as supporting fund to the village.

Nanjing Branch’s poverty alleviation donation to Sihong County

Since its establishment in 1996, Nanjing Branch has provided poverty alleviation support for Sihong County. In 2016, it donated RMB500,000 as poverty alleviation fund to the county.

Wenzhou Branch’s counterpart assistance to Chixi Town

Wenzhou Branch has started giving counterpart assistance to Chixi Town, Cangnan County since 2012. In 2016, donated RMB100,000 as poverty alleviation fund to the town via WenZhou Charity Federation.

Haikou Branch’s poverty alleviation projects at provincial and municipal level

Haikou Branch donated RMB1.004 million in total, respectively RMB500,000 to the designated provincial poverty alleviation unit Baomei Village, Shilu Town, Changjiang Li Autonomous County, and RMB504,000 to the municipal poverty alleviation unit Longqiao Town.

Hulunbuir Branch under the jurisdiction of Hohhot Branch providing targeted assistance and support for Deerbuer Town

Hohhot Branch’s subordinate Hulunbuir Branch jointly gave assistance and support to Deerbuer Town, Fugenhe City, and donated RMB50,000 as poverty alleviation fund to the town.

Xi’an Branch’s targeted assistance to Yangyuangou Village

In 2016, Xi’an Branch provided targeted poverty alleviation assistance and support for Yangyuangou Village, Wuqi County, Yan’an City, and invested RMB155,000 as poverty alleviation fund.

Jilin Branch under the jurisdiction of

Tier-two branch Jilin Branch under the jursidiction of Changchun Branch participated in

Jingzhou Branch under the jurisdiction of Wuhan Branch providing targeted assistance and support for Hegang Village in Wangqiao Town

Jingzhou Branch under the jurisdiction of Wuhan Branch participated in the establishment of a supervision team appointed to Hegang Village, Wangqiao Town, Jianli County, responsible for donating RMB100,000 as annual poverty alleviation fund to the village for five consecutive years. In 2016, RMB100,000 was donated.

Urumchi Branch’s targeted assistance to Guer Kure Village

Urumchi Branch provided targeted assistance and support for Guer Kure Village, Halajun Township, Atushi City, Xinjiang, and donated RMB280,000 as supporting fund 2016 Annual Report to the village.

Nanjing Branch’s poverty alleviation donation to Sihong County

Since its establishment in 1996, Nanjing Branch has provided poverty alleviation support for Sihong County. In 2016, it donated RMB500,000 as poverty alleviation fund to the county.

Wenzhou Branch’s counterpart assistance to Chixi Town

Wenzhou Branch has started giving counterpart assistance to Chixi Town, Cangnan Important Matters County since 2012. In 2016, donated RMB100,000 as poverty alleviation fund to the town via WenZhou Charity Federation.

Haikou Branch’s poverty alleviation projects at provincial and municipal level 3URMHFW Hulunbuir Branch under the jurisdiction of Hohhot Branch providing targeted assistance and Public welfare project of support for Deerbuer Town children insurance gifts Xi’an Branch’s targeted assistance to Yangyuangou Village Dalian Branch’s targeted Jilin Branch under the jurisdiction of assistance Liantunprovding Village targeted ChangchuntoBranch assistance and support for Yima Village Hefei Branch’s targeted Bengbu Branch under the jurisdiction of assistance to Shaolou Village Hefei Branch providing pairing assistance and support for Gucheng Town Jingzhou Branch under the jurisdiction of Wuhan Branch providing targeted Ma’anshanand Sub-branch under the assistance support for Hegang jurisdiction of Wuhu Branch Village in Wangqiao Town providing pairing assistance and support for Hongqi Administrative Village Urumchi Branch’s targeted assistance to Guer Kure Village Hangzhou Branch’s pairing assistance and support to Pingmen Nanjing Branch’s Township, Chunanpoverty Countyalleviation donation to Sihong County Urumchi Branch’s counterpart Wenzhou Branch’s counterpart poverty alleviation support to assistance to Chixi Town Wukeshu Village Lanzhou Branch’s Haikou “doubleBranch’s liaisons” poverty programalleviation projects at provincial and municipal level Erdos Branch under the jurisdiction of Hohhot Branch providing targeted Hulunbuir Branch under the jurisdiction of assistance and support fortargeted Manghatu Village Hohhot Branch providing assistance and under the jurisdiction Weinan Branch support for Deerbuer Town of Xi’an Branch providing targeted poverty alleviation support for Qinyu Village Xi’an Branch’s targeted assistance to Yangyuangou Village Ji’an Branch under the jurisdiction of Nanchang Branch providing targeted poverty Jilin Branch under for theJuefu jurisdiction alleviation support NaturalofVillage Changchun Branch provding targeted assistance and support for Yima Village

Haikou Branch donated RMB1.004 million in total, respectively RMB500,000 to the designated provincial poverty alleviation unit Baomei Village, Shilu Town, Changjiang Li Autonomous County, and RMB504,000 to the municipal poverty alleviation unit Longqiao 'HWDLOV Town. The Bank donatedsubordinate RMB2 million to the China Children and Teenagers Hohhot Branch’s Hulunbuir Branch jointly gave assistance Foundation and support to (CCTF) and presented insurance fordonated 99,641 needy children the age of 0-14 who Deerbuer Town, Fugenhe City, and RMB50,000 as at poverty alleviation fund to were filed and issued a card in Wenshan City of Wenshan autonomous prefecture, the town. Zhenxiong County of Zhaotong City, Jianchuan County of Dali autonomous prefecture, Qiaojia County of Zhaotong City and Baoshan City in Yunnan Province. The type of In 2016, Xi’an Branch provided targeted poverty alleviation assistance and support for insurance included payment-based major disease insurance and reimbursment-based Yangyuangou Village, Wuqi County, Yan’an City, and invested RMB155,000 as hospitalization expense insurance, totaling about RMB6.5 billion. poverty alleviation fund. As at the end of 2015, Dalian Branch donated about RMB230,000 to the targeted Tier-two branch Jilin Branch under the jursidiction of Changchun Branch participated in object Liandun Village in Wafangdian City. In February 2016, Dalian Branch donated the poverty alleviation program targeting Yima Village, Yima Town, Panshi City, and RMB30,000 for helping and supporting the targeted object. provided RMB150,000 as poverty alleviation fund for the village. Hefei Branch donated RMB100,000 to the poverty alleviation contact unit Shaolou Bengbu Branch provided pairingCounty. assistance and support for Gucheng Town, Huaiyuan Village, Letu Town, Mengcheng County, and donated RMB300,000 to the government. Jingzhou Branch under the jurisdiction of Wuhan Branch participated in the establishment of a supervision team appointed to Hegang Village, Wangqiao Town, Jianli Ma’anshan Sub-branch under the jurisdiction of Wuhu Branch was the supporting unit County, responsible for donating RMB100,000 as annual poverty alleviation fund to the of Hongqi Administrative Village, Baiqiao Town, Zhengpu Port New District, Ma’anshan village for five consecutive years. In 2016, RMB100,000 was donated. City, and invested RMB100,000 for the reconstruction and extension of Service Center for People. Urumchi Branch provided targeted assistance and support for Guer Kure Village, Halajun Township, Atushi City, Xinjiang, and donated RMB280,000 as supporting fund Since 2011, Hangzhou Branch has provided pairing assistance and support for to the village. Pingmen Township, Chunan County and has donated RMB500,000 in total as supporting fund. The supporting period was expected to be fivepoverty years at preliminary Since its establishment in 1996, Nanjing Branch has provided alleviation stage. 2016, Hangzhou continued to RMB500,000 donate RMB100,000 as supporting supportInfor Sihong County.Branch In 2016, it donated as poverty alleviation fund fund the township. to thetocounty. WenzhouBranch Branchprovided has started givingassistance counterpart assistance to Wukeshu Chixi Town, Cangnan Urumchi targeted and support for Village, County 2012.Mulei In 2016, donated RMB100,000 as poverty alleviation fund to the Queren since Township, County, Changji Hui Autonomous Prefecture, and donated town via WenZhou Federation. year. RMB100,000 in theCharity fourth consecutive Lanzhou Branchdonated established specificmillion liaisons with Gancheng Village and Xicha Haikou Branch RMB1.004 in total, respectively RMB500,000 to Village, the Gancheng Gulang alleviation County andunit Laijiapo Village, Zhong It designatedTownship, provincial poverty Baomei Village, ShiluChuan Town,Town. Changjiang donated RMB330,000 2016. Li Autonomous County,inand RMB504,000 to the municipal poverty alleviation unit Longqiao Town. Erdos Branch under the jurisdiction of Hohhot Branch was responsible for contact with nine poverty-striken households in Manghatu Village, Dugui Tala Town, Hangjin Hohhot Branch’s subordinate Hulunbuir Branch jointly gave assistance and support to Banner, and donated RMB50,000 as poverty alleviation fund to the village. Deerbuer Town, Fugenhe City, and donated RMB50,000 as poverty alleviation fund to In the2016, town.Weinan Branch under the jurisdiction of Xi’an Branch continued to undertake the task of providing poverty alleviation support for Qiyu Village, Mengyuan Town, Huayin donatedprovided RMB60,000 in thepoverty year. alleviation assistance and support for In 2016,City. Xi’anIt Branch targeted Yangyuangou Village, Wuqi County, Yan’an City, and invested RMB155,000 as Ji’an Branch under the jurisdiction of Nanchang Branch made donations to local poverty alleviation fund. poverty alleviation projects in batches. It made targeted poverty alleviation donation of RMB180,000 to Jilin JuefuBranch Naturalunder Village, Village, Aoli Township, Jinggangshan Tier-two branch the Zhaixia jursidiction of Changchun Branch participated in City under the jurisdiction of Ji’an City. Yima Village, Yima Town, Panshi City, and the poverty alleviation program targeting provided RMB150,000 as poverty alleviation fund for the village.

Bengbu Branch under the jurisdiction of Hefei Branch providing pairing assistance and support for Gucheng Town

Bengbu Branch provided pairing assistance and support for Gucheng Town, Huaiyuan County, and donated RMB300,000 to the government.

Ma’anshan Sub-branch under the jurisdiction of Wuhu Branch providing pairing assistance and support for Hongqi Administrative Village

Ma’anshan Sub-branch under the jurisdiction of Wuhu Branch was the supporting unit of Hongqi Administrative Village, Baiqiao Town, Zhengpu Port New District, Ma’anshan City, and invested RMB100,000 for the reconstruction and extension of Service Center for People.

Hangzhou Branch’s pairing assistance and support to Pingmen Township, Chunan County

Since 2011, Hangzhou Branch has provided pairing assistance and support for Pingmen Township, Chunan County and has donated RMB500,000 in total as supporting fund. The supporting period was expected to be five years at preliminary stage. In 2016, Hangzhou Branch continued to donate RMB100,000 as supporting fund to the township.

Urumchi Branch’s counterpart poverty alleviation support to Wukeshu Village

Urumchi Branch provided targeted assistance and support for Wukeshu Village, Queren Township, Mulei County, Changji Hui Autonomous Prefecture, and donated RMB100,000 in the fourth consecutive year.

Lanzhou Branch’s “double liaisons” program

Lanzhou Branch established specific liaisons with Gancheng Village and Xicha Village, Gancheng Township, Gulang County and Laijiapo Village, Zhong Chuan Town. It donated RMB330,000 in 2016.

Erdos Branch under the jurisdiction of Hohhot Branch providing targeted

Erdos Branch under the jurisdiction of Hohhot Branch was responsible for contact with nine poverty-striken households in Manghatu Village, Dugui Tala Town, Hangjin

89

90

2016 Annual Report

Important Matters

3. Awards for poverty alleviation program $ZDUGSUHVHQWHGE\ Jiangsu provincial Party

$ZDUGZRQE\ Nanjing Branch

committee and government

$ZDUG Jiangsu Provincial Advanced Unit in Poverty Alleviation Program 2015 “Popular Support Award” for Out-of-Province

Head Office

Supporting Unit of “Double Liaisons” and Targeted Poverty Alleviation Program

Gangsu provincial Party committee Lanzhou Branch

2015 Outstanding Unit of “Double Liaisons” Program across the Province

ii. Social responsibilities During the reporting period, the Bank assumed the following responsibilities with innovative thinking: actively supporting national major strategic deployment and serving the development of real economy with high sense of responsibility and sense of mission; analyzing enterprises’ cross-border business under the “Belt and Road” initiative in an in-depth manner and optimizing cross-border and trans-boundary financial services; building a financial service system for marine economy and small and micro scientific and technological innovation enterprises; implementing development strategy of internet finance to facilitate enterprises’ transformation and upgrading, boosting public innovation and entrepreneurship and committing itself to building a win-win financial ecosphere; greatly promoting inclusive finance, exploring new modes of rural financial services for county economy under new normal, serving new socialist countryside, enhancing the building of community banks and providing quality and convenient financial services for poverty-stricken areas. The Bank fulfilled its social responsibilities with a sincere heart: cementing the foundation of “systematization, innovation and diversification”, pushing forward the regulation of public welfare donations and the innovation of employees’ volunteer day activity, continually carried out public welfare activities in the field of supporting the old and raising the young, helping the poor, medical treatment and public health, cultural education and environment protection, and actively carried out public welfare activities like “See the World” and “Chasing Your Dream, Fireflies”; attaching importance to employees’ development, safeguarding employees’ legal rights and interests and striving to create channels and platforms for employees to study, develop and demonstrate; and continuing to promote financial knowledge popularization. The Bank took the lead to assume environment protection responsibilities based on low-carbon development: continuously guiding the development of low-carbon banks, incorporating environmental and social risks into credit approval procedures, imposing strict control over credit support to high energy-consumption and high-pollution enterprises and industries with excess capacity, and vigorously boosting green credit; continuously accelerating the building of e-financial services, taking efforts to improve its performance in green office, green procurement and energy conservation and environment protection, and integrating green development concept into each operation and management link. Social contribution value per share of the Group during the reporting period:

2016 Annual Report

Important Matters








RMB9.91

RMB10.31

RMB9.89

Note: (1) Social contribution value per share = earnings per share + (tax amount + employee expenses + interest expenditure + total amount of public welfare input)/weighted average of ordinary shares issued to the public during the reporting period. (2) Social contribution value per share during the reporting period is calculated as per the weighted average of 21,368,402,339 ordinary shares issued to the public, and the social contribution value per share during the comparing period is calculated based on the ordinary shares of 20,518,818,557 after adjustment.

XII. Major Lawsuits and Arbitrations As of the end of the reporting period, the Bank as a plaintiff had 4,068 lawsuits for which it had brought an action but no judgment was made, involving an amount of RMB32.68 billion; the Bank as a defendant had 185 court cases in which it was accused and no judgment was made, involving an amount of RMB1.735 billion.

XIII. Major Contracts and Their Execution i. Major custody, contracting and leasing items: during the reporting period, there was no major custody, contracting and leasing item. ii. Major guarantee: during the reporting period, the Bank had no other major guarantee matters required to be disclosed, other than financial guarantee business within the business range as approved by CBRC. iii. Entrusted wealth management: During the reporting period, the Bank had no entrusted wealth management. iv. Other major contracts (including guarantee, etc.) and the performance: During the reporting period, various business contracts of the Bank were performed normally, without any major contract dispute.

XIV. Loss Verification Loans of the Bank during the Reporting Period During the reporting period, based on the Administrative Measures of SPDB on Canceling Asset Loss after Verification, the total amount of loss loan assets as approved by the Bank’s Board of Directors and imposed with accounting treatment for verification was RMB33.094 billion. According to the principle of “account cancellation, case recording and existence of right”, the Bank continued to maintain the right of recourse to minimize the credit fund loss.

XV. The Bank’s Stock Ownership Incentive Plan, Employee Stock Ownership Plan or Other Employee Incentive Plans and Corresponding Influence During the reporting period, the Bank has not implemented any stock ownership incentive plan, employee stock ownership plan or other employee incentive plans.

XVI. Occupancy of Funds and Debt Clearing during the Reporting Period No fund of the Bank was occupied during the reporting period

XVII. Bankruptcy Reorganization The Bank had no bankruptcy reorganization during the reporting period.

91

92

2016 Annual Report

Important Matters

2016 Annual Report

93

Changes of Ordinary Shares and the Shareholders I. Overview of Equity Capital i. Changes of ordinary shares 1. Changes of ordinary shares Unit: Number of shares 4XDQWLW\

'HFHPEHU 3URSRUWLRQ 'LUHFWLRQDOSULYDWH  SODFHPHQW 0DUFK

,QFUHDVHGHFUHDVH &RQYHUWHGVKDUH FDSLWDO -XQH

'HFHPEHU 4XDQWLW\ 3URSRUWLRQ 

I. Shares with restricted sale conditions -

-

-

-

-

-

-

-

+965,281,174

+96,528,117

1,061,809,291

4.912

-

-

+34,229,158

+3,422,916

37,652,074

0.174

-

-

+34,229,158

+3,422,916

37,652,074

0.174

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

18,653,471,415

100

-

+1,865,347,142 20,518,818,557

94.914

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

III. Total ordinary shares 18,653,471,415

100

+999,510,332

+1,965,298,175 21,618,279,922

100

1. Shares held by the state 2. Shares held by state-owned legal persons 3. Other domestically held shares Of which: Shares held by domestic legal persons Shares held by domestic natural persons 4. Shares held by foreign shareholders Of which: Shares held by overseas legal persons Shares held by overseas natural persons

II. Floating shares without restricted sale conditions 1. RMB ordinary shares 2. Foreign shares listed domestically 3. Foreign shares listed overseas 4. Others

2. Changes of ordinary shares On 18 March 2016, the Bank issued a total of 999,510,332 RMB ordinary shares (restricted sale period is 12 months) to 11 counterparties including the Shanghai International Group Co., Ltd., acquiring 97.33% shares of Shanghai Trust. With the completion of this transaction, the total number of ordinary shares of the Bank expanded to 19,652,981,747. On 23 June 2016, the Bank implemented the 2015 profit distribution plan and the plan on conversion of capital reserve to share capital. On the basis of the 19,652,981,747 ordinary shares following the change on 18 March 2016, a total of 1,965,298,175 shares were converted as per conversion of one share each ten ordinary shares. After the conversion, total ordinary shares of the Bank were increased to 21,618,279,922.

94

2016 Annual Report

Changes of Ordinary Shares and the Shareholders

ii. Changes of restricted shares Unit: Number of shares

6KDUHKROGHU QDPH

1XPEHURI VKDUHV UHVWULFWHG IRUVDOHDW EHJLQQLQJ RIWKH\HDU

Shanghai International Group Co., Ltd. Shanghai Jiushi (Group) Company,Ltd. Shenergy Co.,Ltd. Shanghai Jinjiang International Investment Management Co., Ltd. Shanghai Petrochemical Company of Urban Construction Comprehensive Development State Grid Yingda International Holdings Limited China Eastern Airlines Holding Company Shanghai Real Estate (Group) Co., Ltd. Double Coin Holdings Ltd. Shanghai Aijian Co.,Ltd. Shanghai Bailian Group Co.,Ltd. Total

1XPEHURI VKDUHVZLWK WKHVDOH UHVWULFWLRQ EHLQJFDQFHOHG LQWKH\HDU

1XPEHURI UHVWULFWHGVKDUHV LQFUHDVHGLQ WKH\HDU

1XPEHURI UHVWULFWHG VKDUHVDWWKH \HDUHQG

-

-

749,288,002

749,288,002

-

-

225,916,870

225,916,870

-

-

56,479,217

56,479,217

-

-

15,062,600

15,062,600

-

-

15,060,387

15,060,387

-

-

7,531,301

7,531,301

-

-

7,531,301

7,531,301

-

-

7,531,301

7,531,301

-

-

6,024,435 4,517,975 4,517,976 1,099,461,365

6,024,435 4,517,975 4,517,976 1,099,461,365

5HDVRQIRU UHVWULFWHGVDOH

Involvement in directional private placement, without transfer within 12 months

&DQFHOLQJ WKHVDOH UHVWULFWLRQ DQGOLVWLQJ GDWH

20/3/2017

Notes: (1) On 18 March 2016, the Bank issued a total of 999,510,332 RMB ordinary shares (restricted sale period is 12 months) to 11 counterparties including the Shanghai International Group Co., Ltd., acquiring 97.33% stake of Shanghai Trust. (2) On 23 June 2016, the Bank implemented the 2015 profit distribution plan and the plan on conversion of capital reserve to share capital. On the basis of the 19,652,981,747 ordinary shares following the change on 18 March 2016, a total of 1,965,298,175 shares were converted as per conversion of one share each ten ordinary shares. The aforesaid restricted shares were increased by 99,951,033 shares and the share number totaled 1,099,461,365. (3) The aforesaid shares were lifted out of sale restriction and listed for circulation on 20 March 2017.

2016 Annual Report

Changes of Ordinary Shares and the Shareholders

II. Issuing and Listing of Securities i. On 18 March 2016, the Bank issued a total of 999,510,332 RMB ordinary shares (restricted sale period is 12 months) to 11 counterparties including the Shanghai International Group Co., Ltd., acquiring 97.33% stake of Shanghai Trust. The transaction price was RMB16.36 per share and the transaction consideration was RMB16,352 million. The aforesaid shares were lifted out of sale restriction and listed for circulation on 20 March 2017. ii. According to the resolution approved by the 2015 Annual General Meeting, the Bank implemented the 2015 profit distribution plan and the plan on conversion of capital reserve to share capital on 23 June 2016. Based on the 19,652,981,747 ordinary shares following the change on 18 March 2016, the Bank distributed to all ordinary shareholders RMB5.15 cash dividend (tax inclusive) for each ten shares with a total of RMB10,121,285,599.71 being given out. Additionally, regarding the capital reserve, a total of 1,965,298,175 shares were converted as per conversion of one share each ten ordinary shares. After the conversion, the total number of the Bank’s ordinary shares expanded to 21,618,279,922. The increased unrestricted shares were listed for circulation on 24 June 2016. iii. Within the reporting period, no share of the Bank has been specifically issued to its employees.

III. Overview of Shareholders i. Total number of shareholders Unit: Corporate 7RWDOQXPEHURIRUGLQDU\VKDUHKROGHUVDVDWWKHHQGRIUHSRUWLQJSHULRG 7RWDOQXPEHURIRUGLQDU\VKDUHKROGHUVDVDWWKHHQGRIWKHPRQWKEHIRUHWKH DQQXDOUHSRUWGLVFORVXUHGD\

 

7RWDOQXPEHURISUHIHUHQFHVKDUHKROGHUVZLWKUHFRYHUHGYRWLQJULJKWVDVDWWKH HQGRIWKHUHSRUWLQJSHULRG



7RWDOQXPEHURISUHIHUHQFHVKDUHKROGHUVZLWKUHFRYHUHGYRWLQJULJKWVDVDWWKH HQGRIWKHPRQWKEHIRUHWKHDQQXDOUHSRUWGLVFORVXUHGD\



ii. Overview of shares held by the top ten shareholders and the top ten shareholders of circulating shares (or shareholders without restricted sale conditions) as at the end of the reporting period

95

96

2016 Annual Report

Changes of Ordinary Shares and the Shareholders

Overview of shareholding by top ten shareholders 6KDUHKROGHUQDPH

,QFUHDVHGHFUHDVH

3URSRUWLRQ 

UHSRUWLQJSHULRG

1XPEHURI VKDUHVE\ WKHHQGRIWKH UHSRUWLQJSHULRG

1XPEHURI VKDUHVZLWK UHVWULFWHGVDOH FRQGLWLRQV

1XPEHURI SOHGJHG RUIUR]HQ VKDUHV

+1,065,039,394

4,222,553,311

19.53

749,288,002

-

+373,069,428

4,103,763,711

18.98

-

-

+194,366,243

2,138,028,672

9.89

-

-

+1,356,332,558

1,356,332,558

6.27

-

-

+97,592,379

1,073,516,173

4.97

-

-

-229,940,568

977,252,806

4.52

-

-

+61,967,227

681,639,492

3.15

-

-

+174,165,418

598,619,556

2.77

-

-

+37,710,200

414,812,199

1.92

-

-

+27,868,630

306,554,930

1.42

-

-

GXULQJWKH

Shanghai International Group Co., Ltd. China Mobile Communication Group Guangdong Limited Funde Sino Life Insurance Co., Ltd.-conventional Funde Sino Life Insurance Co., Ltd.-capital Shanghai Sitico Assets Management Co., Ltd. Funde Sino Life Insurance Co., Ltd.-universal H Phoenix Tree Investment Platform Co., Ltd. China Securities Finance Corporation Limited Shanghai Guoxin Investment &Development Co., Ltd. Central Huijin Asset Management Co., Ltd.

Overview of shareholding by top ten shareholders without sale restriction conditions 6KDUHKROGHUQDPH

1XPEHURIFLUFXODWLQJVKDUHVZLWKRXWVDOHUHVWULFWLRQ

6WRFNFODVV

China Mobile Communication Group Guangdong Limited

4,103,763,711 RMB ordinary shares

Shanghai International Group Co., Ltd.

3,473,265,309 RMB ordinary shares

Funde Sino Life Insurance Co., Ltd.-conventional

2,138,028,672 RMB ordinary shares

Funde Sino Life Insurance Co., Ltd.-capital

1,356,332,558 RMB ordinary shares

Shanghai Sitico Assets Management Co., Ltd.

1,073,516,173 RMB ordinary shares

Funde Sino Life Insurance Co., Ltd.-universal H

977,252,806 RMB ordinary shares

Phoenix Tree Investment Platform Co., Ltd.

681,639,492 RMB ordinary shares

China Securities Finance Corporation Limited

598,619,556 RMB ordinary shares

Shanghai Guoxin Investment&Development Co., Ltd.

414,812,199 RMB ordinary shares

Central Huijin Asset Management Co., Ltd.

306,554,930 RMB ordinary shares

Statement on the connected relations or concerted action relations of the aforesaid shareholders

1. Shanghai International Group Co., Ltd. is the controlling Company of Shanghai Sitico Assets Management Co., Ltd. and Shanghai Guoxin Investment Development Co., Ltd. 2. Funde Sino Life Insurance Co., Ltd.-conventional, Funde Sino Life Insurance Co., Ltd.-capital and Funde Sino Life Insurance Co., Ltd. -universal H are under the name of the same legal person. 3. Connected relations or concerted action relations of the aforesaid shareholders apart from the situations mentioned above are known to the Bank.

2016 Annual Report

Changes of Ordinary Shares and the Shareholders

Increase/decrease during the reporting period: (1) On 18 March 2016, the Bank issued a total of 999,510,332 RMB ordinary shares to 11 counterparties including the Shanghai International Group Co., Ltd., acquiring 97.33% stake of Shanghai Trust. (2) On 23 June 2016, the Bank implemented the 2015 profit distribution plan and the plan on conversion of capital reserve to share capital. On the basis of the 19,652,981,747 ordinary shares following the change on 18 March 2016, a total of 1,965,298,175 shares were converted as per conversion of one share each ten ordinary shares.

iii. Overview of controlling shareholders and actual controllers 1. The Bank had no controlling shareholders or actual controllers. 2. The largest consolidated shareholder of the Bank was Shanghai International Group Co., Ltd., and it remained the same during the reporting period. As at the end of the reporting period, Shanghai International Group Co., Ltd. and its controlling subsidiaries held 26.55% shares of the Bank in total. Shanghai International Group Co., Ltd. was founded on 20 April 2000 with a registered capital of RMB10,558.84 million. Its registered address is No.511 Weihai Road, Jing’an District, Shanghai, and its legal representative is Shen Jun. Its uniform social credit number is 91310000631757739E, and its business scope covers investment with finance business as the main direction and non-finance business as the supporting part, capital operation and asset management business, financial research, social consulting and etc.

3. Block diagram for property right and controlling relations between the Bank and its largest consolidated shareholder State-Owned Assets Supervision and Administration Commission of Shanghai Municipal Government

Shareholding 100% Shanghai International Group Co., Ltd

Shareholding 66.33%

Shareholding 100% Shanghai State-owned Asset Management Co, Ltd.

Shanghai Sitico Assets Management Co., Ltd.

Shareholding 100% Shanghai International Group Assets Management Co., Ltd

Shareholding 100% Shanghai Guoxin Investment Development Co, Ltd.

Shareholding 1.92%

Shareholding 19.53%

Shareholding 4.97%

Shanghai Pudong Development Bank Co.,Ltd

Shareholding 0.13%

97

98

2016 Annual Report

Changes of Ordinary Shares and the Shareholders

iv. Other legal-person shareholders holding more than 10% shares of the Bank as at the end of the reporting period 1. Funde Sino Life Insurance Co., Ltd. Funde Sino Life Insurance Co., Ltd. was founded on 4 March 2002 with a registered capital of RMB11,752,005,497. Its registered address was 22/F, Block B, First-stage Donghai International Center, No. 7888, South Shen Avenue, Futian District, Shenzhen and its legal representative is Fang Li. Uniform social credit number: 91440300736677639J. Business scope: personal accident insurance, personal fixed-term death insurance, personal mixed life insurance, personal whole life insurance, personal annuity insurance, personal short-term health insurance, personal long-term health insurance, group accident bodily injury insurance, group fixed term life insurance, group whole life insurance, group annuity insurance, group short-term health insurance, group long-term health insurance, other life insurances as approved by CIRC, reinsurance for the above insurances, and funds application businesses as approved by the CIRC.

2. China Mobile Communication Group Guangdong Limited China Mobile Communication Group Guangdong Limited was founded on 13 January 1998 with a registered capital of RMB5,594.84 million. Its registered address was Global building, No. 11, Zhujiang West Road, Pearl River New City, Tianhe District, Guangzhou, and its legal representative was Jian Qin. Uniform social credit number: 91440000707653099T. Scope of operation: mobile communication business in Guangdong (including voice, data and multimedia); IP telephone and internet access; design, investment and construction of mobile communications, IP telephone and internet network; installation, engineering installation and maintenance of facilities of mobile communications, IP telephone and internet; system integration, roaming settlement, technology development, technical services and equipment sales in connection with mobile communications, IP telephone and internet; sale and rent of mobile phone terminal equipment, IP telephone equipment, internet equipment and spare parts, and after-sale services for them.

2016 Annual Report

99

100

2016 Annual Report

2016 Annual Report

101

Overview of Preferred Shares I. Issuance and Listing of Preferred Shares in Recent Three Years as of the End of the Reporting Period In 10,000 shares &RGHRI $EEUHYLDWLRQ SUHIHUUHG RISUHIHUUHG VKDUH VKDUH

,VVXDQFH GDWH

,VVXDQFH 1RPLQDO SULFH GLYLGHQG 50% UDWH 

1XPEHU RILVVXHG VKDUHV

/LVWLQJ GDWH

7UDGH YROXPH RIOLVWLQJ

'DWHRI GHOLVWLQJ

360003

SPDB P 1

28 November 2014

100

6.00

15,000

8 December 201

15,000

-

360008

SPDB P 2

6 March 2015

100

5.50

15,000

26 March 2015

15,000

-

Notes: (1) SPDB P 1’s nominal dividend rate for the first five years is 6.00%, which consists of 3.44% as the yield rate arithmetic mean of five-year government bond issued during the 20 trading days before the insurance date of the preferred shares this time (excluding the issuance date) and the fixed premium of 2.56%. The nominal dividend rate would be adjusted once every five years according to change of the benchmark interest rate. (2) SPDB P 2’s nominal dividend rate for the first five years is 5.50%, which consists of 3.26% as the yield rate arithmetic mean of five-year government bond issued during the 20 trading days before the insurance date of the preferred shares this time (excluding the issuance date) and the fixed premium of 2.24%. The nominal dividend rate would be adjusted once every five years according to change of the benchmark interest rate.

II. Overview of Shareholders of Preferred Shares i. Total number of shareholders of preferred shares &RGH

$EEUHYLDWLRQ

7RWDOQXPEHURI VKDUHKROGHUV DFFRXQWV

Total number of shareholders as at

360003

SPDB P 1

32

the end of the reporting period

360008

SPDB P 2

14

Total number of shareholders of preferred

360003

SPDB P 1

32

shares at the end of the month before the date of

360008

SPDB P 2

14

annual report disclosure

ii. Shareholding of the top ten shareholders of preferred shares and top ten shareholders without sale restriction conditions as at the end of the reporting period

102

2016 Annual Report

Overview of Preferred Shares

1. SPDB P 1 Unit: Number of shares Shareholder name

1XPEHURIVKDUHVKHOGDWWKHHQGRIWKHUHSRUWLQJSHULRG

3URSRUWLRQ 

Bank of Communications Schroder Fund Management Co.,Ltd.

11,540,000

7.69

China Ping An Property Insurance Co., Ltd.-conventional

11,470,000

7.65

China Ping An Life Insurance Co., Ltd.-bonus

11,470,000

7.65

China Ping An Life Insurance Co., Ltd.-universal

11,470,000

7.65

Maxwealth Fund

11,470,000

7.65

HWABAO TRUST Co., Ltd.- fund trust in No.2 investment

11,470,000

7.65

E Fund Management

11,470,000

7.65

Single fund trust of Jin Sheng Tian Li No.1 of Bank of Communications International Trust

9,180,000

6.12

Beijing Tiandi Fangzhong Asset Management

8,410,000

5.61

Zhonghai Trust Co., Ltd.

7,645,500

5.10

Statement on whether there is correlation among the top ten shareholders of preferred shares and between the above shareholders and the top ten shareholders of ordinary shares, and whether they are persons acting in concert

1. China Ping An Property Insurance Co., Ltd.-conventional, China Ping An Life Insurance Co., Ltd.-bonus and China Ping An Life Insurance Co., Ltd.-universal are under the same legal person. 2. Apart from the above, correlations or concerted action relations of the above shareholders are unknown to the Bank.

2. SPDB P 2 Unit: Number of shares Shareholder name

1XPEHURIVKDUHVKHOGDWWKHHQGRIWKHSHULRG

3URSRUWLRQ 

People’s Insurance Company of China-conventional

34,880,000

23.25

China Ping An Life Insurance Co., Ltd.-bonus

20,360,000

13.57

China Ping An Life Insurance Co., Ltd.-universal

19,500,000

13.00

China Ping An Life Insurance Co., Ltd.-own fund

19,500,000

13.00

Maxwealth Fund

10,460,000

6.97

Bank of China Limited Shanghai Branch (BOC stable Shanghai directional asset management plan)

10,460,000

6.97

Bank of Communications Schroder Fund Management Co., Ltd.

6,970,000

4.65

Zhonghai Trust Co., Ltd.

6,970,000

4.65

Wisdom Asset Management

6,970,000

4.65

5,580,000

3.72

Huashang Fund Management Co., Ltd. Statement on whether there is correlation among the top ten shareholders of preferred shares and between the above shareholders and the top ten shareholders of ordinary shares, and whether they are persons acting in concert

1. China Ping An Life Insurance Co., Ltd.-bonus, China Ping An Life Insurance Co., Ltd.-universal and China Ping An Life Insurance Co., Ltd.-own fund are under the same legal person. 2. Apart from the above, correlations or concerted action relations of the above shareholders are unknown to the Bank.

2016 Annual Report

Overview of Preferred Shares

III. Distribution of Dividend of Preferred Shares i. Distribution of dividend of preferred shares during the reporting period 1. On 6 February 2016, the Bank disclosed the Announcement on Distribution of Dividend for Phase II Preferred Shares. The equity registration date for distribution in this phase of preferred shares’ dividend is 10 March 2016, and the ex dividend date is 10 March 2016. The start date of interest accrual for dividend distribution and the date of dividend distribution are both 11 March 2016. Based on the nominal dividend rate 5.50% of SPDB P2, the cash dividend to be distributed per share would be RMB5.50 (tax inclusive), and the total dividend would be RMB825 million (tax inclusive). 2. On 29 October 2016, the Bank disclosed the Announcement on Distribution of Dividend for Phase I Preferred Shares. The equity registration date for distribution in this phase of preferred shares’ dividend is 2 December 2016, and the ex dividend date is 2 December 2016. The start date of interest accrual for dividend distribution and the date of dividend distribution are both 5 December 2016. Based on the nominal dividend rate 6.00% of SPDB P1, the cash dividend to be distributed per share would be RMB6 (tax inclusive), and the total dividend would be RMB0.9 billion (tax inclusive).

ii. Distribution of dividend of preferred shares in recent three years In RMB100 millions
'LVWULEXWLRQDPRXQW

5HPDUNV

2016

17.25

Dividend distribution of SPDB P1 and SPDB P2

2015

9.00

Dividend distribution of SPDB P1

IV. Repurchase and Conversion of Preferred Shares of the Bank During the Reporting Period The Bank had no repurchase and conversion of preferred shares during the reporting period.

V. Voting Right on Preferred Shares Resumed During the Reporting Period The Bank had no voting right on preferred shares resumed during the reporting period.

VI. Accounting Policy Adopted by the Bank for Preferred Shares and the Reason The Bank classified the preferred shares into financial assets, financial liabilities or equity instruments at the time of initial confirmation, according to the rules of financial instruments, the provisions in contract for issuing preferred shares, the economic essence reflected, and based on definitions of financial assets, financial liabilities and equity instruments. If the following conditions are met concurrently, the Bank will classify the financial instruments issued as equity instruments: (1) Such financial instruments do not involve delivering cash or other financial assets to other parties, or the contract obligations of exchanging financial assets or financial liabilities with other parties in potentially adverse conditions; (2) in case the Bank’s own equity instruments are to be used or may be used for settling accounts for such financial instruments in the future, and such instruments are non-derivative instruments, there would be no contract obligation of delivering variable quantity of its own equity instruments for settlement; if the instruments are derivative instruments, only the fixed quantity of equity instruments can be used for exchanging for fixed amount of cash or other financial assets may be used for settling accounts of such financial instruments.

103

104

2016 Annual Report

Overview of Preferred Shares

On 28 November 2014 and 6 March 2015, the Bank issued non-cumulative preferred shares with the offering value of RMB30 billion in total to domestic investors. The proceeds were accrued to other equity instruments with issuance expense deducted. The Bank has the option to redeem part or all outstanding preferred shares on any dividend payment date after five years from the issuance if certain conditions are met, under the approval by CBRC. Holders of the preferred shares have no right to require the Bank to redeem the outstanding preferred shares. Dividends of the preferred shares are payable in cash on an annual basis at a fixed dividend rate which is adjusted every five years. The Bank has the right to not to declare or distribute the dividends of preferred shares in part or in full. Upon occurrence of any of the following triggering events and subject to the approval from CBRC, the Bank’s outstanding preferred shares shall be mandatorily converted in part or in full to the Bank’s ordinary shares: (1) when the core tier 1 capital adequacy ratio of the Bank decreases to 5.125% or below, upon the approval from the Board of Directors, the outstanding preferred share shall be converted into the Bank’s ordinary shares in part or in full at a predetermined mandatory conversion price so as to bring the Bank’s core tier 1 capital adequacy ratio back to 5.125% and above; (2) when any triggering event of the Bank’s tier 2 capital instruments occurs, the outstanding preferred shares shall be converted to the Bank’s ordinary A shares at the pre-determined mandatory conversion price. Under the approval from the regulator, the outstanding preferred shares will be fully or partially converted to ordinary A shares at the price of RMB10.96 per share when meeting the mandatory conversion triggering conditions. Following the date of approving the preferred share issuance plan by the Board of Directors, if the Bank subsequently appropriates bonus shares, converts capital reserve to share capital, issues new ordinary shares (excluding any increase of ordinary shares due to conversion of convertible financial instruments issued by the Bank, such as preferred shares and convertible corporate bonds) or issues rights, the conversion price shall be adjusted subject to the set formula based on the order of occurrence of the above conditions. Pursuant to the relevant laws and regulations as well as the Approval from CBRC on SPD Bank’s Non-Public Offering of Preferred Shares and Corresponding Revisions to the Articles of Association (Y.J.F. [2014] No.564), the proceeds from the issuance of preferred shares shall be used to supplement other tier 1 capital of the Bank. Upon liquidation, the holders of the Bank’s preferred shares are entitled to the repayment at the par value of the outstanding preferred shares prior to any distribution to the holders of the Bank’s ordinary shares. If the remaining assets of the Bank are not sufficient to cover the par value, they are allocated to the holders of preferred shares on proportionate basis. The Bank confirmed the preferred shares issued this time as other equity instruments based on the contract terms and economic substance of the issuance.

2016 Annual Report

Overview of Preferred Shares

105

106

2016 Annual Report

2016 Annual Report

107

Overview of Directors, Supervisors, Senior Executives and Employees I. Basic Information of Directors, Supervisors and Senior Executives i. Incumbent Directors, Supervisors, Senior Executives as of the end of the reporting period 5HPXQHUDWLRQ 1RRI UHFHLYHGIURPWKH VKDUHV KHOG %DQN LQ50% EHIRUHWD[ GXULQJWKH UHSRUWLQJSHULRG

1DPH

3RVLWLRQ

*HQGHU %LUWK \HDU

7HQXUH

Ji Xiaohui

Chairman

Male

1955

28 April 2016- 27 April 2019

-

80.96

Liu Xinyi

Vice Chairman, President

Male

1965

28 April 2016 - 27 April 2019

-

80.96

Jiang Mingsheng Director, Vice President

Male

1960

28 April 2016 - 24 January 2017

-

72.86

Pan Weidong

Director, Vice President, CFO

Male

1966

28 April 2016- 27 April 2019

-

72.86

Gu Jianzhong

Director

Male

1974

28 April 2016- 27 April 2019

-

-

Sha Yuejia

Director

Male

1958

28 April 2016- 27 April 2019

-

-

Zhu Min

Director

Female

1964

28 April 2016- 27 April 2019

-

-

Dong Xiuming

Director

Male

1970

28 April 2016- 27 April 2019

-

-

Hua Renchang

Independent Director

Male

1950

28 April 2016- 27 April 2019

-

31.00

Wang Zhe

Independent Director

Male

1960

28 April 2016- 27 April 2019

-

20.67

Tian Suning

Independent Director

Male

1963

28 April 2016- 27 April 2019

-

17.33

Qiao Wenjun

Independent Director

Male

1970

28 April 2016- 27 April 2019

-

17.33

Zhang Ming

Independent Director

Male

1958

28 April 2016- 27 April 2019

-

18.67

Yuan Zhigang

Independent Director

Male

1958

28 April 2016- 27 April 2019

-

22.67

Sun Jianping

Chairman of the Board of Supervisors

Male

1957

28 April 2016- 27 April 2019

-

-

Chen Bichang

Supervisor

Male

1959

28 April 2016- 27 April 2019

-

-

Li Qingfeng

Supervisor

Male

1971

28 April 2016- 27 April 2019

-

-

Zhao Jiusu

External Supervisor

Male

1954

28 April 2016- 27 April 2019

-

18.67

Chen Shimin

External Supervisor

Male

1958

28 April 2016- 27 April 2019

-

27.00

Wu Guoyuan

Employee Supervisor

Male

1961

28 April 2016- 27 April 2019

-

339.93

Geng Guangxin

Employee Supervisor

Male

1961

28 April 2016- 27 April 2019

-

339.93

Chen Zheng’an

Secretary of Party Discipline Committee

Male

1963

29 April 2016 -

-

38.64

Xu Haiyan

Vice President

Female

1960

29 April 2016 - 27 April 2019

-

72.86

Liu Yiyan

Vice President

Male

1964

29 April 2016 - 27 April 2019

-

66.65

Wang Xinhao

Vice President

Male

1967

29 April 2016 - 27 April 2019

-

28.98

Cui Bingwen

Vice President

Male

1969

29 April 2016 - 27 April 2019

-

28.98

Xie Wei

Vice President

Male

1971

29 April 2016 - 27 April 2019

-

28.98

Mu Shi

Secretary of the Board of Directors

Male

1961

29 April 2016 - 27 April 2019

-

377.70

Notes: (1) On 28 April 2016, the Bank held the 2015 Annual General Meeting which reviewed the Proposal on the Reelection of the Board of Directors and the Proposal on the Reelection of Board of Supervisors, and elected the Sixth Board of Directors and the Sixth Board of Supervisors. (2) On 29 April 2016, the Bank held the First Session of the Sixth Board of Directors. At the session, the Board of Directors elected Director Ji Xiaohui as Chairman of the Board, Director Liu Xinyi as Vice Chairman of the Board, engaged Mr. Liu Xinyi as President of the Bank, Mr. Jiang Mingsheng, Mr. Pan Weidong, Ms. Xu Haiyan, Mr. Liu Yiyan, Mr. Wang Xinhao, Mr. Cui Bingwen and Mr. Xie Wei as Vice Presidents of the Bank, Mr. Mu Shi as Secretary of the Board of Directors of the Bank and Mr. Pan Weidong as CFO of the Bank.

108

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

(3) On 29 April 2016, the Bank held the First Session of the Sixth Board of Supervisors. At the session, Supervisor Sun Jianping was elected as Chairman of the Board of Supervisors of the Bank. (4) Since 29 April 2016, Mr. Chen Zheng’an was appointed as Secretary of Party Discipline Committee of the Bank. (5) On 20 December 2016, the Bank held the 13th Session of the Sixth Board of Directors. At the session, the Board of Directors nominated Mr. Fu Fan as candidate for Director and Mr. Chen Weizhong as candidate for Independent Director. The nomination will be submitted for the Shareholders’ Meeting for approval. (6) On 20 December 2016, the Bank held the 13th Session of the Sixth Board of Supervisors. At the session, the Board of Supervisors nominated Mr. Sun Wei as candidate for Supervisor. The nomination will be submitted for the Shareholders’ Meeting for review. (7) On 25 January 2017, the Bank received the resignation letter from Director Jiang Mingsheng. He resigned as Director and Vice President of the Bank due to his personal reason. (8) On 16 March 2017, the Bank held the Second Session of the Second Employee Representatives’ Meeting. At the session, Mr. Chen Zheng’an was elected as Employee Supervisor of the Sixth Board of Supervisors of the Bank; at the 17th Session of the Board of Supervisors held on 30 March, Supervisor Chen Zheng’an was elected as Vice Chairman of the Board of Supervisors. (9) The final remunerations of Directors, Supervisors and Senior Executives of the Bank are under confirmation, and the rest will be disclosed after being confirmed. (10) The remunerations of Secretary of the Party Discipline Committee Chen Zheng’an, Vice Presidents Wang Xinhao, Cui Bingwen and Xie Wei were not calculated by full year as they were appointed during the reporting period.

ii. Resignation of the Directors, Supervisors and Senior Executives during the reporting period 1RRI VKDUHV KHOG

5HPXQHUDWLRQ UHFHLYHGIURPWKH %DQN LQ50% EHIRUHWD[ GXULQJWKH UHSRUWLQJSHULRG

2012.10.11-2016.2.29

-

5.67

1957

2015.5.15-2016.4.27

-

-

1959

2015.5.15-2016.4.27

-

-

Male

1953

2012.10.11-2016.4.27

-

11.33

Independent Director

Male

1954

2012.10.11-2016.4.27

-

11.33

Independent Director

Male

1959

2012.10.11-2016.4.27

-

8.67

Guo Wei

Independent Director

Male

1963

2012.10.11-2016.4.27

-

8.67

Zhang Linde

Supervisor

Male

1950

2012.10.11-2016.4.27

-

-

Hu Zuliu

External Supervisor

Male

1963

2012.10.11-2016.4.27

-

7.67

Xia Dawei

External Supervisor

Male

1953

2012.10.11-2016.4.27

-

8.33

Lv Yong

Supervisor

Male

1957

2016.4.28-2016.5.26

-

-

Shao Yaliang

Director

Male

1964

2015.5.15-2016.8.15

-

-

1DPH

)RUPHU3RVLWLRQ

*HQGHU

%LUWK \HDU

7HQXUH

Zhou Qinye

Independent Director

Male

1952

Chen Xiaohong

Director

Male

Chen Bichang

Director

Male

Chen Xuebin

Independent Director

Zhao Jiusu Zhang Weiying

Notes:

(1) On 1 March 2016, the Bank received a request from Independent Director Mr. Zhou Qinye to resign as Independent Director. His resignation will not cause the number of Independent Directors of the Bank to be lower than the quorum or the number as specified in Articles of Association of the Bank, so Mr. Zhou Qinye will no longer be an Independent Director of the Bank since 1 March 2016 pursuant to relevant rules. (2) On 28 April 2016, the Bank held the 2015 Annual General Meeting which reviewed the Proposal on the Reelection of the Board of Directors and the Proposal on the Reelection of Board of Supervisors, and elected the Sixth Board of Directors and the Sixth Board of Supervisors of the Bank. After the reelection, Chen Xiaohong, Chen Bichang, Chen Xuebin, Zhao Jiusu, Zhang Weiying, Guo Wei no longer served as Supervisors of the Bank.

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

(3) On 26 May 2016, the Bank received a resignation letter from Supervisor Lv Yong. Mr. Lv Yong resigned as Supervisor of the Bank due to work-related reason. (4) On 15 August 2016, the Bank received s resignation letter from Director Shao Yaliang. Mr. Shao Yaliang resigned as Director of the Bank due to his personal reason.

iii Remuneration received by Directors, Supervisors and Senior Executives after the assessment and confirmation by competent departments in 2015 In RMB10,000 1DPH

3RVLWLRQ

7RWDOUHPXQHUDWLRQ LQ  EHIRUHWD[

Ji Xiaohui

Chairman

92.00

Liu Xinyi

Vice Chairman, President

61.33

Jiang Mingsheng

Director, Vice President

82.80

Pan Weidong

Director, Vice President

62.10

Wu Guoyuan

Employee Supervisor

403.58

Geng Guangxin

Employee Supervisor

330.20

Xu Haiyan

Vice President

82.80

Liu Yiyan

Vice President

48.30

Mu Shi

Secretary of the Board of Directors

124.45

Notes: The remunerations of Mr. Liu Xinyi, Mr. Pan Weidong and Mr. Liu Yiyan were not calculated by full year as they were appointed during the year of 2015.

iv. Main work experience and service information of Directors, Supervisors and Senior Executives 1. Directors Ji Xiaohui, male, born in 1955, MBA and Senior Economist. He previously served as Head and Deputy Party Secretary of Industrial and Commercial Bank of China (ICBC) Shanghai Pudong Branch, Deputy Head and Deputy Party Secretary of ICBC Shanghai Branch, Head and Party Secretary of ICBC Shanghai Branch, Deputy Secretary General of Shanghai Municipal Government, Deputy Party Secretary of Shanghai Financial Working Committee, Head of Shanghai Municipal Financial Service Office, Chairman and Party Secretary of Shanghai International Group Co., Ltd., and member of the 10th and 11th Chinese People's Political Consultative Conference (CPPCC). He currently serves as Party Secretary and Chairman of SPD Bank, and member of the 10th CPC Shanghai Committee. Liu Xinyi, male, born in 1965, master’s degree and Senior Economist. He previously served as Deputy Head (in charge) of the SPD Bank Airport Sub-branch, Party Committee Member and Deputy General Manager of SPD Bank Shanghai Headquarters and Chief of Financial Institutions Service Division and Assistant Director of Shanghai Municipal Financial Service Office (temporary posts), Vice President of SPD Bank and Party Secretary and General Manager of SPD Bank Shanghai Headquarters, Vice President of SPD Bank and Party Secretary and Head of its Shanghai Branch, Vice President and CFO of SPD Bank and President and Deputy Party Secretary of Shanghai Guosheng Group Co., Ltd. He currently serves as Deputy Party Secretary, Vice Chairman and President of SPD Bank and Chairman of the SPD Silicon Valley Bank.

109

110

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

Jiang Mingsheng, male, born in 1960, Bachelor’s degree. He previously served as Deputy Head of China Merchants Bank (CMB) Guangzhou Branch, General Manager of Corporate Banking Department of CMB Head Office, Party Secretary and Deputy Head (in charge) of CMB Shanghai Branch, and Party Secretary and Head of CMC Shanghai Branch, Vice President of SPD Bank and Party Secretary and Head of its Shanghai Branch. As of the end of the reporting period, he serves as Party Committee Member and Vice President of SPD Bank, Chairman of AXA SPDB Investment Managers and Vice Chairman of SPD Silicon Valley Bank. Pan Weidong, male, born in 1966, Master’s degree and Senior Economist. He previously served as Deputy Manager of Corporate Business Department of Ningbo Securities Company, General Manager of Asset and Finance Department of SPD Bank Ningbo Branch, Director of SPD Bank Beilun Sub-branch, Deputy Head of Ningbo Branch, General Manager of SPD Bank’s Product Development Department, President and Party Secretary of SPD Bank Kunming Branch, Chief of the Financial Institutions Service Division of Shanghai Municipal Financial Service Office (temporary post), Party Committee Member and Deputy General Manager of Shanghai International Group, Party Secretary and Chairman of Shanghai International Trust Co., Ltd. He currently serves as Party Committee Member, Vice President and CFO of SPD Bank, and Party Secretary and Chairman of Shanghai Trust. Gu Jianzhong, male, born in 1974, Master’s degree in Economics and Economist. He previously served as Deputy General Manager (and concurrently General Manager of the Marketing Manager Department and HK and Taiwan Business Department) of Shanghai Bank Corporate Banking Department, General Manager of Shanghai Bank Corporate Banking Department, General Manager of the Credit Approval Center and the Banking Department of Shanghai Bank, Deputy Chief of the Comprehensive Coordination Division of Shanghai Municipal Financial Service Office, Chief of the Financial Institutions Service Division (temporary post), Party Committee Member, Head of Human Resources, General Manager of the Human Resources Department and Deputy Secretary of Party Disciplinary Committee of Shanghai Bank. He currently serves as Party Committee Member and Vice President of Shanghai International Group Co., Ltd. Sha Yuejia, male, born in 1958, Doctorate degree and Professor-level Senior Engineer. He previously served as the Chief of the No.4 Division of Construction Department of Beijing Telecommunications Administration, President of Beijing Telecom Engineering Design Institute, Deputy Director of Beijing Telecommunications Administration, Deputy General Manager and Party Committee Member of Beijing Mobile Communication Company, and Chairman, General Manager, Party Secretary of Beijing Mobile Communication Co., Ltd. He currently serves as Party Member and Vice President China Mobile Communications Corporation. Zhu Min, female, born in 1964, Doctorate degree and Senior Accountant. She previously served as General Manager of the Finance Department of China Telecom (Hong Kong) Limited, Chief of the Finance Department and Head of the Fund Allocation Center of China Mobile Communications Corporation. She currently serves as Deputy Chief Accountant and General Manager of the Financial Department of China Mobile Communications Corporation, Deputy CFO and General Manager of the Finance Department of China Mobile Limited, General Manager of the Finance Department of China Mobile (Hong Kong) Group Limited, Chairperson of China Mobile Financial Company Limited and General Manager of China Mobile Limited for HK institutions. Dong Xiuming, male, born in 1970, MBA and Economist. He previously served as Deputy Chief Economist of Shanghai Tobacco Bureau and Shanghai Tobacco Group Company and Deputy General Manager of Shanghai Tobacco Trade Center, Deputy General Manager and Party Committee Member of Shanghai Tabacco Group Company. He currently acts as Party Secretary, Director and General Manager of Jiangsu Tobacco Bureau (Company).

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

Hua Renchang, male, born in 1950, Researcher. He previously served as Deputy Party Secretary and Deputy Director of Chinese Academy of Sciences Shanghai Institute of Materia Medica, Vice President, Standing Vice President and Party Secretary of Shanghai Branch of Chinese Academy of Science, member of the ninth session of Shanghai Political Consultative Congress, member of Committee of Education, Science, Culture, Health and Sports of the 12th Shanghai People’s Congress, member of the Ninth Shanghai Municipal Party Committee, Standing Member of 13th Shanghai People’s Congress. He currently serves as Chairman of Shanghai Liansheng Venture Capital Limited. Wang Zhe, male, born in 1960, MBA and Economist. He previously served as Deputy Head of PBC General Administration Department, Manager of Shenzhen Centre of China Gold Coin Incorporation, Deputy Head of China CITIC Bank Shenzhen Branch, Chairman of Dapeng Securities, Deputy General Manager of China Gold Coin Incorporation, General Manager, Party Secretary and Chairman of Shanghai Gold Exchange and Party Secretary of China Foreign Exchange Trade System. He currently serves as Secretary General of Association of Shanghai Internet Finance Industry and concurrently Vice Chairman of Shanghai Financial Association. Tian Suning, male, born in 1963, Doctorate degree. He was one of the founders and CEO of AsiaInfo Holdings Inc., CEO of China Netcom Company Ltd. and Vice Chairman and President of China Netcom Group Corporation. He is the founder and Chairman of China Broadband Capital Partners, L.P. Qiao Wenjun, male, born in 1970, Master’s degree. He previously served as Legal Counsel to the Package and Decoration Company of Shanghai Light Industry Bureau and Overseas Chinese Affairs of Shanghai, lawyer of Shanghai International Economic Law Firm, Partner of Shanghai Pudong Law Office, Managing Partner of Shanghai Office of Zhong Lun Law Firm and Deputy Chairman of Shanghai Bar Association. He is partner of Zhong Lun Law Firm and arbitrator of Shanghai International Arbitration Center, member of the Managing Committee and arbitrator of Shanghai Arbitration Commission, Specially Engaged Dean of the Lawyers’ School of East China University of Political Science and Law and Chairman of Pudong Legal Services Association. Zhang Ming, male, born in 1958, Doctorate degree and CPA. He previously served as Deputy Dean of School of Accountancy of Shanghai University of Finance and Economics. He is now Professor, Doctorate Supervisor and Senior Researcher of School of Accountancy of Shanghai University of Finance and Economics, and concurrently council member or member of Accounting Society of China, Banking Accounting Society of China, Accounting Society of Shanghai and other academic institutions and member of the Academic Council of Accounting Society of China. Yuan Zhigang, male, born in 1958, Doctorate degree, Specially Engaged Professor of “Changjiang Scholars” launched by the Ministry of Education. He once served as Dean of School of Economics of Fudan University. He now serves as Professor and Doctorate Supervisor of School of Economics of Fudan University and also Director of Employment and Social Security Research Center of Fudan University, Director of the Academic Council of the Faculty of Economics and Management of East China Normal University, member of Discipline Review Group, Expert Member of Shanghai Education Decision Advisory Commission and Vice Chairman of Shanghai Economist Association.

2. Supervisors Sun Jianping, male, born in 1957, Doctorate degree in Management Science. He previously served as Director of the Secretariat and Chief of the Communications Division of the General Office of Shanghai Municipal People’s Government, Deputy Director and Party Committee Member of Shanghai Municipal Information Office, Deputy Party Secretary and Mayor of Songjiang District, Party Secretary of Hongkou District and Party Secretary of Jing’an District. He now serves as Chairman of SPD Bank Board of Supervisors.

111

112

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

Chen Bichang, male, born in 1959, Master’s degree and Professor-level Senior Engineer. He previously served as Director of Electronic Post Office of the State Post Bureau, Head and Deputy Party Secretary of Shenzhen Post Office, Deputy Director General and Party Member of Guangdong Provincial Postal Administration, Party Secretary and Director of Shandong Provincial Postal Administration, and Party Secretary and General Manager of Shandong Post Company. He currently serves as Party Secretary and General Manager China Post Group Corporation Shanghai Branch. He is a standing member of 14th Shanghai Municipal People’s Congress, a member of the Committee for Internal and Judicial Affairs, and a member on the 10th CPC National Congress in Shanghai. Li Qingfeng, male, born in 1971, Master’s degree. He previously served as General Manager and Chairman of Shanghai Jiuheng Futures Brokerage Limited, Deputy General Manager and Deputy Secretary of General Party Branch of Shanghai Jiulian Group Limited. He currently serves as Secretary of Party Branch and General Manager of Shanghai Jiulian Group Limited and General Manager of Shanghai Petroleum Exchange. Zhao Jiusu, male, born in 1954, Doctorate degree. He previously served as Lawyer of Coudert Brothers Law Firm, Partner of Clifford Chance Law Firm and Partner of Jones Day Law Firm Shanghai Representative Office, Partner of McDermott Will & Emery Law Firm and Senior Legal Counsel of MWE China Law Offices (strategic partner of MWE in China). He is now Executive Vice President and Chief Legal Officer of Wuhan Xinxin Integrated Circuit Manufacturing Company Limited. Chen Shimin, male, born in 1958, Doctorate degree and US Certified Management Accountant. He was lecturer in a number of domestic and overseas universities, including Shanghai University of Finance and Economics, Hong Kong Lingnan University, Hong Kong Polytechnic University, Clarion University of Pennsylvania and Lafayette Campus of University of Lousiana. He now serves as Professor of Accountancy, Subdean and MBA Director of China Europe International Business School. Wu Guoyuan, male, born in 1961, MBA and Senior Economist. He previously served as Director of Hongqiao Banking Department and Head of the Planning Department of Agricultural Bank of China Jiangyin Sub-branch, Head and Party Secretary of SPD Bank Jiangyin Sub-branch, Head and Party Secretary of SPD Bank Nanjing Branch and Chairman of SPD Liyang Community Bank. He now serves as Chairman of Trade Union of SPD Bank and Chairman of SPDB International. Geng Guangxin, male, born in 1961, MBA and Senior Economist. He previously served as Chief of Credit Section at PBC’s Ju County Sub-branch, Deputy Chief of the Planning and Personnel Department of PBC’s Central Subbranch in Linyi, Director of PBC Rizhao Branch, Head and Party Secretary of ICBC Rizhao Branch, Head and Party Secretary of SPD Bank Jinan Branch, Chairman of Zouping SPD Rural Bank. He now serves as Party Secretary and General Manager of SPD Rural Bank Administration Center.

3. Senior executives Chen Zheng’an, male, born in 1963, Bachelor’s degree. He previously served as Party member, Deputy Procurator General and Member of Procuratorial Committee of Shanghai Jing’an Procuratorate, Deputy Secretary of Party Working Committee, Director of Representative Office and Secretary of Party Working Committee of Shimenerlu Street of Shanghai Jing’an District, Party Secretary and Director of Shanghai Jing’an Real Estate Bureau, Deputy Mayor, Party Committee Standing Member and Head of the Organization Department of Shanghai Jinshan District and Deputy Secretary of CPC Shanghai Financial Working Committee. He currently serves as Deputy Party Secretary and Secretary of Party Discipline Committee of SPD Bank.

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

Xu Haiyan, female, born in 1960, EMBA and Senior Economist. She previously served as the person in charge of preparation for building of China Investment Bank Ningbo Branch, Chief of the Planning Department of China Construction Bank Ningbo Branch, Deputy Head of SPD Bank Ningbo Branch, General Manager of Corporate Banking Department of SPD Bank Head Office, General Manager of Corporate and Investment Banking Headquarter of SPD Bank Head Office. She currently serves as Party Committee Member and Vice President of SPD Bank. Liu Yiyan, male, born in 1964, Doctorate degree and Senior Economist. He previously served as Vice President of Bank of Communications Changchun Branch, Head of SPD Bank Changchun Branch, General Manager of Personal Banking Headquarter of SPD Bank Head Office, General Manager of human resources department of SPD Bank. He currently serves as Party Committee Member and Vice President of SPD Bank. Wang Xinhao, male, born in 1967, Doctorate degree. He previously served as General Manager of the Asset Management Department, General Manager of the Customer Managers’ Department and General Manager of the Corporate Banking Department of China Everest Bank Dalian Branch, Party Committee Member and Deputy Head, and then Party Secretary and Head of SPD Bank Dalian Branch. He currently serves as Party Committee Member and Vice President of SPD Bank, and concurrently Party Secretary and Head of SPD Bank Shanghai Branch, Party Secretary and Head of Shanghai FTZ Branch. Cui Bingwen, male, born in 1969, Doctorate degree and Senior Economist. He previously acted as Deputy Head of Jinxi Sub-branch, Deputy Head (in charge) of Dongli sub-branch of ICBC Tianjin Branch, Head of the Human Resources Department, General Manager of the Corporate Banking Department, Party Committee member, Head Assistant, Party Secretary and Vice Head of SPD Bank Tianjin Branch, Party Secretary and Head of SPD Bank Beijing Branch and concurrently General Manager of the Group Customer Department and General Manager of the Financial Markets Department (Beijing) of SPD Bank Head Office. He currently serves as Party Committee Member, Vice President and concurrently Head of Corporate Banking of SPD Bank. Xie Wei, male, born in 1971, Master’s degree and Senior Economist. He previously acted as Deputy Head of Jinshui Sub-branch of China Construction Bank (CCB) Zhengzhou Branch, General Manager of Corporate Banking Department of CCB Henan Branch, Party Secretary and Head of CCB Xuchang Branch, General Manager of Development Management Department of Corporate and Investment Banking Headquarter of SPD Bank, Deputy General Manager of Corporate and Investment Banking Headquarter of SPD Bank and concurrently General Manager of Investment Banking Department, Development Management Department and Key Client Department, Party Secretary and Head of SPD Bank Fuzhou Branch, General Manager of SPD Bank Treasury Headquarter and General Manager of SPD Bank Asset Management Department. He currently serves as Party Committee Member and Vice President and concurrently Head of Financial Markets and General Manager of the Financial Markets Department. Mu Shi, male, born in 1961, Master’s degree and Senior Economist. He previously served as Deputy Director of the Office of Finance and Economics Committee under Tianjin Standing Committee of the National People’s Congress, President Assistant of Tianjin Trust Investment Company, Vice Head, Head and Party Secretary of SPD Bank Tianjin Branch, Head of Risk Management Headquarter of SPD Bank Head Office, Party Committee Member and Vice President of SPD Bank. He currently serves as Secretary of the Board of Directors of SPD Bank and Chairman of China International Fund Management.

113

114

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

II. Overview of Service in the Shareholders 1DPH

1DPHRIVKDUHKROGHU

Gu Jianzhong

Shanghai International Group Co., Ltd.

Dong Xiuming

Jiangsu Tobacco Bureau (Company)

Chen Bichang

China Post Shanghai Company

Party Secretary, General Manager

Li Qingfeng

Shanghai Jiulian Group Limited

Party Secretary, General Manager

Shanghai Petroleum Exchange Ltd.

&XUUHQWSRVLWLRQ Party Committee Member, Vice President Party Secretary, Director and General Manager

General Manager

III. Overview of Service in Other Entities 1DPH

1DPHRIHQWLW\

Sun Jianping

Shanghai Rural Commercial Bank Co., Ltd.

Chairman of Board of Supervisors

Sha Yuejia

China Mobile Communications Corporation

Party Committee Member, Vice President

Zhu Min

China Mobile Communications Corporation

Hua Renchang

Shanghai Liansheng Venture Capital Investment Limited

Wang Zhe

Association of Shanghai Internet Finance Industry

Tian Suning

China Broadband Capital Partners, L.P.

Qiao Wenjun

Zhong Lun Law Firm

Zhang Ming

Shanghai University of Finance and Economics

Professor

Yuan Zhigang

Fudan University

Professor

Zhao Jiusu Chen Shimin

Wuhan Xinxin Integrated Circuit Manufacturing Company Limited China Europe International Business School

&XUUHQWSRVLWLRQ

Deputy Chief Accountant and General Manager of the Finance Department Chairman Secretary General Chairman Partner

Executive Vice President, Chief Legal Officer Professor, Subdean and MBA Director

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

IV. Changes in Directors, Supervisors and Senior Executives 'DWH

1DPH

&KDQJH

1 March 2016

Zhou Qinye

Resign as Independent Director of the Bank

5HDVRQ Personal reason

Jiang Mingsheng Pan Weidong Wang Zhe Tian Suning Qiao Wenjun

Directors of the Sixth Board of Directors elected at the 2015 Annual General Meeting.

Zhang Ming Yuan Zhigang

Reelection of Board of Directors

Chen Xiaohong Chen Bichang 28 April 2016

Chen Xuebin

No longer serve as the Bank’s Directors

Zhao Jiusu Zhang Weiying Guo Wei Sun Jianping Chen Bichang Lv Yong

Supervisors of the Sixth Board of Supervisors elected at the 2015 Annual General Meeting.

Zhao Jiusu

Reelection of Board of Supervisors

Zhang Linde Hu Zuliu

No longer serve as the Bank’s Supervisors

Xia Dawei

29 April 2016

Wang Xinhao

Appointed as Vice Presidents of the

Cui Bingwen

Bank at the First Session of the Sixth

Appointment by Board of Directors

Xie Wei

Board of Directors

29 April 2016

Chen Zheng’an

Serve as Secretary of Party Discipline Committee

26 May 2016

Lv Yong

Resign as Supervisor of the Bank

15 August 2016

Shao Yaliang

Resign as Director of the Bank

25 January 2017

Jiang Mingsheng

Resign as Director of the Bank

Personal reason

Serve as Employee Supervisor

Election of Employee

16 March 2017

Chen Zheng’an

of the Bank

Transfer Work-related reason Personal reason

Representatives’ Meeting

115

116

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

V. Remuneration of Directors, Supervisors and Senior Executives 'HFLVLRQPDNLQJSURFHGXUHIRUUHPXQHUD WLRQV RI 'LUHFWRUV 6XSHUYLVRUV 6HQLRU ([HFXWLYHV

5HPXQHUDWLRQV IRU 'LUHFWRUV 6XSHUYLVRUV DQG 6HQLRU ([HFXWLYHV ZLOO EH UHYLHZHGE\WKH5HPXQHUDWLRQDQG$SSUDLVDO&RPPLWWHHXQGHUWKH%RDUGRI 'LUHFWRUVDQGEHVXEPLWWHGWR%RDUGRI'LUHFWRUVIRUDSSURYDO

%DVLV RI GHWHUPLQLQJ UHPXQHUDWLRQV RI 'LUHFWRUV 6XSHUYLVRUV 6HQLRU ([HFX WLYHV

'LUHFWRUV 6XSHUYLVRUV 6HQLRU ([HFXWLYHV DV OHDGHUV LQ VWDWHRZQHG HQWHUSULVHVZLOOEHLQFOXGHGLQWKHFRUUHVSRQGLQJUHPXQHUDWLRQPDQDJHPHQW V\VWHPDQGWKHLUUHPXQHUDWLRQVZLOOEHDSSUDLVHGDQGGHFLGHGE\WKHFRPSH WHQWGHSDUWPHQWEDVHGRQWKHDVVHVVPHQWUHVXOW2WKHUVWDIIZLOOEHVXEMHFWWR WKHUHPXQHUDWLRQGLVWULEXWLRQSODQRIWKH%DQNDVDSSURYHGE\WKH%RDUGRI 'LUHFWRUVDQGLWV5HPXQHUDWLRQDQG$SSUDLVDO&RPPLWWHH

5HPXQHUDWLRQV SD\DEOH WR 'LUHFWRUV 6XSHUYLVRUVDQG6HQLRU([HFXWLYHV

7RWDO UHPXQHUDWLRQV DFWXDOO\ UHFHLYHG E\DOO'LUHFWRUV6XSHUYLVRUVDQG6HQLRU ([HFXWLYHVDVDWWKHHQGRIWKHUHSRUWLQJ SHULRG

7KH DSSUDLVDO IRU 'LUHFWRUV 6XSHUYLVRUV DQG 6HQLRU ([HFXWLYHV UHFHLYLQJ UHPXQHUDWLRQKDVQRWFRPSOHWHGVRWKHUHPXQHUDWLRQVGXULQJWKHUHSRUWLQJ SHULRG DUH QRW WKH UHPXQHUDWLRQV WR EH GLVWULEXWHG DV DSSURYHG LQ WKH DSSUDLVDO 7KH ILQDO FRPSHWHQW GHSDUWPHQW LQ FKDUJH RI UHPXQHUDWLRQV IRU 'LUHFWRUV 6XSHUYLVRUV DQG 6HQLRU ([HFXWLYHV LV XQGHU FRQILUPDWLRQ DQG WKH WRWDO UHPXQHUDWLRQVSDLGE\WKH%DQNDWSUHVHQWLV50%PLOOLRQ EHIRUHWD[ 

VI. Information of Employees of the Parent Company and Main Subsidiaries i. Information of employees Unit: Person Total in-service employees of the parent company and main

52,832

Including: In-service employees of the parent company

51,167

In-service employees of main subsidiaries Retired employees in the parent company and main subsidiaries

1,665 762

Disciplines of employees of the parent company including: Senior executives Banking staff Technical staff

343 49,429 1,395

Education level of employees in the parent company Including: Junior college and vocational school Bachelor’s degree Master’s degree and Doctorate degree

9,931 33,924 7,312

ii. Remuneration policy During the reporting period, the Bank actively advanced the building of an internationalized remuneration system and improved the remuneration mechanism for overseas institutions and persons sent to foreign countries. It advanced remuneration management of subsidiaries according to requirements for group-based development and continued to improve the incentive mechanism linking performance growth with professional post performance remuneration. The Bank intensified accountability management and effectively exerted the effect of restraining the deferred remuneration payment risks.

2016 Annual Report

Overview of Directors, Supervisors, Senior Executives and Employees

117

118

2016 Annual Report

2016 Annual Report

Corporate Governance

I. Basic situation of corporate governance During the reporting period, the Bank further improved the corporate governance structure and learnt mature international corporate governance experience to try to build a reasonable equity structure, studied and strengthened the Party’s role as a political center and leading center in the corporate government, defined the responsibility boundaries of all subjects of the corporate governance to realize the equalization and maximization of interests of all stakeholders, thus protecting interests of the depositors, winning returns for shareholders, creating values to the society, and striving to build itself into a modern financial service provider with adequate capital, strict internal control, safe operation, good benefits and core competitive edge.

Shareholders’ Meeting

Strategy Committee

Capital and Operation Management Committee Nomination Committee Board of Directors

Audit Committee

Board of Supervisors Supervision Committee

Nomination Committee

Risk Management and Related Party Transactions Control Committee

Audit Department

General Office of the Board of Directors & Supervisors

Remuneration and Appraisal Committee

Senior Management

i. Shareholders and Shareholders’ Meeting The Bank convoked, convened and held shareholders’ meetings according to provisions in Articles of Association of the Bank and Rules of Procedures of Shareholders’ Meeting. In 2016, the Bank held one shareholders’ meeting, passed 21 resolutions, and listened to 2 reports, ensuring that shareholders have rights to know, participate in and vote for major matters of the Bank, and that all shareholders enjoy equal status and all shareholders can fully exercise their own rights.

ii. Directors and Board of Directors As at the end of the reporting period, the Sixth Board of Directors of the Bank had 14 Directors, including four Executive Directors, four Equity Directors and six Independent Directors. All the Independent Directors are professionals in terms of law, economy, finance, accounting and IT. The Bank’s Directors leveraged their extensive knowledge, experience and professional ethics to make a lot of efforts in determining the Bank’s operation and development strategies, appointing Senior Executives, formulating the Bank’s annual financial budge plan, profit

119

120

2016 Annual Report

Corporate Governance

distribution plan, improving bank risk management, internal control, capital adequacy management, supervising effective performance of the Senior Management and the completeness and accuracy of financial report of the Bank, thus ensuring that the Bank obeys laws, regulations, rules and effectively protecting the legitimate interests of the shareholders, concerning and maintaining the benefits of depositors and other stakeholders and effectively performing the trusteeship. The Board of Directors of the Bank has established six special committees, namely, the Strategy Committee, the Capital and Operation Management Committee, the Audit Committee, the Nomination Committee, the Risk Management and Related Party Transactions Control Committee and the Remuneration and Appraisal Committee. During the reporting period, 19 Board meetings, of which 8 were on-site meetings and 11 were meetings with voting through communication means. 94 resolutions were passed and 14 special reports were reviewed; 3 executive Board meetings were held and 3 resolutions were passed; the special committees under the Board of Directors held 28 meetings, among which the Strategy Committee held two meetings, the Capital and Operation Management Committee held seven meetings, the Audit Committee held six meetings, the Nomination Committee held three meetings, the Risk Management and Related Party Transactions Control Committee held eight meetings, the Remuneration and Appraisal Committee held two meetings. 65 resolutions were passed.

iii. Supervisors and Board of Supervisors As at the end of the reporting period, the Sixth Board of Supervisors of the Bank had seven supervisors, including two shareholder supervisors, two employee supervisors and three external supervisors. The supervisors of the Bank diligently and dutifully brought the role of the Board of Supervisors in supervising the duty performance and due diligence, financial activities, internal control and risk management of directors and Senior Executives of the Bank into full play in an attitude responsible for the shareholders. The Board of Supervisors of the Bank has established the Nomination Committee and the Supervision Committee. During the reporting period, the Board of Supervisors held 19 meetings, including eight on-site meetings and 11 meetings with voting through communication means. 84 resolutions were passed; the special committees under the Board of Supervisors held three meetings, among which the Nomination Committee held two meetings and the Supervision Committee held one meeting. Five resolutions were passed.

iv. Senior Management As at the end of the reporting period, the Bank’s Senior Management had one President, seven Vice Presidents and one Secretary of the Board of Directors. The Bank’s Senior Management has established the Asset and Liabilities Management Committee, the Sales Promotion Committee, the Risk Management Committee and the Informationbased Development Committee. Under the leadership of the Board of Directors, the Senior Management of the Bank observed the principle of good faith and prudently exercised its duties within its range of authority. The Senior Management actively implemented the macro regulation policy of the state, closely grasped the favorable opportunity of economic development mode transformation, carefully implemented the requirements of the regulator, strove to cope with the complicated and changeable economic trend both at home and abroad, practiced the customer-focused principle, intensified innovation driving, accelerated the transformation and development, optimized the business structure, enhanced the income level, ensuring the implementation of strategies for bank operation and development strategies as approved by the Board of Directors, and the consistence among risk appetite, various policy procedures and processes. During the reporting period, the market competitiveness, social influence and enterprise cohesiveness of the Bank were further enhanced, and the indexes in the operating plan issued by the Board of Directors at beginning of the year were realized.

2016 Annual Report

Corporate Governance

v. Information disclosure and transparency The Bank truly, accurately, completely and timely disclosed relevant information in strict accordance with laws, regulations, Articles of Association of the Bank and information disclosure system of the Bank and ensured that all shareholders have equal opportunity to acquire such information. During the reporting period, the Bank completed four times of disclosure by regular report, 76 times of disclosure by temporary announcement, and made timely announcements for resolutions passed on “three meetings” of the Bank and major matters such as the implementation of profit distribution, etc. On 4 January 2017, the Bank disclosed 2016 Preliminary Earnings Estimate, which helped shareholders understand the operation and financial status of the Bank in 2016 on a timely basis.

II. Brief Introduction to Shareholders’ Meeting During the reporting period, the Bank held one shareholders’ meeting. Shareholder’s meeting of the Bank for 2015 was held in Shanghai on 28 April 2016. 325 shareholders and authorized proxies (including those participating in online voting) were present, holding 10,781,317,946 voting shares, accounting for 54.8584% of total voting shares of the Bank. Based on the joint voting via on-site registered ballot and online voting, the meeting reviewed and approved 21 resolutions and debriefed two reports.

1XPEHURIVHVVLRQ

'DWH

4XHU\LQGH[RIWKH ZHEVLWHGHVLJQDWHGIRU SXEOLVKLQJWKHGHFLVLRQ

'LVFORVXUHGDWH IRUSXEOLVKLQJ WKHGHFLVLRQ

2015 Annual General Meeting

28 April 2016

http://www.sse.com.cn

29 April 29 2016

III. Performance of Duties by Directors As at the end of the reporting period, the Sixth Board of Directors of the Bank had 14 Directors, including four Executive Directors, four Equity Directors and six Independent Directors.

121

2016 Annual Report

122

Corporate Governance

i. Attendance of Directors at Board meetings 2YHUYLHZRIDWWHQGDQFHDW%RDUGPHHWLQJV 'LUHFWRUQDPH

1XPEHURI ,QGHSHQGHQW 'LUHFWRU<1 %RDUGPHHWLQJV WREHDWWHQGHG LQWKH\HDU

1XPEHURI 1XPEHURI DWWHQGDQFH DWWHQGDQFHWLPHV WLPHVLQ YLDFRPPXQLFDWLRQ SHUVRQ PHDQV

1XPEHURI 1XPEHURI 1RDWWHQGDQFH DWWHQGDQFH DEVHQFH LQSHUVRQIRU WLPHV WLPHV WZRFRQVHFXWLYH E\SUR[\ WLPHV<1

1XPEHURI DWWHQGDQFH WLPHVDW VKDUHKROG HUVp PHHWLQJV

Ji Xiaohui

No

19

19

11

-

-

No

1

Liu Xinyi

No

19

19

11

-

-

No

1

Jiang Mingsheng 2

No

13

13

7

-

-

No

-

Pan Weidong

No

13

12

7

1

-

No

-

Gu Jianzhong

No

19

19

11

-

-

No

-

Sha Yuejia

No

19

13

11

6

-

No

-

Zhu Min

No

19

16

11

3

-

No

-

Dong Xiuming

No

19

17

11

2

-

No

1

Hua Renchang

Yes

19

19

11

-

-

No

-

Wang Zhe

Yes

13

13

7

-

-

No

-

Tian Suning

Yes

13

12

7

1

-

No

-

Qiao Wenjun

Yes

13

12

7

1

-

No

-

Zhang Ming

Yes

13

11

7

2

-

No

-

Yuan Zhigang

Yes

13

12

7

1

-

No

-

Number of Board meetings held in the year Including: Number of on-site meetings Number of meetings held via communication means Number of meetings held on-site with attendance via communication means

19 8 11 -

ii.Objection raised by Independent Directors against relevant matters of the Bank During the reporting period, the Independent Directors of the Bank did not raise objection against any proposal on Board meetings in the year.

iii. Performance of duties by Independent Directors As at the end of the reporting period, the Sixth Board of Directors of the Bank had six Independent Directors, which constituted more than one third of the members of the Board of Directors. The six Independent Directors of the Bank brought their expertise and experiences in terms of accounting, finance, law and technology into full play in an objective, independent and prudent manner, earnestly performed their duties, legally expressed independent opinions with a special focus on the completeness and authenticity of financial statements of the Bank as well as the legitimacy and fairness of the asset purchase via share issue and related party transactions from the perspective of maintaining the rights and interests of depositors and shareholders, especially minority shareholders, thus 2

Director Jiang Mingsheng resigned on 25 January 2017.

2016 Annual Report

Corporate Governance

playing an active role in promoting the sound development of the Bank. Some Independent Directors served as Chairmen of the Audit Committee, the Risk Management and the Related Party Transactions Control Committee, the Remuneration and Appraisal Committee and the Nomination Committee. They earnestly fulfilled the work of the special committees based on their powers and responsibilities, held meetings of the special committees in a timely manner, reported the review opinions of members of special committees to the Board of Directors, actively assisted in the scientific decision making of the Board of Directors, thereby performing their responsibilities as Chairmen of special committees well. From 30 August 2016 to 2 September 2016 and from 2 November 2016 to 4 November 2016, the Independent Directors and External Supervisors of the Bank inspected Hohhot Branch, Taiyuan Branch and Wuhan Branch, with a focus on the business management, the implementation of “guaranteeing income and controlling risk”, the nonperforming assets and prediction and judgment of risk management in tier-two branches, and conducted an on-site survey on the key customers of branches, which significantly promoted the diligent duty performance of Directors, ensured the scientific decision making of the Board of Directors and maintained the legitimate interests and rights of investors and depositors of the Bank. During the reporting period, the Board of Directors held 19 meetings and the rate of attendance of independent directors in person reached 94.05%; the special committees of the Board of Directors held 28 meetings, and the number of independent directors accounted for more than half of the members of the special committees, who played a great role; one independent Board meeting was held, with one resolution passed, and the independent directors expressed 14 special independent opinions. With the attitude of being responsible for all the shareholders, all independent directors carefully performed their duties of good-faith and diligence, which protected the overall interests of the Bank and the legitimate interests of minority shareholders from being impaired, and exerted positive role for scientific decision making by the Board of Directors.

iv. Independent opinions of the independent directors about external guarantees According to relevant provisions and requirements in the CSRC Zh.J.F. [2003] No.56, and with the attitude of justice, fairness and objectiveness, the Independent Directors examined the Group’s external guarantees. As of 31 December 2016, the Group’s all external guarantee businesses were approved by PBC and CBRC, and the external guarantee business was one of its normal businesses, and the Articles of Association of the Bank clearly defines the approval authority, specific management measures, operating flow and approval procedure based on the risk features of the guarantee business, thus effectively controlling risks of such business. All external guarantees of the Bank are of normal off-balance sheet business, and the condition of off-balance sheet contingent liabilities is as follows: In RMB Millions 'HFHPEHU

'HFHPEHU

Banker’s acceptance draft

,WHP

510,767

645,273

Acceptance draft under L/C

125,121

154,902

Letters of guarantee issued

124,507

122,459

Letters of credit issued Credit card and other commitments

12,975

11,641

188,722

118,289

123

124

2016 Annual Report

Corporate Governance

The Group made no special guarantee to related parties. During the reporting period, the Group prudently implemented regulations of Zh.J.H. [2003] No.56 Document and made no guarantee violating laws or regulations.

IV. Duty Performance of the Special Committees of the Board of Directors The Board of Directors of the Bank has established six special committees, namely, the Strategy Committee, the Capital and Operation Management Committee, the Audit Committee, the Nomination Committee, the Risk Management and Related Party Transactions Control Committee and the Remuneration and Appraisal Committee.

i. Strategy Committee As at the end of the reporting period, the Strategy Committee of the Bank consisted of six directors, including Mr. Ji Xiaohui (Chairman), Mr. Liu Xinyi, Mr. Pan Weidong, Mr. Sha Yuejia, Mr. Tian Suning and Mr. Yuan Zhigang. During the reporting period, the Strategy Committee held two meetings and considered the Proposal on the 20162020 Strategic Development Plan and the Proposal on the 2016-2018 Action Plan.

ii. Capital and Operation Management Committee As at the end of the reporting period, the Capital and Operation Management Committee consisted of six Directors, including Mr. Liu Xinyi (Chairman), Mr. Jiang Mingsheng, Mr. Pan Weidong, Mr. Gu Jianzhong, Mr. Dong Xiuming and Mr. Zhang Ming. During the reporting period, the Capital and Operation Management Committee held seven meetings and considered 25 proposals such as the Proposal on the Non-Public Issuance Plan of Common Shares, the Proposal on Financial Bond Issue Plan and Relevant Authorization, the Proposal on the Establishment of SPD Bank (Europe) and Luxembourg Branch.

iii. Audit committee As at the end of the reporting period, the Audit Committee of the Bank consisted of six Directors, including Mr. Zhang Ming (Chairman), Mr. Pan Weidong, Mr. Gu Jianzhong, Ms. Zhu Min, Mr. Qiao Wenjun and Mr. Yuan Zhigang. During the reporting period, the Audit Committee held six meetings, which considered 10 proposals such as the Proposal on the 2015 Annual Report and Its Abstract, the Proposal on the 2015 Final Accounts and 2016 Financial Budget, the Proposal on the 2015 Profit Distribution and the Proposal on the Further Appointment of Accounting Firm and debriefed six reports such as the Report on the Bank Operation in 2015, the Report on the Internal Control Inspection and Supervision in 2015 and the Key Points of Audit in 2016.

iv. Nomination Committee As at the end of reporting period, the Nomination Committee consisted of six Directors, including Mr. Yuan Zhigang (Chairman), Mr. Ji Xiaohui, Mr. Liu Xinyi, Mr. Sha Yuejia, Mr. Hua Renchang and Mr. Wang Zhe. During the reporting period, the Nomination Committee held three meetings and considered seven proposals such as the Proposal on the Appointment of President, the Proposal on the Appointment of Secretary of the Board of Directors and the Proposal on the Appointment of Vice President.

2016 Annual Report

Corporate Governance

v. Risk Management and Related Party Transactions Control Committee As at the end of the reporting period, the Risk Management and Related Party Transactions Control Committee consisted of five Directors, including Mr. Hua Renchang (Chairman), Mr. Jiang Mingsheng, Ms. Zhu Min, Mr. Wang Zhe and Mr. Qiao Wenjun. During the reporting period, the Risk Management and Related Party Transactions Control Committee held eight meetings and considered 16 proposals such as the Proposal on the Write-off of Asset Losses, the Proposal on the 2016-2018 Risk Appetite and the Proposal on the Identification of 2016 Related Party Legal Persons and Natural Persons.

vi. Remuneration and Appraisal Committee As at the end of the reporting period, the Remuneration and Appraisal Committee consisted of six Directors, including Mr. Wang Zhe (Chairman), Mr. Gu Jianzhong, Mr. Dong Xiuming, Mr. Hua Renchang, Mr. Tian Suning and Mr. Yuan Zhigang. During the reporting period, the Remuneration and Appraisal Committee held two meetings, which considered the Proposal for the Appraisal on the Duty Performance by Senior Executives in 2015 and 2012-2015 and the Proposal on the Annual and Tenure Appraisal Objective Document of Senior Executives and debriefed the Report on the Implementation of Remuneration Distribution of the Bank in 2015.

V. Duty Performance of Supervisors As at the end of the reporting period, the Sixth Board of Supervisors of the Bank had seven Supervisors, including two Shareholder Supervisors, two Employee Supervisors and three External Supervisors (including Chairman of the Board of Supervisors). The Board of Supervisors of the Bank constantly improved the supervision capability, performed the supervision duties and strengthened the supervision effect, thereby providing an effective guarantee for the sound development of the Bank. During the reporting period, the Board of Supervisors held 19 meetings and approved 84 resolutions. The rate of attendance of supervisors in person reached 91.85%. The supervisors diligently performed their responsibilities based on applicable laws and regulations and the Articles of Association of the Bank. No acts that would impair the interests of shareholders were identified during the reporting period. From 30 August 2016 to 2 September 2016 and from 2 November 2016 to 4 November 2016, the Independent Directors and External Supervisors of the Bank inspected Hohhot Branch, Taiyuan Branch and Wuhan Branch, with a focus on the operation management, the implementation of “guaranteeing income and controlling risk”, the nonperforming assets and prediction and judgment of risk management in tier-two branches, and conducted an on-site survey on the key customers of branches, which significantly promoted the diligent duty fulfillment of Supervisors and ensured the effectiveness of the supervision of the Board of Supervisors.

VI. Duty Performance of the Special Committees of the Board of Supervisors The Board of Supervisors of the Bank has established the Nomination Committee and the Supervision Committee.

i. Nomination Committee As at the end of reporting period, the Nomination Committee consisted of five Supervisors, including Mr. Zhao Jiusu

125

126

2016 Annual Report

Corporate Governance

(Chairman), Mr. Sun Jianping, Mr. Chen Bichang, Mr. Chen Shimin and Mr. Geng Guangxin. During the reporting period, the Nomination Committee held two meetings and considered two proposals, the Proposal on the Reelection of the Board of Supervisors and the Proposal on the Nomination of the Supervisor Candidates.

ii. Supervision Committee As at the end of reporting period, the Supervision Committee consisted of three Supervisors, including Mr. Chen Shimin (Chairman), Mr. Sun Jianping and Mr. Zhao Jiusu. During the reporting period, the Supervision Committee held one meeting and considered three proposals including the Proposal for the Appraisal on the Duty Performance by Senior Executives in 2015 and for 2012-2015 Tenure, the Proposal on the Duty Performance Appraisal Report of Directors in 2015 and the Proposal on the Duty Performance Appraisal Report of Supervisors in 2015.

VII. Independence of the Bank from the controlling shareholders in terms of business, personnel, assets, organization and finance The Bank has no controlling shareholder. The largest consolidated shareholder of the Bank was Shanghai International Group Co., Ltd., which was not changed during the reporting period. As at the end of the reporting period, Shanghai International Group Co., Ltd. and its controlling subsidiaries held 26.55% shares of the Bank on a consolidated basis. Shanghai International Group Co., Ltd and the Bank were totally independent in assets, personnel, finance, organization and business. Important decisions of the Bank were made and implemented by the Bank independently, and large shareholders did not occupy funds of the Bank by any means or require the Bank to provide guarantee for others.

VIII. Establishment and Implementation of Performance Appraisal and Incentive Mechanisms for Senior Executives during the Reporting Period In accordance with the Interim Measures for the Appraisal on the Duty Performance of Senior Executives and other applicable regulations and measures, the Board of Directors of the Bank strengthened the appraisal on the performance of Senior Executives by considering the Annual Duty Performance Appraisal of Senior Executives, the Annual and Tenure Appraisal Objective Document of Senior Executives and other proposals, considering the Bank’s regular financial reports and debriefing the special reports of the Senior Management. Through the performance management, the Bank further implemented and transmitted its strategic development goals and tasks, ensuring the consistency between short-term interests and long-term interests.

IX. Internal Control Self-appraisal Report The Bank prepared the 2016 Internal Control Appraisal Report and disclosed it on SSE’s website www.sse.com.cn. After the identification of material deficiencies in the internal control over financial reporting of the Bank, the Bank’s internal control over financial reporting contained no material deficiencies as at the base date of internal control appraisal report. In the opinions of the Board of Directors, the Bank has maintained effective internal control over financial reporting in all material aspects in accordance with the requirements of Enterprise Internal Control Regulations and relevant regulations. Based on the identification of materials deficiencies in the internal control over

2016 Annual Report

Corporate Governance

non-financial reporting, the Bank’s internal control over non-financial reporting contained no material deficiencies as at the base date of internal control appraisal report.

X. Relevant Information about Internal Control Audit Report The Bank prepared and disclosed the Report on the Internal Control Appraisal in 2016. PricewaterhouseCoopers China LLP audited the effectiveness of the internal control over financial reporting of the Bank as of 31 December 2016, and issued the Internal Control Audit Report. Full text of the above report has been published on SSE’s website www.sse.com.cn.

XI. Investor Relations Management During the reporting period, the Bank actively organized and implemented relevant system requirements for the investor relations management and built a corporate culture of serving the investors and respecting the investors in the Bank. The Bank constantly improved the important information reporting system and the information disclosure interaction system on different markets, ensuring that all investors could obtain public information of the Bank on a timely, accurately and equally basis. The Bank actively and persistently disclosed the information and continuously enhanced the standards and quality of information disclosure; the Bank also applied many ways and channels to disclose the Bank’s information according to the laws and regulations, constantly increased the transparency of operation and management, improved the investor’s experience and enhanced the information satisfaction of investors. During the reporting period, the Bank received 60 visits from domestic and overseas investment banks, fund companies, shareholders and rating agencies and conducted face-to-face or teleconference communications with more than 400 institutional investors; received 12 visits from institutional investor groups; participated in 15 strategic meetings held by domestic and overseas institutions and conducted one-to-one and one-to-many communications with nearly 130 investors and analysts; organized and held the 2015 and 2016 semi-annual results presentation and 2016 listed company investor open day in Shanghai in order to expand the communication channel with investors and improve the investors’ understanding and recognition of the Bank.

XII. Index for Information Disclosure During the reporting period, the Bank disclosed the following information on journals designated by CSRC including China Securities Journal, Shanghai Securities News and Securities Times, and the SSE website (www.sse.com.cn):

127

128

2016 Annual Report

Corporate Governance

,WHPV

3XEOLVKGDWH

'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUQRPLQDWRU

'HFHPEHU

3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

'HFHPEHU

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

'HFHPEHU

$QQRXQFHPHQWRQWKHSULYDWHLVVXLQJRIFRPPRQVKDUHVEHLQJDSSURYHGE\&%5&

'HFHPEHU

'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUFDQGLGDWHV

'HFHPEHU

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

'HFHPEHU

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

'HFHPEHU

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHGLUHFWRUFDQGLGDWHV

'HFHPEHU

$QQRXQFHPHQWRQWKHLVVXDQFHRIILQDQFLDOERQGVEHLQJDSSURYHG

'HFHPEHU

$QQRXQFHPHQWRQWKHFKDQJHRIRQJRLQJVXSHUYLVLRQVSRQVRUDQGVSRQVRUUHSUHVHQWDWLYH

'HFHPEHU

WK

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

'HFHPEHU

$QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

'HFHPEHU

$GPLQLVWUDWLYHPHDVXUHVIRUWKHSRVWSRQHPHQWRIDQGH[HPSWLRQIURPLQIRUPDWLRQGLVFORVXUH

'HFHPEHU

WK

WK

,QGLFDWLYHDQQRXQFHPHQWRQWKHGLVWULEXWLRQRISKDVH,GLYLGHQGRISUHIHUUHGVKDUHV

1RYHPEHU

$QQRXQFHPHQWRQWKHLPSOHPHQWDWLRQRIGLVWULEXWLRQRISKDVH,GLYLGHQGRISUHIHUUHGVKDUHV

2FWREHU

45HSRUWRIWKH%DQN

2FWREHU

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

2FWREHU

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

2FWREHU

$QQRXQFHPHQWRQWKHFRPSOHWLRQRIWKHWUDQVIHURI)XERQEDQNHTXLWLHV

2FWREHU

WK WK

$QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

6HSWHPEHU

$QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

6HSWHPEHU

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

6HSWHPEHU

$QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

6HSWHPEHU

WK

WK

3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

$XJXVW

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$XJXVW

$QQRXQFHPHQWRQWKHUHVLJQDWLRQRIDGLUHFWRU

$XJXVW

0LQXWHVRIVHPLDQQXDOLQIRUPDWLRQH[FKDQJHFRQIHUHQFHRIWKH%DQN

$XJXVW

6XPPDU\RIVHPLDQQXDOUHSRUWRIWKH%DQN

$XJXVW

VHPLDQQXDOUHSRUWRIWKH%DQN

$XJXVW

WK

WK

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

$XJXVW

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$XJXVW

3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

$QQRXQFHPHQWRQWKHFRPSOHWLRQRILVVXDQFHRISKDVH,,,JUHHQILQDQFLDOERQGVLQ

-XO\

$QQRXQFHPHQWRQKROGLQJWKHLQYHVWRUVRSHQGD\

-XO\

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

-XO\

JOREDOV\VWHPDWLFDOO\LPSRUWDQFHDSSUDLVDOLQGLFDWRUVRIWKH%DQN

-XO\

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

-XO\

WK

$QQRXQFHPHQWRQWKHFKDQJHRIUHJLVWHUHGFDSLWDOEHLQJDSSURYHG

-XO\

$QQRXQFHPHQWRIWKH%DQNRQWKHDGMXVWPHQWRILVVXDQFHSULFHDQGYROXPHRI VKDUHVSULYDWHO\LVVXHGDIWHUWKHLPSOHPHQWDWLRQRISURILWGLVWULEXWLRQSODQ

-XQH

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$XJXVW

$QQRXQFHPHQWRQWKHUHVLJQDWLRQRIDGLUHFWRU

$XJXVW

0LQXWHVRIVHPLDQQXDOLQIRUPDWLRQH[FKDQJHFRQIHUHQFHRIWKH%DQN

$XJXVW $XJXVW

6XPPDU\RIVHPLDQQXDOUHSRUWRIWKH%DQN

2016 Annual Report

$XJXVW

VHPLDQQXDOUHSRUWRIWKH%DQN $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

$XJXVW

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$XJXVW

WK

3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW Corporate Governance

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

$QQRXQFHPHQWRQWKHFRPSOHWLRQRILVVXDQFHRISKDVH,,,JUHHQILQDQFLDOERQGVLQ

-XO\

$QQRXQFHPHQWRQKROGLQJWKHLQYHVWRUVRSHQGD\

-XO\

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV ,WHPV JOREDOV\VWHPDWLFDOO\LPSRUWDQFHDSSUDLVDOLQGLFDWRUVRIWKH%DQN 'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUQRPLQDWRU

-XO\ 3XEOLVKGDWH -XO\ 'HFHPEHU

WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV 3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV $QQRXQFHPHQWRQWKHFKDQJHRIUHJLVWHUHGFDSLWDOEHLQJDSSURYHG ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

-XO\ 'HFHPEHU -XO\ 'HFHPEHU

$QQRXQFHPHQWRIWKH%DQNRQWKHDGMXVWPHQWRILVVXDQFHSULFHDQGYROXPHRI $QQRXQFHPHQWRQWKHSULYDWHLVVXLQJRIFRPPRQVKDUHVEHLQJDSSURYHGE\&%5& VKDUHVSULYDWHO\LVVXHGDIWHUWKHLPSOHPHQWDWLRQRISURILWGLVWULEXWLRQSODQ 'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUFDQGLGDWHV

'HFHPEHU -XQH 'HFHPEHU

3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQUHODWHGSDUW\WUDQVDFWLRQV WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV WK VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

-XQH 'HFHPEHU

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHGLUHFWRUFDQGLGDWHV ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV $QQRXQFHPHQWRQWKHLVVXDQFHRIILQDQFLDOERQGVEHLQJDSSURYHG

-XQH 'HFHPEHU

WK

-XQH 'HFHPEHU

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

$QQRXQFHPHQWRQLPSOHPHQWLQJWKHSURILWGLVWULEXWLRQDQGWKHFRQYHUVLRQRI ,QGLFDWLYHDQQRXQFHPHQWRQWKHGLVWULEXWLRQRISKDVH,GLYLGHQGRISUHIHUUHGVKDUHV FDSLWDOUHVHUYHLQWRDGGLWLRQDOFDSLWDOVWRFN $QQRXQFHPHQWRQWKHLPSOHPHQWDWLRQRIGLVWULEXWLRQRISKDVH,GLYLGHQGRISUHIHUUHGVKDUHV WK VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH 45HSRUWRIWKH%DQN WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$QQRXQFHPHQWRIWKH%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHQGVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHFRPSOHWLRQRIWKHWUDQVIHURI)XERQEDQNHTXLWLHV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHQGVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV WK $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV VW VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH WK $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV 45HSRUWRIWKH%DQN WK VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKH VW WK

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

-XQH 'HFHPEHU 1RYHPEHU -XQH 2FWREHU 0D\ 2FWREHU 0D\ 2FWREHU 0D\ 2FWREHU 0D\ 2FWREHU 0D\ 6HSWHPEHU $SULO 6HSWHPEHU $SULO 6HSWHPEHU $SULO 6HSWHPEHU $SULO $XJXVW $SULO $XJXVW $SULO $XJXVW $SULO $XJXVW $SULO $XJXVW

6HFXULWLHV/LPLWHGRQWKHSULYDWHLVVXLQJRISUHIHUUHGVKDUHVE\63'%DQN 6XPPDU\RIVHPLDQQXDOUHSRUWRIWKH%DQN LQIRUPDWLRQH[FKDQJHVHVVLRQ VHPLDQQXDOUHSRUWRIWKH%DQN

$XJXVW $SULO $XJXVW $SULO $XJXVW

,QWHUQDOFRQWURODXGLWUHSRUW WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV 6SHFLDOUHSRUWRQWKHGHSRVLWDQGDFWXDOXVHRIWKHIXQGVUDLVHGLQ WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$SULO $XJXVW $SULO $XJXVW

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUV 3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV )LQDQFLDO6WDWHPHQWVDQG$XGLW5HSRUW ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$SULO $XJXVW $SULO $XJXVW

6RFLDO5HVSRQVLELOLW\5HSRUW $QQRXQFHPHQWRQWKHFRPSOHWLRQRILVVXDQFHRISKDVH,,,JUHHQILQDQFLDOERQGVLQ $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHILIWK%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQKROGLQJWKHLQYHVWRUVRSHQGD\

$SULO -XO\ $SULO -XO\

$QQXDO5HSRUW WK VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH $WWHVWDWLRQUHSRUWIRUWKHVSHFLDOUHSRUWRQWKHGHSRVLWDQGDFWXDOXVHRIWKHIXQGVUDLVHGLQ JOREDOV\VWHPDWLFDOO\LPSRUWDQFHDSSUDLVDOLQGLFDWRUVRIWKH%DQN

$SULO -XO\ $SULO -XO\

GXW\SHUIRUPDQFHUHSRUWRIWKH$XGLW&RPPLWWHHRIWKH%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV 'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUQRPLQDWRUV $QQRXQFHPHQWRQWKHFKDQJHRIUHJLVWHUHGFDSLWDOEHLQJDSSURYHG

$SULO -XO\ $SULO -XO\

6SHFLDOYHULILFDWLRQUHSRUWRI&,7,&6HFXULWLHV&R/WGDQG*XRWDL-XQDQ6HFXULWLHV/LPLWHG $QQRXQFHPHQWRIWKH%DQNRQWKHDGMXVWPHQWRILVVXDQFHSULFHDQGYROXPHRI RQWKHGHSRVLWDQGDFWXDOXVHRIIXQGVUDLVHGE\63'%DQNLQ VKDUHVSULYDWHO\LVVXHGDIWHUWKHLPSOHPHQWDWLRQRISURILWGLVWULEXWLRQSODQ 6SHFLDOUHSRUWDERXWWKHRFFXSDWLRQRIIXQGVE\FRQWUROOLQJVKDUHKROGHUVDQGRWKHUUHODWHGSDUWLHV

$SULO -XQH $SULO

129

$QQXDO*HQHUDO0HHWLQJPDWHULDOV

$SULO

,QGLFDWLYHDQQRXQFHPHQWRQKROGLQJ$QQXDO*HQHUDO0HHWLQJ

$SULO

RQJRLQJVXSHUYLVLRQUHSRUWRI&,7,&6HFXULWLHV&R/WGDQG*XRWDL-XQDQ 6HFXULWLHV/LPLWHGRQWKHSULYDWHLVVXLQJRISUHIHUUHGVKDUHVE\63'%DQN

$SULO

2016 Annual Report 1 3 0 LQIRUPDWLRQH[FKDQJHVHVVLRQ

$SULO

,QWHUQDOFRQWURODXGLWUHSRUW

$SULO

6SHFLDOUHSRUWRQWKHGHSRVLWDQGDFWXDOXVHRIWKHIXQGVUDLVHGLQ

$SULO

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUV Corporate Governance

$SULO

)LQDQFLDO6WDWHPHQWVDQG$XGLW5HSRUW

$SULO

6RFLDO5HVSRQVLELOLW\5HSRUW

$SULO

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHILIWK%RDUGRI6XSHUYLVRUV WK

$SULO $SULO 3XEOLVKGDWH

$QQXDO5HSRUW ,WHPV $WWHVWDWLRQUHSRUWIRUWKHVSHFLDOUHSRUWRQWKHGHSRVLWDQGDFWXDOXVHRIWKHIXQGVUDLVHGLQ 'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUQRPLQDWRU

$SULO 'HFHPEHU

GXW\SHUIRUPDQFHUHSRUWRIWKH$XGLW&RPPLWWHHRIWKH%RDUGRI'LUHFWRUV 3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$SULO 'HFHPEHU

'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUQRPLQDWRUV ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$SULO 'HFHPEHU

6SHFLDOYHULILFDWLRQUHSRUWRI&,7,&6HFXULWLHV&R/WGDQG*XRWDL-XQDQ6HFXULWLHV/LPLWHG $QQRXQFHPHQWRQWKHSULYDWHLVVXLQJRIFRPPRQVKDUHVEHLQJDSSURYHGE\&%5& RQWKHGHSRVLWDQGDFWXDOXVHRIIXQGVUDLVHGE\63'%DQNLQ 'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUFDQGLGDWHV

'HFHPEHU $SULO 'HFHPEHU

6SHFLDOUHSRUWDERXWWKHRFFXSDWLRQRIIXQGVE\FRQWUROOLQJVKDUHKROGHUVDQGRWKHUUHODWHGSDUWLHV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$SULO 'HFHPEHU

'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUFDQGLGDWHV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

$SULO 'HFHPEHU

$QQXDO5HSRUW$EVWUDFW ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHGLUHFWRUFDQGLGDWHV

$SULO 'HFHPEHU

'XW\5HSRUWRI,QGHSHQGHQW'LUHFWRUV $QQRXQFHPHQWRQWKHLVVXDQFHRIILQDQFLDOERQGVEHLQJDSSURYHG

$SULO 'HFHPEHU

LQWHUQDOFRQWURODSSUDLVDOUHSRUW $QQRXQFHPHQWRQWKHFKDQJHRIRQJRLQJVXSHUYLVLRQVSRQVRUDQGVSRQVRUUHSUHVHQWDWLYH

$SULO 'HFHPEHU

WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHILIWK%RDUGRI'LUHFWRUV VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

$SULO 'HFHPEHU

1RWLFHRQKROGLQJ$QQXDO*HQHUDO0HHWLQJ $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$SULO 'HFHPEHU

6WDWHPHQWRQOHJDORSLQLRQVRI6KDQJKDL8QLWHG/DZ)LUPRQWKHLVVXDQFHRIVKDUHVE\63'%DQN $GPLQLVWUDWLYHPHDVXUHVIRUWKHSRVWSRQHPHQWRIDQGH[HPSWLRQIURPLQIRUPDWLRQGLVFORVXUH

'HFHPEHU 0DUFK 1RYHPEHU

IRUWKHSXUSRVHRIEX\LQJDVVHWVDQGRSLQLRQVRQWKHLPSOHPHQWDWLRQRIUHODWHGSDUW\WUDQVDFWLRQV ,QGLFDWLYHDQQRXQFHPHQWRQWKHGLVWULEXWLRQRISKDVH,GLYLGHQGRISUHIHUUHGVKDUHV ,QGHSHQGHQWILQDQFLDODGYLVHUYHULILFDWLRQRSLQLRQVRI+$,721*6HFXULWLHV&RPSDQ\/LPLWHGDERXWWKHLVVXDQFHRIVKDUHV $QQRXQFHPHQWRQWKHLPSOHPHQWDWLRQRIGLVWULEXWLRQRISKDVH,GLYLGHQGRISUHIHUUHGVKDUHV E\63'%DQNIRUWKHSXUSRVHRIEX\LQJDVVHWVDQGDERXWWKHLPSOHPHQWDWLRQRIUHODWHGSDUW\WUDQVDFWLRQV 45HSRUWRIWKH%DQN

2FWREHU 0DUFK 2FWREHU

5HSRUWRQWKHLVVXDQFHRIVKDUHVIRUWKHSXUSRVHRIEX\LQJDVVHWVDQGRQWKHLPSOHPHQWDWLRQRIUHODWHGSDUW\WUDQVDFWLRQV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

0DUFK 2FWREHU

$QQRXQFHPHQWRQWKHUHVXOWRILVVXDQFHRIVKDUHVIRUWKHSXUSRVHRIEX\LQJDVVHWVDQGWKHFKDQJHVRIFDSLWDOVWRFN $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

0DUFK 2FWREHU

6WDWHPHQWRQOHJDORSLQLRQVRI6KDQJKDL8QLWHG/DZ)LUPRQWKHLVVXDQFHRIVKDUHVE\63'%DQNIRUWKHSXUSRVHRI $QQRXQFHPHQWRQWKHFRPSOHWLRQRIWKHWUDQVIHURI)XERQEDQNHTXLWLHV

2FWREHU 0DUFK 6HSWHPEHU

EX\LQJDVVHWVDQGRSLQLRQVRQWKHWUDQVIHURIRZQHUVKLSRIXQGHUO\LQJDVVHWVLQUHODWHGSDUW\WUDQVDFWLRQV $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV WK

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

6HSWHPEHU 0DUFK 6HSWHPEHU 6HSWHPEHU 0DUFK $XJXVW

WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHILIWK%RDUGRI'LUHFWRUV ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

0DUFK $XJXVW

WK $QQRXQFHPHQWRQWKHVLJQLQJRIFRQGLWLRQDOVXEVFULSWLRQDJUHHPHQWIRUWKHFRPPRQVKDUHV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV WK SULYDWHO\LVVXHGDQGLVVXHVUHOHYDQWWRUHODWHGSDUW\WUDQVDFWLRQV VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH

$XJXVW 0DUFK $XJXVW

'HWDLOHGUHSRUWRQHTXLW\FKDQJHV $QQRXQFHPHQWRQWKHUHVLJQDWLRQRIDGLUHFWRU

0DUFK $XJXVW

3ODQDERXWUHWXUQVWRVKDUHKROGHUVLQWKHIROORZLQJWKUHH\HDUV  0LQXWHVRIVHPLDQQXDOLQIRUPDWLRQH[FKDQJHFRQIHUHQFHRIWKH%DQN

0DUFK $XJXVW

3UHSODQRQWKHSULYDWHLVVXLQJRIFRPPRQVKDUHV 6XPPDU\RIVHPLDQQXDOUHSRUWRIWKH%DQN

0DUFK $XJXVW

,QGLFDWLYHDQQRXQFHPHQWRQWKHUHVXPSWLRQRIWUDGLQJRIVKDUHVRIWKH%DQN VHPLDQQXDOUHSRUWRIWKH%DQN

0DUFK $XJXVW

WK 5HSRUWRQWKHXVHRIIXQGVSUHYLRXVO\UDLVHGDQGDWWHVWDWLRQUHSRUWDVDW'HFHPEHU $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

0DUFK $XJXVW

VHVVLRQRIWKHILIWK%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH

0DUFK $XJXVW

3ULRUUHFRJQLWLRQRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQVUHOHYDQW 3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV WRWKHSULYDWHLVVXLQJRIFRPPRQVKDUHV ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW 0DUFK $XJXVW

,QGLFDWLYHDQQRXQFHPHQWRQWKHFKDQJHRIVKDUHKROGHUVpHTXLWLHV $QQRXQFHPHQWRQWKHFRPSOHWLRQRILVVXDQFHRISKDVH,,,JUHHQILQDQFLDOERQGVLQ

0DUFK -XO\

)HDVLELOLW\UHSRUWRQWKHXVHRIIXQGVUDLVHGE\WKHSULYDWHLVVXLQJRIFRPPRQVKDUHV $QQRXQFHPHQWRQKROGLQJWKHLQYHVWRUVRSHQGD\

0DUFK -XO\

WK ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH

UHOHYDQWWRWKHSULYDWHLVVXLQJRIFRPPRQVKDUHV JOREDOV\VWHPDWLFDOO\LPSRUWDQFHDSSUDLVDOLQGLFDWRUVRIWKH%DQN

-XO\ 0DUFK -XO\

$QQRXQFHPHQWRQWKHGLOXWLRQRILPPHGLDWHUHWXUQRQFRPPRQVKDUHVSULYDWHO\SODFHGDQGWKHILOOLQJPHDVXUHV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

0DUFK -XO\

,QWHULPFDSLWDOSODQ  $QQRXQFHPHQWRQWKHFKDQJHRIUHJLVWHUHGFDSLWDOEHLQJDSSURYHG

0DUFK -XO\

5HSRUWRQWKHXVHRIIXQGVSUHYLRXVO\UDLVHGDVDW'HFHPEHU $QQRXQFHPHQWRIWKH%DQNRQWKHDGMXVWPHQWRILVVXDQFHSULFHDQGYROXPHRI

0DUFK -XQH 0DUFK

WK WK

$QQRXQFHPHQWRQWKHSURJUHVVRIPDWHULDOHYHQWVDQGWKHSRVWSRQHGUHVXPSWLRQRIWUDGLQJ VKDUHVSULYDWHO\LVVXHGDIWHUWKHLPSOHPHQWDWLRQRISURILWGLVWULEXWLRQSODQ $QQRXQFHPHQWRQGHFLVLRQPDGHRQWKVHVVLRQRIWKHILIWK%RDUGVHVVLRQRIWKH%DQN

0DUFK

'HWDLOHGUHSRUWRQHTXLW\FKDQJHV

0DUFK

3ODQDERXWUHWXUQVWRVKDUHKROGHUVLQWKHIROORZLQJWKUHH\HDUV 

0DUFK

3UHSODQRQWKHSULYDWHLVVXLQJRIFRPPRQVKDUHV

0DUFK

,QGLFDWLYHDQQRXQFHPHQWRQWKHUHVXPSWLRQRIWUDGLQJRIVKDUHVRIWKH%DQN

0DUFK 2016 Annual Report

5HSRUWRQWKHXVHRIIXQGVSUHYLRXVO\UDLVHGDQGDWWHVWDWLRQUHSRUWDVDW'HFHPEHU

0DUFK

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHILIWK%RDUGRI6XSHUYLVRUV

0DUFK

3ULRUUHFRJQLWLRQRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQVUHOHYDQW 0DUFK

WRWKHSULYDWHLVVXLQJRIFRPPRQVKDUHV

Corporate Governance

,QGLFDWLYHDQQRXQFHPHQWRQWKHFKDQJHRIVKDUHKROGHUVpHTXLWLHV

0DUFK

)HDVLELOLW\UHSRUWRQWKHXVHRIIXQGVUDLVHGE\WKHSULYDWHLVVXLQJRIFRPPRQVKDUHV

0DUFK

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV UHOHYDQWWRWKHSULYDWHLVVXLQJRIFRPPRQVKDUHV ,WHPV

0DUFK 3XEOLVKGDWH

$QQRXQFHPHQWRQWKHGLOXWLRQRILPPHGLDWHUHWXUQRQFRPPRQVKDUHVSULYDWHO\SODFHGDQGWKHILOOLQJPHDVXUHV 'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUQRPLQDWRU

0DUFK 'HFHPEHU

,QWHULPFDSLWDOSODQ  3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

0DUFK 'HFHPEHU

5HSRUWRQWKHXVHRIIXQGVSUHYLRXVO\UDLVHGDVDW'HFHPEHU ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

0DUFK 'HFHPEHU

$QQRXQFHPHQWRQWKHSURJUHVVRIPDWHULDOHYHQWVDQGWKHSRVWSRQHGUHVXPSWLRQRIWUDGLQJ $QQRXQFHPHQWRQWKHSULYDWHLVVXLQJRIFRPPRQVKDUHVEHLQJDSSURYHGE\&%5&

0DUFK 'HFHPEHU

WK $QQRXQFHPHQWRQGHFLVLRQPDGHRQ VHVVLRQRIWKHILIWK%RDUGVHVVLRQRIWKH%DQN 'HFODUDWLRQRILQGHSHQGHQWGLUHFWRUFDQGLGDWHV

0DUFK 'HFHPEHU

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHILIWK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

0DUFK 'HFHPEHU

WK

$QQRXQFHPHQWRQWKHSURJUHVVRIPDWHULDOHYHQWVDQGWKHSRVWSRQHGUHVXPSWLRQRIWUDGLQJ $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

0DUFK 'HFHPEHU

WK VHVVLRQRIWKHILIWK%RDUGVHVVLRQRIWKH%DQN $QQRXQFHPHQWRQGHFLVLRQPDGHRQ ,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHGLUHFWRUFDQGLGDWHV

)HEUXDU\ 'HFHPEHU

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHILIWK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHLVVXDQFHRIILQDQFLDOERQGVEHLQJDSSURYHG

)HEUXDU\ 'HFHPEHU

$QQRXQFHPHQWRQWKHSURJUHVVRIPDWHULDOHYHQWVDQGWKHFRQWLQXHGVXVSHQVLRQ $QQRXQFHPHQWRQWKHFKDQJHRIRQJRLQJVXSHUYLVLRQVSRQVRUDQGVSRQVRUUHSUHVHQWDWLYH

)HEUXDU\ 'HFHPEHU

WK WK

WK

$QQRXQFHPHQWRQWKHSURJUHVVRIWKHLVVXDQFHRIVKDUHVIRUWKHSXUSRVHRIEX\LQJDVVHWVDQGWKHUHODWHGWUDQVDFWLRQV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

)HEUXDU\ 'HFHPEHU

$QQRXQFHPHQWRQWKHVXVSHQVLRQRIPDWHULDOVHYHQWV $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

)HEUXDU\ 'HFHPEHU

$QQRXQFHPHQWRIWKHSKDVH,,GLYLGHQGGLVWULEXWLRQRISUHIHUUHGVKDUHV $GPLQLVWUDWLYHPHDVXUHVIRUWKHSRVWSRQHPHQWRIDQGH[HPSWLRQIURPLQIRUPDWLRQGLVFORVXUH

)HEUXDU\ 'HFHPEHU

WK VHVVLRQRIWKHILIWK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH ,QGLFDWLYHDQQRXQFHPHQWRQWKHGLVWULEXWLRQRISKDVH,GLYLGHQGRISUHIHUUHGVKDUHV

)HEUXDU\ 1RYHPEHU

WK $QQRXQFHPHQWRQGHFLVLRQPDGHRQ VHVVLRQRIWKHILIWK%RDUGVHVVLRQRIWKH%DQN $QQRXQFHPHQWRQWKHLPSOHPHQWDWLRQRIGLVWULEXWLRQRISKDVH,GLYLGHQGRISUHIHUUHGVKDUHV

)HEUXDU\ 2FWREHU

$QQRXQFHPHQWRIWKH%DQNRQWKHFRPSOHWLRQRILVVXDQFHRISKDVH,JUHHQILQDQFLDOERQGVLQ 45HSRUWRIWKH%DQN

-DQXDU\ 2FWREHU

$QQRXQFHPHQWRQWKHLVVXDQFHRISKDVH,JUHHQILQDQFLDOERQGVLQ $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

-DQXDU\ 2FWREHU

$QQRXQFHPHQWRQWKHVLJQLQJRIQHZILYH\HDUVWUDWHJLFFRRSHUDWLRQDJUHHPHQWEHWZHHQWKH%DQNDQG&KLQD0RELOH $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

-DQXDU\ 2FWREHU

$QQRXQFHPHQWRQWKHSURJUHVVRIWKHLVVXDQFHRIVKDUHVIRUWKHSXUSRVHRIEX\LQJDVVHWVDQGWKHUHODWHGWUDQVDFWLRQV $QQRXQFHPHQWRQWKHFRPSOHWLRQRIWKHWUDQVIHURI)XERQEDQNHTXLWLHV

-DQXDU\ 2FWREHU

WK

$QQRXQFHPHQWRQWKHLVVXDQFHRIJUHHQILQDQFLDOERQGVEHLQJDSSURYHG $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

-DQXDU\ 6HSWHPEHU

WK WK $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHILIWK%RDUGRI'LUHFWRUV $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

-DQXDU\ 6HSWHPEHU

WK WK $QQRXQFHPHQWRQGHFLVLRQPDGHRQ $QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHVHVVLRQRIWKHILIWK%RDUGVHVVLRQRIWKH%DQN VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

-DQXDU\ 6HSWHPEHU

$QQRXQFHPHQWRQWKHSUHOLPLQDU\HDUQLQJVHVWLPDWHLQ $QQRXQFHPHQWRIWKH%DQNRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

-DQXDU\ 6HSWHPEHU

3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

$XJXVW

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$XJXVW

$QQRXQFHPHQWRQWKHUHVLJQDWLRQRIDGLUHFWRU

$XJXVW

0LQXWHVRIVHPLDQQXDOLQIRUPDWLRQH[FKDQJHFRQIHUHQFHRIWKH%DQN

$XJXVW

6XPPDU\RIVHPLDQQXDOUHSRUWRIWKH%DQN

$XJXVW

VHPLDQQXDOUHSRUWRIWKH%DQN

$XJXVW

WK

WK

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

$XJXVW

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

$XJXVW

3ULRUDSSURYDORILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

,QGHSHQGHQWRSLQLRQVRILQGHSHQGHQWGLUHFWRUVRQWKHUHODWHGSDUW\WUDQVDFWLRQV

$XJXVW

$QQRXQFHPHQWRQWKHFRPSOHWLRQRILVVXDQFHRISKDVH,,,JUHHQILQDQFLDOERQGVLQ

-XO\

$QQRXQFHPHQWRQKROGLQJWKHLQYHVWRUVRSHQGD\

-XO\

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKH VHVVLRQRIWKHVL[WK%RDUGRI6XSHUYLVRUV

-XO\

JOREDOV\VWHPDWLFDOO\LPSRUWDQFHDSSUDLVDOLQGLFDWRUVRIWKH%DQN

-XO\

$QQRXQFHPHQWRQWKHUHVROXWLRQVLQWKHWKVHVVLRQRIWKHVL[WK%RDUGRI'LUHFWRUV

-XO\

WK

$QQRXQFHPHQWRQWKHFKDQJHRIUHJLVWHUHGFDSLWDOEHLQJDSSURYHG

-XO\

$QQRXQFHPHQWRIWKH%DQNRQWKHDGMXVWPHQWRILVVXDQFHSULFHDQGYROXPHRI VKDUHVSULYDWHO\LVVXHGDIWHUWKHLPSOHPHQWDWLRQRISURILWGLVWULEXWLRQSODQ

-XQH

131

132

2016 Annual Report

2016 Annual Report

Financial Report I. 2016 Financial Statements and Audit Report Prepared Based on ASBE (See the Appendix) II. 2016 Financial Statements and Audit Report Prepared Based on IFRS (See the Appendix) III. Supplementary Data Return on equity and earnings per share calculated based on No.9 Rules for Preparation of Information Disclosure Documents by Companies Issuing Public Securities published by CSRC: 5HWXUQRQHTXLW\  3URILWLQWKHUHSRUWLQJSHULRG

(DUQLQJVSHUVKDUH 50%

)XOO\GLOXWHG

:HLJKWHG DYHUDJH

%DVLFHDUQLQJV SHUVKDUH

'LOXWHGHDUQLQJV SHU

Net profit attributable to ordinary shareholders of the parent company

15.20

16.35

2.404

2.404

Net profit attributable to ordinary shareholders of the parent company deducting the non-recurring profit and loss

14.78

15.90

2.338

2.338

133

134

2016 Annual Report

2016 Annual Report

Catalogue of Documents for Inspection

I. Accounting statements bearing signatures and stamps of the legal representative, the President, the CFO and the person in charge of the accounting department. II. Original of the audit report bearing stamp of the accounting firm as well as signature and stamp of the CPAs. III. Originals of all articles and announcements disclosed by the Bank during the reporting period on websites designated by CSRC. IV. 2016 Internal Control Assessment Report of SPD Bank, and 2016 Corporate Social Responsibility Report of SPD Bank.

Chairman: Ji Xiaohui (signature, seal) Board of Directors of Shanghai Pudong Development Bank Co., Ltd. (seal) 30 March 2017

135

136

2016 Annual Report

Catalogue of Documents for Inspection

Written confirmation of Directors and Senior Executives on the 2016 Annual Report According to relevant provisions and requirements in the Securities Law and the No.2 Norm for Content and Format of Information Disclosure by Companies Issuing Public Securities “Content and Format of Annual Report” (revised in 2016), Directors and Senior Executives of the Bank fully studied and audited the Bank’s 2016 annual report and its abstract and then gave the following opinions: 1. The Bank is operated in strict accordance with Accounting Standards for Business Enterprises, and the Bank’s 2016 annual report and its abstract fairly reflect the financial situation and operating results of the Bank during the reporting period. 2. All data involved in the annual report have been checked and affirmed, reflecting soundness, objectiveness, authenticity, accuracy and comprehensiveness. We believe that, the Bank’s 2016 annual report and its abstract have no misrepresentation, misleading statement and major omission, which meet requirements of regulators including CSRC and are in line with the actual situation of operation and management of the Bank. 3. The 2016 financial statements prepared by the Bank in accordance with the Accounting Standards for Business Enterprises and International Financial Reporting Standards have been audited by PricewaterhouseCoopers Zhong Tian LLP who issued a standard unqualified opinion.

Signature by Directors and Senior Executives: Ji Xiaohui

(Signature)

Liu Xinyi

(Signature)

Pan Weidong

(Signature)

Gu Jianzhong

(Signature)

Sha Yuejia

(Signature)

Zhu Min

(Signature)

Dong Xiuming

(Signature)

Hua Renchang

(Signature)

Wang Zhe

(Signature)

Tian Suning

(Signature)

Qiao Wenjun

(Signature)

Zhang Ming

(Signature)

Yuan Zhigang

(Signature)

Chen Zheng’an

(Signature)

Xu Haiyan

(Signature)

Liu Yiyan

(Signature)

Wang Xinhao

(Signature)

Cui Bingwen

(Signature)

Xie Wei

(Signature)

Mu Shi

(Signature)

2016 Annual Report

137

138

2016 Annual Report

Important Matters

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Auditor’s Report PwC ZT Shen Zi (2017) No. 10020

To the Shareholders of Shanghai Pudong Development Bank Co., Ltd

Opinion What we have audited We have audited the accompanying financial statements of Shanghai Pudong Development Bank Co., Ltd (hereinafter “the Bank”), which comprise: • the Consolidated and the Bank’s balance sheets as at 31 December 2016; • the Consolidated and the Bank’s income statements for the year then ended; • the Consolidated and the Bank’s cash flow statements for the year then ended; • the Consolidated and the Bank’s statements of changes in shareholders’ equity for the year then ended; and • notes to the financial statements, which include a summary of significant accounting policies.

Our opinion In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and the bank’s financial position of the Bank as at 31 December 2016, and their financial performance and cash flows for the year then ended in accordance with the requirements of Accounting Standards for Business Enterprises (“CASs”).

Basis for Opinion We conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We are independent of the Bank in accordance with the Code of Ethics for Professional Accountants of the Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have fulfilled our other ethical responsibilities in accordance with the CICPA Code.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters identified in our audit are summarised as follows: • Impairment allowances of loans and advances to customers • Transfer of financial assets • Consolidation assessment of structured entities

139

140

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Key Audit Matter Impairment allowances of loans and advances to customers Please refer to Notes 2.10, 2.29(1), 4.8, 4.19, 12.1.1, 12.1.5 to the financial statements. As at 31 December 2016, the Group’s gross balance of loans and advances to customers amounted to RMB 2,762,806 million, the related impairment allowances amounted to RMB 88,249 million and the net balance amounted to RMB 2,674,557 million. The Group firstly performed impairment assessment for the loans and advances to customers that was individually significant. Individually significant loans and advances to customers that were not identified as impaired and loans and advances to customers that were not individually significant were grouped by similar credit risk characteristics and collectively assessed for impairment. The individually assessed impairment loss was the difference between the present value of estimated discounted future cash flows and the gross carrying amount of the loans and advances to customers. When loans and advances were collectively assessed for impairment, management used estimates based on historical loss experience for assets with similar credit risk characteristics. The historical loss experience was adjusted by reference to the relevant observable data that reflect current economic conditions. We focused on this area because the net balance of loans and advances to customers accounted for 45.66% of the Group’s total assets and significant estimates and judgements were involved in the assessment of impairment allowances. We particularly focused on the following judgemental area: timely identification of impaired loans, estimation of future cash flows of impaired loans for individual assessment, selection of models, assumptions and parameters used for collective assessment. These assumptions and parameters included historical loss experience, loss identification period, risk adjustment for specific industries, regions and macro-economic environment.

How our audit addressed the Key Audit Matter The audit procedures we performed regarding impairment allowances of loans and advances to customers included: We understood, evaluated and validated the design and operating effectiveness of the relevant controls over impairment assessment and calculation for loans and advances to customers. These controls included controls over timely identification of individual impaired loans and advances to customers, periodically review of the calculation of forecasted future cash flows and assessment of mortgages’ value for individually assessed impairment loss, timely review of the selection of key models and the process of determining, inputting and adjusting key assumptions and parameters used in these models for collective impairment assessment. We tested the loans and advances to customers that were not identified by management as impaired, on a sample basis, by examining the underlying loan information and external evidence available to evaluate if management had timely identified impaired loans and advances to customers. When impairment allowances were assessed on an individual basis, we assessed the management’s forecasted discounted future cash flows and key assumptions by reviewing the financial information of the borrowers and guarantors as well as the assessment of the value of the mortgages by taking consideration of available external market information. When impairment allowances were assessed on a collective basis, we assessed whether the models used by management reflected the current economic environment and the credit risk of loans and advances. We also assessed the key assumptions and parameters used in the models, including historical loss, loss identification period, risk adjustment for specific industries, regions and macro-economic environment, based on our knowledge on industry practices and industry experience. Based on the audit work performed, we found the impairment models, assumptions and parameters used by management in the assessment of impairment allowances acceptable.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Key Audit Matter Transfer of financial assets Refer to Note 2.10, 2.29(7), 4.49 to the financial statements. In 2016, the Group transferred the financial assets amounting to RMB 102,359 million through asset backed securitization and external disposal. Whether the transferred financial assets could be de-recognized involved significant management judgements, including: 1. Based on the contractual terms, management assessed whether the Group had transferred the right to receive the cash flows deriving from the financial asset to another party or met the “pass-through” requirements to transfer the contractual cash flows to another party. 2. Management used models to perform the risk and reward analysis to assess whether the Group had transferred substantially all the risks and rewards of ownership of these transferred financial assets. 3. If the Group neither transferred nor retained substantially all the risks and rewards of ownership, management further assessed whether the Group retained control over the transferred financial assets. Therefore, we focused on the de-recognition of transferred financial assets.

How our audit addressed the Key Audit Matter The audit procedures we performed regarding transfer of financial assets included: We understood, evaluated and validated the design and operating effectiveness of the relevant controls over transfer of financial assets, including review and approval of pricing and other contractual terms, and review and approval of the de-recognition assessment. We obtained the list of financial assets transferred and examined the completeness of the list. We examined specific terms of financial asset transfer agreements and other related legal documents, on a sample basis, to assess whether the Group had transferred the right to receive the cash flows deriving from the financial asset to another party or whether the Group met the “pass-through” requirements to transfer the contractual cash flows to another party. We assessed the key assumptions and parameters used in management’s risks and rewards model, including future cash flow forecasts under various economic scenarios and discount rates used based on our knowledge of industry practices and industry experience. We tested the mathematical accuracy of the calculations of the model. For those transferred financial assets that the Group neither transferred nor retained substantially all the risks and rewards of ownership, we analysed the contractual terms to assess if the Group retained control over the transferred financial assets. Based on the audit work performed, we found the management’s judgements regarding the de-recognition of the transferred financial assets acceptable.

141

142

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Key Audit Matter Consolidation assessment of structured entities Refer to Notes 2.6, 2.29(5) and 7 to the financial statements. The Group managed or invested in a number of structured entities. As at 31 December 2016, structured entities of approximately RMB 59,132 million were consolidated by the Group; structured entities of RMB 2,579,031 million managed by the Group and structured entities of RMB 1,313,603 million invested by the Group were not consolidated. We focused on this area because the number of structured entities was significant and the assessment of whether the Group should consolidate these structured entities involved significant judgements, including the judgements regarding the Group’s power over the structured entities’ relevant activities, the Group’s variable returns generated from the structured entities, and the Group’s ability to affect these returns.

How our audit addressed the Key Audit Matter The audit procedures we performed regarding consolidation assessment of structured entities included: We understood, evaluated and validated the design and operating effectiveness of the relevant controls over the completeness of managed or invested structured entities, and the controls relating to management’s assessment on whether or not to consolidate the structured entities. We checked the completeness of the list of structured entities. We verified the Group’s assessment on whether the Group controlled the structured entities by examining supporting documents of selected samples of structured entities managed or invested by the Group by performing the following procedures: 1. Evaluating whether the Group has power over structured entities’ relevant activities by analysing business structures and related contractual terms; 2. Reviewing contractual terms regarding variable returns of structured entities, including management fee relating to the Group’s compensation in the investment contracts, the rate of return from the investments’ contracts made by the structured entities and the investors’ investment contracts to the structured entities, and the returns from lending support. We also checked these terms against the information in the management’s list of structured entities. We recalculated the magnitude and variability of returns to the Group from these structured entities. We assessed whether the Group acted as principle or agent based on our analysis of the Group’s power, the Group’s variable returns generated from the structured entities, and the Group’s ability to affect the returns, and compared our assessment result with management’s assessment result. Based on the audit work performed, we found management’s judgements in relation to the consolidation of structured entities acceptable.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Other Information Management is responsible for the other information. The other information comprises all of the information included in 2016 annual report of the Bank other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with the CASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing these financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intend to liquidate the Bank or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether these financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with CSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

143

144

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in these financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Bank to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Auditor’s Responsibilities for the Audit of the Financial Statements (cont’d) We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

PricewaterhouseCoopers Zhong Tian LLP Shanghai , the People’s Republic of China, 30 March 2017

2016 Annual Report

145

SHANGHAI SHANGHAI PUDONG DEVELOPMENT PUDONG DEVELOPMENT BANK CO.,BANK LTD. CONSOLIDATED NOTES AND TO THE THE BANK’S FINANCIAL BALANCE STATEMENTS SHEETS FOR THE YEAR ENDED AS AT 31 21 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Group

Bank

Note

31 December 2016

31 December 2015

31 December 2016

31 December 2015

Cash and balances with central bank

4.1

517,230

481,157

513,623

477,644

Due from banks and other financial institutions

4.2

234,223

111,388

226,721

108,334

Placements with banks and other financial institutions 4.3

118,892

137,806

121,938

137,806

9,548

28,724

9,548

28,724

63,746

171,421

63,746

Assets

Precious metals Financial assets at fair value through profit or loss

4.4

177,203

Derivative financial assets

4.5

16,233

10,610

16,233

10,610

Financial assets purchased under resale agreements 4.6

3,001

110,218

3,001

110,218

Interests receivable

4.7

22,911

20,437

22,299

20,021

Loans and advances to customers

4.8

2,674,557

2,171,413

2,655,895

2,153,210

Available-for-sale financial assets

4.9

620,463

254,846

612,601

254,516

4.10

326,950

239,703

326,950

239,703

4.11

1,010,472

1,325,032

1,005,282

1,325,032

Long-term equity investments

4.12

949

1,599

23,711

5,085

Fixed assets

4.13

21,605

19,062

13,784

13,249

Intangible assets

4.14

3,396

879

840

869

Goodwill

4.15

6,981

-

-

-

Long-term deferred charges

4.16

1,610

1,657

1,517

1,570

Deferred income tax assets

4. 17

21,838

14,427

21,502

14,212

Other assets

4. 18

69,201

51,648

24,880

19,969

5,857,263

5,044,352

5,771,746

4,984,518

Investment securities - held-to-maturity Investment securities - loans and receivables

Total assets

The accompanying notes form an integral part of these financial statements.

146

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO BANK’S BALANCE THE FINANCIAL SHEETS(Continued) STATEMENTS FOR AS ATTHE 31 DECEMBER YEAR ENDED 2016 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Group

Bank

Note

31 December 2016

147,622

23,645

147,000

23,000

4.20

1,341,963

1,042,948

1,347,139

1,048,583

Placements from banks and other financial institutions 4.21

97,132

99,589

59,930

70,975

Financial liabilities at fair value through profit or loss

4.22

29,526

210

24,522

210

31 December 2015

31 December 2016

31 December 2015

Liabilities Due to central bank Due to banks and other financial institutions

Derivative financial liabilities

4.5

13,091

7,319

13,091

7,319

Financial assets sold under repurchase agreements

4.23

93,200

119,205

92,928

118,699

Deposits from customers

4.24

3,002,015

2,954,149

2,974,449

2,928,463

Employee benefits payable

4.25

6,428

5,684

5,501

5,461

Income tax payable

4.26

17,620

14,776

17,028

14,686

Interests payable

4.27

34,082

36,235

33,667

35,911

13

12

12

12

Bonds issued

4.28

664,683

399,906

664,683

399,906

Deferred income tax liabilities

4.17

717

7

-

-

Other liabilities

4.29

36,237

22,067

26,692

17,531

5,484,329

4,725,752

5,406,642

4,670,756

Dividends payable

Total liabilities Equity Ordinary shares

4.30

21,618

18,653

21,618

18,653

Other equity instruments

4.31

29,920

29,920

29,920

29,920

29,920

29,920

29,920

29,920

74,678

60,639

74,628

60,589

Preference shares Capital surplus

4.32

Other comprehensive income

4.33

233

5,713

188

5,701

Surplus reserves

4.34

78,689

63,651

78,689

63,651

General risk reserve

4.35

65,493

45,924

65,045

45,600

Retained earnings

4.36

97,316

90,670

95,016

89,648

367,947

315,170

365,104

313,762

4,987

3,430

-

-

372,934

318,600

365,104

313,762

5,857,263

5,044,352

5,771,746

4,984,518

Equity attributable to the Bank’s shareholders Minority interests

4.37

Total equity Total liabilities and equity

The accompanying notes form an integral part of these financial statements. These financial statements were signed on its behalf by: Ji Xiaohui

Liu Xinyi

Pan Weidong

Lin Daofeng

Chairman of Board

Governor

Person in-charge of finance and accounting

Head of finance and accounting department

2016 Annual Report

SHANGHAI SHANGHAI PUDONG DEVELOPMENT PUDONG DEVELOPMENT BANK CO.,BANK LTD. CONSOLIDATEDNOTES AND THE TOBANK’S THE FINANCIAL INCOME STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Note Operating income Interest income Interest expense Net interest income

4.38

Group

Bank

2016

2015

2016

2015

160,792

146,550

155,145

144,144

214,814

228,254

210,704

224,648

(106,694)

(115,245)

(105,191)

(113,776)

108,120

113,009

105,513

110,872

Fee and commission income

43,236

29,313

40,203

28,922

Fee and commission expense

(2,544)

(1,515)

(2,559)

(1,474)

Net fee and commission income

4.39

40,692

27,798

37,644

27,448

Investment income

4.40

7,033

461

6,857

547

180

159

163

159

2,812

2,991

3,045

2,991

Including: Income from joint ventures and associates Loss from fair value change

4.41

Foreign exchange gain

(528)

(713)

(539)

(717)

Other operating income

2,663

3,004

2,625

3,003

(91,132)

(80,483)

(87,999)

(79,062)

Operating expense

4.42

(4,444)

(8,976)

(4,348)

(8,870)

Operating expenses

4.43

(37,238)

(32,034)

(34,839)

(31,304)

Impairment losses on assets

4.44

(49,104)

(38,795)

(48,500)

(38,210)

tax and surcharges

Other operating expense Operating profit Add: non-operating income Less: non-operating expenses Profit before income tax Less: income tax expense Net profit for the year Net profit attributable to: -Shareholders of the Bank - Minority interest

4.45

(346)

(678)

(312)

(678)

69,660

66,067

67,146

65,082

459

983

264

749

(144)

(173)

(138)

(168)

69,975

66,877

67,272

65,663

(16,297)

(15,880)

(15,575)

(15,536)

53,678

50,997

51,697

50,127

53,099

50,604

579

393

53,678

50,997

147

148

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL CONSOLIDATED AND THE BANK’S STATEMENTS INCOME STATEMENTS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Note

Group

Bank

2016

2015

2016

2015

4.46

2.404

2.422

4.33

(5,479)

4,454

(5,513)

4,446

(5,480)

4,458

(5,513)

4,446

(5,480)

4,458

(5,513)

4,446

18

(37)

18

(37)

(5,623)

4,456

(5,600)

4,456

125

39

69

27

1

(4)

-

-

48,199

55,451

46,184

54,573

47,619

55,062

580

389

Basic and diluted earnings per share attributable to the shareholders of the Bank (expressed in RMB per share) Basic and diluted earnings per share attributable to the shareholders of the Bank (expressed in RMB per share) Other comprehensive income after tax Other comprehensive income attributes to shareholders of the parent company, after tax Items that may be subsequently reclassified to profit or loss -Share of other comprehensive income of associates and joint ventures, after tax -Changes in fair value of available-for-sale financial assets -Exchange differences from the translation of foreign operations Other comprehensive income attributes to minority shareholders, after tax Total comprehensive income for the year attributable to: - Shareholders of the Bank - Minority interests

The accompanying notes form an integral part of these financial statements.

2016 Annual Report

149

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED AND THENOTES BANK’S TO STATEMENTS THE FINANCIAL OF CASH STATEMENTS FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Note

Group

Bank

2016

2015

2016

2015

due to banks and other financial institutions

347,743

442,342

344,542

441,740

Net increase in due to central bank

123,977

2,639

124,000

3,000

-

153,050

-

146,804

1. Cash flows from operating activities Net increase in deposits from customers and

Net increase in interbank placement Net decrease in due from central bank, due from banks and other financial institutions

-

36,251

-

36,102

142,108

151,250

138,137

146,120

Cash received from fee and commission income

45,706

29,293

42,467

28,922

Cash received from other operating activities

67,190

6,894

57,176

6,195

Interest received

Subtotal of cash inflows Net increase in loans and advances to customers

726,724

821,719

706,322

808,883

(548,823)

(234,500)

(548,100)

(232,715)

(70,295)

-

(68,925)

-

Net increase in due from central bank, due from banks and other financial institutions Net decrease in interbank placement

(7,166)

-

(18,566)

-

(110,585)

(30,575)

(106,317)

(30,575)

(90,442)

(109,273)

(89,036)

(107,840)

(2,545)

(1,515)

(2,560)

(1,474)

Cash paid to or on behalf of employees

(21,107)

(19,255)

(20,421)

(18,995)

Cash paid for taxes

(32,298)

(27,604)

(30,860)

(27,032)

(9,593)

(3,469)

-

-

(25,863)

(36,708)

(23,002)

(36,338)

Net increase in financial assets held for trading Interest paid Cash paid for fee and commission

Net increase of finance lease receivables Cash paid for other operating activities Subtotal of cash outflows Net cash (used)/generated from operating activities

Note 4.48

(918,717) Group (191,993) 2016

(462,899) 358,820 2015

(907,787) Bank (201,465) 2016

(454,969)

5,158,058

792,979

5,155,127

792,979

353,914 2015

2. Cash flows from investing activities Redemption of investment securities Cash received from investment income

62,152

34,812

62,033

34,899

Cash received from other investing activities

23

96

23

93

Net cash received from acquired subsidiaries

779

-

-

-

5,221,012

827,887

5,217,183

827,971

(5,280,263)

(1,346,773)

(5,271,191)

(1,346,847)

(4,764)

(12,334)

(2,843)

(7,705)

(5,285,027)

(1,359,107)

(5,274,034)

(1,354,552)

(64,015)

(531,220)

(56,851)

(526,581)

Subtotal of cash inflows Purchase of investment securities Cash paid to purchase fixed assets, intangible assets and other long-term assets Subtotal of cash outflows Net cash flows from investing activities

150

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL CONSOLIDATED AND THE BANK’S STATEMENTS STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Note

Group

Bank

2016

2015

2016

2015

68

-

-

-

68

-

-

-

-

14,960

-

14,960

Proceeds from issuance of bonds and deposit certificates

1,012,676

434,246

1,012,676

434,246

Subtotal of cash inflows

1,012,744

449,206

1,012,676

449,206

Repayment of bond issued

(747,899)

(181,006)

(747,899)

(181,006)

(30,503)

(23,418)

(30,225)

(23,343)

(778,402)

(204,424)

(778,124)

(204,349)

234,342

244,782

234,552

244,857

4,390

3,521

4,370

3,521

(17,276)

75,903

(19,394)

75,711

3. Cash flows from financing activities Proceeds from interest’s capital increase Including: Proceeds from minority interest’s capital increase in subsidiary Proceeds from issuance of preference shares

Cash paid for dividends and interest of bonds issued Subtotal of cash outflows Net cash flows from financing activities 4. Effect of exchange rate changes on cash and cash equivalents 5. Net (decrease)/ increase in cash and cash equivalents Add: Cash and cash equivalents at the beginning of the year

4.47

264,687

188,784

260,572

184,861

6. Cash and cash equivalents at the end of the period

4.47

247,411

264,687

241,178

260,572

The accompanying notes form an integral part of these financial statements.

-

-

Appropriations to general risk reserve

29,920

21,618

-

-

-

-

1,965

1,965

-

74,678

-

(1,965)

(1,965)

-

-

-

-

-

16,004

-

16,004

-

-

14,039

60,639

4.32

Capital Surplus

15,038 -

-

78,689

233

-

-

-

-

-

-

-

-

15,038

-

-

-

-

-

-

-

15,038

-

-

-

(5,480)

-

(5,480)

63,651

4.34

4.33 5,713

Surplus reserves

Other comprehensive income

The accompanying notes form an integral part of these financial statements.

Balance at 31 December 2016

6. Dividends of subsidiaries

from capital surplus

Ordinary shares converted

5. Transfer within owners' equity

preference shareholders

Cash dividends paid to

ordinary shareholders

Cash dividends paid to -

-

-

Appropriations to surplus reserves

-

-

4. Profit appropriation

of subsidiaries -

-

-

-

-

-

-

-

29,920

1,000

Share issued for acquisition

capital increase of subsidiary

Minority interest increased from

1,000

-

2. Other comprehensive income

3. Increase of capital

-

2,965

Movement of current year

1. Net profit for the year

18,653

4.31

4.30

Balance at 1 January 2016

Note

Preference shares

Ordinary shares

65,493

-

-

-

-

-

19,569

-

19,569

-

-

-

-

-

19,569

45,924

4.35

General risk reserve

97,316

-

-

-

(1,725)

(10,121)

(19,569)

(15,038)

(46,453)

-

-

-

-

53,099

6,646

90,670

4.36

Retained earnings

Equity attributable to the Bank’s shareholders

367,947

-

-

-

(1,725)

(10,121)

-

-

(11,846)

17,004

-

17,004

(5,480)

53,099

52,777

315,170

Sub-total

4,987

(278)

-

-

-

-

-

-

-

1,187

68

1,255

1

579

1,557

3,430

4.37

Minority interest

372,934

(278)

-

-

(1,725)

(10,121)

-

-

(11,846)

18,191

68

18,259

(5,479)

53,678

54,334

318,600

Total

2016 Annual Report

SHANGHAI SHANGHAI PUDONG DEVELOPMENT PUDONG DEVELOPMENT BANK CO.,BANK LTD. CONSOLIDATED NOTES STATEMENT TO THE FINANCIAL OF CHANGES STATEMENTS IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

151

-

1. Net profit for the year

2. Other comprehensive income

3. Increase of capital

29,920

18,653

-

-

-

-

14,960

14,960

-

-

14,960

14,960

60,639

-

-

-

-

-

-

-

-

-

-

-

60,639

4.32

Capital Surplus

63,651

5,713

-

-

14,004

14,004

-

-

-

-

14,004

-

-

-

-

-

-

-

4,458

-

4,458

49,647

4.34

4.33 1,255

Surplus reserves

45,924

-

-

-

9,066

-

9,066

-

-

-

-

9,066

36,858

4.35

General risk reserve

90,670

-

(900)

(14,121)

(9,066)

(14,004)

(38,091)

-

-

-

50,604

12,513

78,157

4.36

Retained earnings

Equity attributable to the Bank’s shareholders Other comprehensive income

The accompanying notes form an integral part of these financial statements.

Balance at 31 December 2015

5. Dividends of subsidiaries

preference shareholders

Cash dividends paid to

ordinary shareholders

-

-

Appropriations to general risk reserve

Cash dividends paid to

-

-

Appropriations to surplus reserves

4. Profit appropriation

-

-

Preference shares issued

18,653

Movement of current year

4.31

4.30

Balance at 1 January 2015

Note

Preference shares

Ordinary shares

315,170

-

(900)

(14,121)

-

-

(15,021)

14,960

14,960

4,458

50,604

55,001

260,169

Sub-total

3,430

(75)

-

-

-

-

-

-

-

(4)

393

314

3,116

4.37

Minority interest

318,600

(75)

(900)

(14,121)

-

-

(15,021)

14,960

14,960

4,454

50,997

55,315

263,285

Total

152 2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL CONSOLIDATED STATEMENT STATEMENTS OF CHANGES IN EQUITY (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2016

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

Share issued for acquisition of subsidiaries

21,618

1.965 29,920

-

-

74,628

(1,965)

(1,965)

-

-

-

-

-

16,004

16,004

-

-

14,039

60,589

4.32

Capital Surplus

The accompanying notes form an integral part of these financial statements.

Balance at 31 December 2016

from capital surplus

Ordinary shares converted

1.965

-

Cash dividends paid to preference shareholders

5. Transfer within owners' equity

-

-

-

Cash dividends paid to ordinary shareholders

-

-

-

-

-

-

-

29,920

4.31

Preference shares

Appropriations to general risk reserve

-

-

1,000

Appropriations to surplus reserves

4. Profit appropriation

1,000

-

3. Increase of capital

-

2. Other comprehensive income

2,965

Movement of current year

1. Net profit for the year

18,653

4.30

Balance at 1 January 2016

Note

Ordinary shares

188

-

-

-

-

-

-

-

-

-

(5,513)

-

(5,513)

5,701

4.33

Other comprehensive income

78,689

-

-

-

-

-

15,038

15,038

-

-

-

-

15,038

63,651

4.34

Surplus reserves

65,045

-

-

-

-

19,445

-

19,445

-

-

-

-

19,445

45,600

4.35

General risk reserve

95,016

-

-

(1,725)

(10,121)

(19,445)

(15,038)

(46,329)

-

-

-

51,697

5,368

89,648

4.36

Retained earnings

365,104

-

-

(1,725)

(10,121)

-

-

(11,846)

17,004

17,004

(5,513)

51,697

51,342

313,762

Sub-total

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. THE BANK’S NOTES STATEMENT TO THE FINANCIAL OF CHANGES STATEMENTS IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

153

-

1. Net profit for the year

2. Other comprehensive income

3. Increase of capital

-

Cash dividends paid to ordinary shareholders

Cash dividends paid to preference shareholders 29,920

-

-

-

-

-

14,960

14,960

-

-

14,960

14,960

4.31

Preference shares

60,589

-

-

-

-

-

-

-

-

-

-

60,589

4.32

Capital Surplus

The accompanying notes form an integral part of these financial statements.

18,653

-

Appropriations to general risk reserve

Balance at 31 December 2015

-

-

Appropriations to surplus reserves

4. Profit appropriation

-

-

Preference shares issued

18,653

Movement of current year

4.30

Balance at 1 January 2015

Note

Ordinary shares

5,701

-

-

-

-

-

-

-

4,446

-

4,446

1,255

4.33

Other comprehensive income

63,651

-

-

-

14,004

14,004

-

-

-

-

14,004

49,647

4.34

Surplus reserves

45,600

-

-

8,900

-

8,900

-

-

-

-

8,900

36,700

4.35

General risk reserve

89,648

(900)

(14,121)

(8,900)

(14,004)

(37,925)

-

-

-

50,127

12,202

77,446

4.36

Retained earnings

313,762

(900)

(14,121)

-

-

(15,021)

14,960

14,960

4,446

50,127

54,512

259,250

Sub-total

154 2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES THE BANK’S TO THE STATEMENT FINANCIAL OF STATEMENTS CHANGES IN EQUITY (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2016

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

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

1 GENERAL INFORMATION Shanghai Pudong Development Bank Co., Ltd. (“the Bank” or “SPD”) is a joint-stock commercial bank incorporated in Shanghai, the People’s Republic of China (“the PRC”) on 28 August 1992 in accordance with the approval from the People’s Bank of China (“the PBOC” or “Central Bank”) (YinFu [1992] No.350). The Address of the head office is 12 First East Zhongshan Road, Shanghai. The Bank obtained its business licence from Shanghai Municipal Administration of Industry and Commerce (“SMAIC”) on 19 October 1992 and commenced its business on 9 January 1993. On 10 November 1999, the Bank’s ordinary shares denominated in RMB were listed and traded on Shanghai Stock Exchange. On March 2016, the Bank completed non-public offering of domestic RMB ordinary shares (A shares) to acquire 97.33% of equity shares of Shanghai International Trust Investment Company. A total of 999,510,332 ordinary shares were issued to the former shareholders of Shanghai International Trust Corp., Ltd. (“Shanghai Trust”) .Upon the issuance, ordinary shares of the Bank was increased from RMB18,653 million to RMB 19,653 million. Pursuant to the resolution of 2015 Annual General Meeting on 28 April 2016, the Bank converted the capital surplus into ordinary shares in the proportion of 1 share for every 10 shares held, which increased the total number of capital shares by 1,965,298,175. And the number of shares after conversion is 21,618,279,922 shares. The national organization code of the Bank is 9131000013221158XC, and the financial service certificate No. of the Bank is B0015H131000001. As of 31 December 2016, the Bank’s ordinary shares were RMB 21,618 million, with RMB 1 yuan par value, of which RMB 1,099 million were restricted for trading. The Bank’s preference shares was RMB 29,920 million. The Bank and its subsidiaries (collectively referred to as “the Group” or “SPDB Group”) are mainly engaged in financial businesses. The scope of business mainly includes commercial banking services, financial leasing businesses and trust services approved by the PBOC and the China Banking Regulatory Commission (“the CBRC”), investment banking and fund management business defined by Type 4 license (Advising on securities), Type 6 (Advising on corporate finance) and Type 9 (Asset Management) licenses issued by Securities & Futures Commission of Hong Kong. The Bank’s principal regulator is the CBRC. The Bank’s overseas branches and subsidiaries are subject to the supervision by local regulators. For the information of subsidiaries which was consolidated by the Company in this year, please refer to Note 6, and for the information of subsidiaries which are newly consolidated by the company this year, please refer to Note 5. The financial statements were authorized to issue by the Board of Directors on 30 March 2017.

2 SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES The companies in the group are mainly financial institutions; significant accounting policies are mainly including recognition, classification, measurement and impairment of financial instruments (Note2.10) etc. The critical accounting estimates and judgments please refer to Note2.29.

2.1 Basis of presentation and statement of compliance The financial statements were prepared in accordance with the Basic Standard and specific standards of the

155

156

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Accounting Standards for Business Enterprise and other relevant regulations issued by the Ministry of Finance on 15 February 2006 and thereafter(hereafter referred to as “the Accounting Standards for Business Enterprises” or “CAS”). and the disclosure requirements in the Preparation Convention of Information Disclosure by Companies Offering Securities to the Public No.15 General Rules on Financial Statements issued by the China Securities Regulatory Commission. The financial statements prepared on a going concern basis.

2.2 Statement of compliance The financial statements of the Group and the Bank for the year ended 31 December 2016 are in compliance with the Accounting Standards for Business Enterprises, and truly and completely present the financial positions of the Consolidated and the Bank as of 31 December 2016 and of their financial performance, cash flows and other information for the year then ended.

2.3 Accounting year The Bank’s accounting year starts on 1 January and ends on 31 December.

2.4 Functional currency The functional currency of the Group’s operations in Mainland China is Renminbi (RMB). Items included in the financial statements of each of the Group’s operations oversea are measured using the currency of the primary economic environment in which the entity operates. The presentation currency of the Group is RMB.

2.5 Business Combinations Business combination under common control The consideration paid and the net assets acquired by the acquirer shall be measured at their carrying amounts. The difference between the carrying amount of the net assets acquired and any consideration paid shall be recorded in capital surplus (share premium). If the amount of capital surplus (share premium) is not sufficient to be offset, the retained earnings shall be adjusted. The direct costs for the business combination shall be recorded in the profit or loss. The transaction costs incurred for the issuance of equity securities or debt securities in connection with the business combination shall be recorded as part of the initial recognition cost of these securities. Business combination not under common control The scope of consolidation is determined on the basis of control. The consideration paid and the identifiable net assets acquired in a business combination are measured at initially their fair values on the acquisition date. Goodwill is initially measured at cost being the excess of the aggregate fair value of the consideration paid and the acquirer’s interest in the fair value of the acquiree’s net identifiable assets. If the fair value of consideration is lower than the fair value of the net assets acquired, the difference is recognized in profit or loss. Acquisition-related costs are expensed as incurred. The transaction costs incurred for the issuance of equity or debt securities in connection with the business combination are included in part of the initial recognition cost of these securities.

2.6 Consolidated financial statements The consolidated financial statements include the financial statements of the Bank and all its subsidiaries. A

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

subsidiary is an entity over which the Bank has control. A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. A structured entity is an entity that has been designed so that voting rights or similar rights are not the dominant factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual or relative arrangements.  The Group determines whether it is an agent or a principle in relation to those structured entities in which the Group acts as an asset manager. If an asset manager is an agent, it acts primarily on behalf of others (other investors in the structured entity) and so do not control the structured entity. Otherwise, it may be a principle if it acts primarily for itself, and therefore controls the structured entity. In preparing the consolidated financial statements, where the accounting policies and the accounting periods of the Company and subsidiaries are inconsistent, the financial statements of the subsidiaries are adjusted in accordance with the accounting policies and the accounting period of the Company. For subsidiaries acquired from business combinations involving enterprises not under common control, the individual financial statements of the subsidiaries are adjusted based on the fair value of the identifiable net assets at the acquisition date. All significant intra-group balances, transactions and unrealised profits are eliminated in the consolidated financial statements. The portion of subsidiaries’ equity, net profits and total comprehensive income for the period not attributable to the Company are recognised as minority interest and total comprehensive income attributed to minority interest and presented separately in the consolidated financial statements under equity, net profits and total comprehensive income respectively. Unrealised profits or losses resulting from the Company selling assets to its subsidiaries are offset against the parent company’s net profits. Unrealised profits or losses resulting from the subsidiaries selling assets to the Company are offset against net profits attributable to shareholders of the parent company and minority interests based on the distribution percentage. Unrealised profits or losses resulting from transactions among subsidiaries are offset among net profits attributable to shareholders of the parent company and minority interest based on parent company’s share percentage in the selling subsidiary. If the Group, as a reporting entity, and the Company or subsidiaries, as separate reporting entities, have different views on the accounting treatment of the same transaction, the transaction should be adjusted and accounted for based on the Group’s perspective. The loss distributed to minority shareholders of subsidiaries overtook the shares in early shareholders' equity. The rest of them still decrease the minority shareholders’ equity. With respect to a subsidiary acquired through business combination not under common control, the operating results and cash flows of the subsidiary shall be consolidated into the Group’s financial statements from the date the Group obtains control of the subsidiary and deconsolidated from the Group’s financial statements when the Group loses the control of the subsidiary. While preparing the consolidated financial statements, the Group should adjust the subsidiary’s financial statements by using the fair values of the identifiable assets, liabilities and contingent liabilities recognized on the acquisition date. With respect to a subsidiary acquired through business combination under common control, net profit or loss of the subsidiary before the acquisition date should be separately disclosed in the consolidated financial statements.

157

158

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

While preparing the comparative consolidated financial statements, adjustments are made to related items in the comparative financial statements as if the reporting entity established through acquisition had been existed since the ultimate controller began to excise control.

2.7 Foreign currency transactions Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. At the financial reporting date, monetary items denominated in foreign currencies are translated to RMB using the exchange rates ruling at that date. Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of security. Translation differences related to changes in amortised cost are recognized in profit or loss, and other changes in carrying amount are recognized in other comprehensive income. At the financial reporting date, non-monetary assets and liabilities that are measured at historical cost in foreign currencies are translated using the exchange rates at the date of transaction. The effect of exchange rate changes on cash and cash equivalents is presented separately in the cash flow statement. Non-monetary assets and liabilities that are measured at fair value in foreign currencies are translated using the exchange rates at the date the fair value is determined. Translation differences on non-monetary financial assets classified as available-for-sale are recognized in other comprehensive income. Translation differences on nonmonetary financial assets and liabilities held at fair value through profit or loss are recognized in the profit or loss. The asset and liability items included in the balance sheets of overseas operations are translated into RMB using the spot exchange rates as at the balance sheet date. Other than Retained earnings’, items under Shareholders’ equity’ are translated into RMB using the spot exchange rates on the transaction dates. The income and expense items included in the income statements of overseas operations are translated using the spot exchange rates on the transaction dates. The differences arising from the above translation are presented separately in other comprehensive income. The cash flows of overseas operations are translated into RMB using the spot exchange rates on the dates of the cash flows. The effect of exchange rate changes on cash and cash equivalents is presented separately in the cash flow statement.

2.8 Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits that can be readily drawn on demand, and short-term highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. In the consolidated statement of cash flows, cash and cash equivalents include cash, excess reserves with central bank, due from and placements with other banks and financial institutions within original maturities no more than three months.

2.9 Precious metals Precious metals held by the Group are gold traded in domestic market. They are initially recognized at acquisition cost and subsequently measured at fair value at the financial reporting date. Gain or loss arising from fair value remeasurement is recognized in profit or loss.

2.10 Financial instruments Financial instruments - Recognition and de-recognition

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The Group recognizes a financial asset or a financial liability at the time the Group becomes a party to the contractual obligation of financial instruments. Regular way transactions of financial assets are recognized and derecognized, using trade date accounting. A regular way of purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. Trade date is the date on which the Group commits to purchase or sell the asset. Financial assets are derecognized when: (i)the contractual rights to receive cash flows from the financial asset have expired. (ii)the contractual rights to receive cash flows from the financial asset have been transferred, and the Group has transferred nearly all the risks and rewards of ownership of the financial asset to the transferee. (iii)the Group transfers the financial asset to another party, but maintains the contractual rights to receive cash flows from the financial asset and undertaken the obligations to pay the cash flow it received to the final recipient, and meets the three conditions at the same time (the requirement of “pass-through”), and transferred nearly all the risks and rewards of ownership of the financial asset to the transferee. the Group is not obliged to make any payment to the final recipient until it receives the cash flow which is equivalent to the financial asset. For any short-term payment made by the enterprise on behalf of others, if the enterprise has the right to recover the full amount of the payment and charge interests according to the market bank loan interest rate of the same period, the conditions shall be deemed to have been satisfied. in accordance with the contractual stipulations, the Group can't sell the financial asset or use it as a guaranty, but it may use it as an guarantee for paying the cash flow to the final recipient. the Group is obliged to pay the cash flow it receives to the final recipient in a timely manner. The Group has no right to make a re-investment with the cash flow, but in accordance with the contractual stipulations, it may make investment with cash or cash equivalent by using the cash flow it receives during the interval of between 2 consecutive payments. If the Group makes a reinvestment in accordance with the contractual stipulations, it shall pay the proceeds by investment to the final recipient in accordance with the contractual stipulations. (iv)the financial asset has been transferred ( the contractual right to receive the cash flow of the financial asset has been transferred or meet the requirement of “pass-through”) . Though the Group has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, it has not retained control of the asset. On de-recognition of a financial asset, the difference between the carrying amount and the considerations received together with the accumulated change of fair value recorded in other comprehensive income is recognized in profit or loss. If the existing financial liability is replaced by the same creditor with another financial liability that is with substantially different terms, or if the terms of the existing liability are substantially revised, such replacement or revision is accounted for as de-recognition of the original liability and recognition of a new liability, and the difference is recognized in profit or loss. If the obligation relating to a financial liability has been partially or fully discharged, the financial liability is derecognized partially or in full. Classification and measurement of financial assets Financial assets are, on initial recognition, classified into the following categories: financial assets at fair value

159

160

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group determines the classification of the financial assets on initial recognition. Financial assets are recognized at fair value on initial recognition. For financial assets at fair value through profit or loss, relevant transaction costs are directly charged to the profit or loss. Transaction costs relating to financial assets in other categories are included in the initial recognized amount. The classification of financial assets are depends on the group's intention and ability to hold.

Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated at fair value through profit or loss upon initial recognition. Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated at fair value through profit or loss upon initial recognition. A financial asset held for trading is the financial asset that satisfies one of the following conditions: 1) the financial asset is acquired for the purpose of selling in the near term; 2) the financial asset is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the Group has a recent actual pattern of short-term profittaking; or 3) It is a derivative, except for a derivative that is designated as effective hedging instrument, or a financial guarantee contract, or a derivative linked to investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. A financial asset is classified at fair value through profit or loss at inception if it meets either of the following criteria and is designated as such by management on initial recognition: • The designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring the financial assets or financial liabilities or recognising the gains and losses on them on different bases; or • A group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis in accordance with a documented risk management or investment strategy, and information is provided internally on that basis to key management personnel; or • The financial instrument contains one or more embedded derivatives, unless the embedded derivative(s) does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded. These financial assets are subsequently measured at fair value. Changes of fair value are recognized in profit or loss. Interest accrued during the assets holding period, dividend received and gains or loss arising from disposal are recognized in profit and loss.

Held-to-maturity investments Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has both the positive intention and the ability to hold to maturity. Held-to-maturity investments shall be measured at amortized cost using the effective interest rate method. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all amounts paid or received by the Group that are an integral part of the effective interest rate, including transaction costs and all other premiums or discounts. Except for specific situations such as disposal of insignificant amount of held-to-maturity investments at a date sufficiently close to maturity date, if the Group fails to hold such investments through their maturities or reclassifies a portion of held-to-maturity investments into available-for-sale prior to their maturities, the Group shall reclassify all held-to-maturity investments into available-for-sale category measured at fair value. The Group is further prohibited to reclassify these financial assets as held-to-maturity during the current financial year or the two preceding financial years.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. When the Group provides funds or services directly to customers without the intention to sell the receivables, the Group classifies such financial assets as loans and receivables. Subsequently, such financial assets are measured at amortized cost using effective interest method.

Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. Available-for-sale financial assets are measured at fair value. A gain or loss arising from changes in fair value of an available-for-sale financial asset is recognized in a separate component of equity, except for impairment losses and foreign exchange gains and losses resulting from monetary financial assets, until the financial asset is derecognized or is determined to be impaired. At this time, the cumulative gain or loss previously recognized in equity shall be reclassified to profit or loss. Dividends and interests relating to an available-for-sale financial asset are recognized in profit or loss. Classification and measurement of financial liabilities Financial liabilities of the Group are, upon initial recognition, classified into financial liabilities at fair value through profit or loss and other financial liabilities. The Group determines the classification of the financial liabilities on initial recognition. For financial liabilities at fair value through profit or loss, relevant transaction costs are directly recognized in profit or loss, and transaction costs relating to other financial liabilities are included in the initially recognized amount.

Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated at fair value through profit or loss upon initial recognition.

161

162

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

A financial liability held for trading is the financial liability that satisfies one of the following conditions: 1) the financial liability is acquired for the purpose of repurchasing in the near term; 2) the financial liability is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the Group has a recent actual pattern of short-term profit-taking; or 3) It is a derivative, except for a derivative that is designated as effective hedging instrument, or a financial guarantee contract, or a derivative linked to investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured. These financial liabilities are subsequently measured at fair value. The criteria for a financial liability designated at fair value through profit or loss is the same as those for a financial asset designated at fair value through profit or loss. All realized and unrealized gains or losses on these financial liabilities are recognized in profit or loss.

Other financial liabilities Other financial liabilities are subsequently measured at amortized cost using effective interest method on the financial reporting date. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. A financial instrument is an equity instrument if, and only if, both conditions (i) and (ii) below are met: (i) The financial instrument includes no contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; and (ii) If the financial instrument will or may be settled in the Group’s own equity instruments, it is a non-derivative instrument that includes no contractual obligations for the Group to deliver a variable number of its own equity instruments; or a derivative that will be settled only by the Group exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. Equity instruments issued by the Group are recorded at the fair value of proceeds received, net of direct issuance expenses. The dividend distributed due to the equipment is treated as profit distribution. Derivative financial instruments and embedded derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at fair value. Gains or losses arising from changes in fair value on derivatives are reported in profit or loss. An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative shall be separated from the host contract and accounted for as a derivative under this Standard if, and only if:

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(i) The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; (ii) A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative Hedge accounting Within the Group, only overseas branch of the Bank adopts hedge accounting. The Group documents, at inception, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at inception and throughout the life of the hedge whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values of hedged items. Currently overseas branch only uses fair value hedge. Changes in fair value of hedging instruments that are designated and qualified as fair value hedges are recorded in profit or loss, together with the changes in fair value of the hedged item attributable to the hedged risk. The net result is recorded as net trading profit or loss in the profit or loss as ineffective portion. If the hedge relationship no longer satisfies the criteria for hedge accounting, the unamortised carrying value adjustments to the carrying amount of a hedged item that is measured at amortised cost is amortised to profit or loss using the effective interest method over the period to maturity. Fair value of financial instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal market at the measurement date under current market conditions. For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices. For financial instruments not traded in active markets, fair value is determined using appropriate valuation techniques. Valuation techniques include the use of recent transaction prices, discounted cash flow analysis, option pricing models and others commonly used by market participants. These valuation techniques include the use of observable and/or unobservable inputs. Impairment of financial assets The Group assesses at each financial reporting date whether there is any objective evidence that a financial asset or a group of financial assets excluding those fair valued through profit or loss is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or a group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events: significant financial difficulties of the issuer or obligor; a breach of contract, such as a default or delinquency in interest or principal payments; the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider;

163

164

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

• it becoming probable that the borrower will enter into bankruptcy or other financial reorganization; • the disappearance of an active market for that financial asset because of financial difficulties; • observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including adverse changes in the payment status of borrowers in the group, an increase in the unemployment rate in the geographical area of the borrowers, a decrease in property price for the mortgages in the relevant area or national or local economic conditions that correlate with defaults on the assets in the group; • any significant change with an adverse effect that has taken place in the technological, market, economic or legal environment in which the issuer operates and indicates that the cost of investments in equity instruments may not be recovered; • a significant or prolonged decline in the fair value of an equity instrument; or • other objective evidence indicating impairment of the financial asset.

Financial assets carried at amortized cost When there is objective evidence that a financial asset is impaired, the carrying amount of the financial asset shall be reduced to the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The amount of reduction is recognized as an impairment loss in the profit or loss. Present value of estimated future cash flows is discounted at the financial asset’s original effective interest rate (the effective interest rate determined by calculation upon initial recognition) taking into consideration the value of any related collateral. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. If there is objective evidence of impairment, the impairment loss is recognized in the comprehensive income statement. The Group performs a collective assessment for all other financial assets that are not individually significant or for which impairment has not yet been identified through individually assessment by including the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and impairment losses are or continue to be recognized are not included in a collective assessment of impairment. When a financial asset is uncollectible, it is written off against the related allowance for impairment after all the necessary procedures have been completed. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. The previously recognized impairment loss is reversed. The amount of the reversal is recognized in profit or loss.

Available-for-sale financial assets A significant or prolonged decline in the fair value of an equity instrument is an objective indicator of impairment of available-for-sale equity instrument. The Group separately checks all available-for-sale equity investments at

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

reporting date. If a decline in the fair value of an equity instrument is below its initial cost by 50% or more, or fair value is below cost for one year or longer at reporting date, it indicates that such an equity instrument is impaired; If such a decline in fair value is below its initial cost by 20% or more but not up to 50% at reporting date, the Group takes other factors such as price volatility into consideration to judge whether the equity instrument is impaired, The Group calculate the initial cost of available-for-sale equity instrument using weighted average method. If available-for-sale financial asset is impaired, the cumulative loss from declines in fair value that had been recognized directly in revaluation reserve of equity is reclassified from equity to the profit or loss. The amount of the cumulative loss that is transferred out and recognized in the profit or loss equals to the difference between its initial cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be related objectively to an event occurring after the impairment loss was recognized in profit or loss, the previously recognized impairment loss shall be reversed with the amount of the reversal recognized in profit or loss. Impairment losses recognized in profit or loss for an equity instrument investment shall not be reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognized in other comprehensive income. If available-for-sale financial asset, which is measured at cost model, is impaired, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed. Offsetting financial instruments Financial assets and financial liabilities are presented separately in the statement of financial position by the Group, and they shall not be offset against each other; except for the followings: (i) The Group has the legal right to offset the recognized amount, and the legal right is enforceable; (ii) The Group has the intention to settle on a net basis or realize the asset and settle the liability simultaneously.

2.11 Assets purchased under resale agreements (“Reverse repos”) and assets sold under repurchase agreements (“Repos”) Reverse repo refers to the agreement under which the Group purchases an asset with an obligation to resell it to the same counterparty at a pre-determined price on a specified date. Reverse repo are recorded at the actual amount paid and presented in “assets purchased under resale agreements” on the statement of financial position, while assets bought are not recognized. Repo refers to the agreement under which the Group sells an asset with an obligation to repurchase it from the same counterparty at a pre-determined price on a specified date. Repos are recorded at the actual amounts received and presented in “assets sold under repurchase agreements” on the statement of financial condition, while assets sold are not derecognized. Interest earned from resale agreement and interest paid under repurchase agreement is recorded as interest income or interest expense respectively using effective interest method.

2.12 Long-term equity investments Long-term equity investments include long-term equity investments in subsidiaries held by the Bank and long-term equity investments in joint ventures and associates held by the Group.

165

166

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Subsidiaries are the investees over which the Bank is able to exercise control. A joint venture is a joint arrangement which is structured through a separate vehicle over which the Group has joint control together with other parties and only has rights to the net assets of the arrangement based on legal forms, contractual terms and other facts and circumstances. Associates are the investees that the Group has significant influence on their financial and operating policies. Investments in subsidiaries are presented in the Company’s financial statements using the cost method, and are adjusted to the equity method when preparing the consolidated financial statements; investments in joint ventures and associates are accounted for using the equity method. (1)Determination of investment cost For long-term equity investments acquired through a business combination: for long-term equity investments acquired through a business combination involving enterprises under common control, the investment cost shall be the absorbing party’s share of the carrying amount of owners’ equity of the party being absorbed at the combination date; for long-term equity investment acquired through a business combination involving enterprises not under common control, the investment cost shall be the combination cost. For long-term equity investments acquired not through a business combination: for long-term equity investment acquired by payment in cash, the initial investment cost shall be the purchase price actually paid; for long-term equity investments acquired by issuing equity securities, the initial investment cost shall be the fair value of the equity securities issued. (2)Subsequent measurement and recognition of related profit and loss For long-term equity investments accounted for using the cost method, they are measured at the initial investment costs, and cash dividends or profit distribution declared by the investees are recognised as investment income in profit or loss. For long-term equity investments accounted for using the equity method, where the initial investment cost of a long-term equity investment exceeds the Group’s share of the fair value of the investee’s identifiable net assets at the acquisition date, the long-term equity investment is measured at the initial investment cost; where the initial investment cost is less than the Group’s share of the fair value of the investee’s identifiable net assets at the acquisition date, the difference is included in profit or loss and the cost of the long-term equity investment is adjusted upwards accordingly. (3)Basis for determining existence of control, joint control or significant influence over investees Control means having power over an investee, enjoying variable returns through involvement in relevant activities of the investee, and being able to impact the amount of such variable returns by using the power over the investee. Joint control is the contractually agreed sharing of control over an arrangement, and the decision of activities relating to such arrangement requires the unanimous consent of the Group and other parties sharing control. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(4)Impairment of long-term equity investments The carrying amounts of long-term equity investments in subsidiaries, joint ventures and associates are reduced to the recoverable amounts when the recoverable amounts are below their carrying amounts (Note 2 (19)).

2. 13 Fixed assets (1)Recognition and initial measurement Fixed assets mainly comprise buildings, motor vehicles, mainframe computers, computer equipment, electrical equipment, aircraft equipment, office equipment, software and leasehold improvement, etc. Fixed assets shall be recognized only when the economic benefits associated with the asset will likely flow into the Group and the cost of the asset can be measured reliably. Subsequent expenditure incurred for fixed assets that meet the recognition criteria shall be included in the cost of the asset, and carrying amount of the component of the asset that is replaced shall be derecognized. Otherwise, such expenditure shall be recognized in profit or loss. (2)Depreciation methods of fixed assets Depreciation is calculated on the straight-line method to write down the cost of such assets to their residual values over their estimated useful lives. For the impaired fixed assets, the annual depreciation amount should be calculated on the basis of carrying amount less impairment and estimated remaining useful life. The estimated useful lives, estimated residual values and annual depreciation rates are as follows: Category

useful life

Estimated residual value

Buildings

Annual depreciation rate

30 years

3-5%

3.17-3.23%

Motor Vehicles

5 years

3-5%

19.00-19.40%

Mainframe computers

5 years

3-5%

19.00-19.40%

Computer equipment

3-5 years

3-5%

19.00-32.33%

Electronic equipment

5 years

3-5%

19.00-19.40%

Office equipment

5 years

3-5%

19.00-19.40%

Aircraft equipment

20 years

5%

4.75%

The Group’s Aircraft equipment is purchased to conduct operating lease activities (3)Impairment of financial assets When the recoverable amount is lower than its carrying amount, it should be reduced to the recoverable amount (Note 2.19). (4)Disposal of financial assets A fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds from disposals on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss for the current period.

167

168

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

2.14 Constructions in progress Construction in progress is stated at cost. Cost comprises cost of construction, installation and other direct costs. Items classified as construction in progress are transferred to property and equipment when such assets are ready for their intended use and the depreciation charge commences from the following month after such assets are transferred to property and equipment. When the recoverable amount is lower than its carrying amount, it shall be written down immediately to the recoverable amount (Note 2.19).

2.15 Intangible assets Intangible assets mainly include land use right, software, brand, franchise right and contractual customer relationships etc., Land use right and software are measured with costs, and brand, franchise right and contractual customer relationships acquired in a business combination are measured with fair value. Land use right is amortized since the month of acquisition using straight-line method within its statutory useful life. If the price cannot be reasonably allocated the land use right and building for the purchased land and buildings, all of them measured as fixed assets. Software is amortized since month of acquisition using straight-line method within its estimated useful life. Brand and franchise right is intangible with no expect life and no amortization, and take impairment test every year. Contractual customer relationships are amortized from the date of acquisition according to the average annual income. The cost of a finite useful life intangible asset is amortised using the straight-line method during the estimated useful life. The Group reviews the useful life at the end of each year and adjusts it if necessary. When the recoverable amount is lower than its carrying amount, book value should be reduced to the recoverable amount (Note 2.19).

2.16 Long-term deferred expenses Long-term deferred expenses, including leasehold improvement and the other has occurred but attributable to the current and future periods and the beneficial periods are more than 1 year (excluding 1 year),amortised on a straightline basis over estimated useful lives, amortised on a straight-line basis over the lease term.

2.17 Foreclosed assets Foreclosed assets included in ‘Other assets’ are initially recognized at fair value. When there are indicators that the recoverable amount is lower than carrying amount, the carrying amount is written down immediately to its recoverable amount.

2.18 Goodwill Goodwill is recognised at the excess of the cost of a business combination involving enterprises not under common control over the interest in the fair value of the acquirees’ identifiable net assets acquired in the business combination as at the acquisition date.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

2.19 Impairment of long term assets Assets such as fixed assets, construction in progress, intangible assets with finite useful lives, investment properties measured using the cost model and long-term equity investments in subsidiaries, joint ventures and associates are tested for impairment if there is any indication that the assets may be impaired at the balance sheet date. If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Provision for asset impairment is determined and recognized on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. Cash-generating unit is the smallest identifiable group of assets that generates cash inflows independently of the cash flows from other assets or groups of assets. Intangible assets arising from business combination with indeterminate goodwill and service life are tested for impairment at least annually, irrespective of whether there is any indication that it may be impaired. In conducting the test, the carrying value of goodwill is allocated to the related asset groups or groups of asset groups which are expected to benefit from the synergies of the business combination. If the result of the test indicates that the recoverable amount of an asset group or group of asset groups, including the allocated goodwill, is lower than its carrying amount, the corresponding impairment loss is recognised. The impairment loss is first deducted from the carrying amount of goodwill that is allocated to the asset group or group of asset groups, and then deducted from the carrying amounts of other assets within the asset groups or groups of asset groups in proportion to the carrying amounts of assets other than goodwill. Once the impairment loss is recognised, it cannot be recovered in subsequent periods.

2.20 Provisions Provisions are recognized by the Group when obligations related to contingent matters meet all the following conditions: (i) The Group has present legal or constructive obligations as a result of past events; (ii) It is probable that an outflow of resources from the Group will be required to settle the obligation; and (iii) The amount has been reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The Group will review the carrying amount at each balance sheet date. If there are evidences showing that the carrying amount cannot reflect the present best estimates, the carrying amount should be adjusted accordingly. At the balance sheet date, the Group will conduct a review of the book value of the liability and make appropriate adjustment to reflect the best estimation at the current stage. Provisions which will be due within one year since the balance sheet date are classified as current liabilities.

169

170

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

2.21 Dividend distribution Dividend distribution to the Bank’s ordinary shareholders is recognized as a liability in the Group’s and the Bank’s financial statements in the period in which the dividends are approved by the shareholders’ annual general meeting of the Bank.

2.22 Fiduciary activities As an agent, the Group only provides services and charges fees according to the agent agreement in an entrusted business, but bears no risks and enjoys no interests of the assets, which are not recognised in the Group’s balance sheet. The Group conducts entrusted lending arrangements for its customers. Under the terms of entrusted loan arrangements, the Group grants loans to borrowers, as an intermediary, according to the instruction of its customers who are the lenders providing the entrusted loans. The Group is responsible for the arrangement and collection of the entrusted loans and receives a commission for the services rendered. As the Group does not assume the economic risks and rewards of the entrusted loans and the funding for the corresponding entrusted funds, they are not recognized as assets and liabilities of the Group.

2.23 Financial guarantee contract Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Financial guarantees are initially recognized at fair value on the date the guarantee was given. Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the initial measurement less amortisation calculated and the best estimate of the expenditure required settling any financial obligation arising at the financial reporting date. Any increase in the liability relating to guarantees is taken to profit or loss. These estimates are determined based on experience of similar transactions, historical losses and by the judgement of management.

2.24 Revenue and expense recognition (1) Interest income and interest expense Interest income and expense for all interest-bearing financial instruments, except derivatives, are recognized in profit or loss using the effective interest method. (2) Fee and commission income Commission income is recognised when the services have been rendered and the proceeds can be reasonably estimated.

2.25 Employee benefits Employee benefits refers to all forms of consideration given by the Group in exchange for service rendered by employees or for the termination of employment, including short-term employee benefits, post-employment benefits

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

and other long term benefits, etc. (1) Short-term employee benefits Short-term employee benefits include wages or salaries, bonuses, allowances and subsidies, staff welfare, medical care, disability benefit, maternity insurance, housing funds, labour union funds, employee education funds and paid short-term leave, etc. Short-term employee benefits are recognised in the accounting period in which the service has been rendered by the employees, and as costs of assets or expenses to whichever the employee service is attributable. Non-monetary benefits are measured at fair value. (2)Post-employment benefits Post-employment benefits include defined contribution plans and defined benefit plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the plan does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. During the reporting period, the Group’s post-employment benefits mainly include social security insurance and unemployment insurance, which are defined contribution plans. Social security insurance The Group’s employees have participated in certain social security plans organized by the local labour and social security departments. The Group makes monthly contributions to these local organizations for the purposes of paying contribution of these social security plans according to the local basic pension insurance contribution base and rate. These contributions are recognised in the accounting period in which the service has been rendered by the employees as liability, with the corresponding expenses recognized in the income statement or capitalized as cost of the related assets according to whichever the employee service is attributable to.

2.26 Income tax Income tax comprises current and deferred tax. Income taxes are recognized as an expense or income and include in profit or loss, except to the extent that the tax arises from a business combination or if it relates to a transaction or event which is recognized directly in equity. Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the financial reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arising between the tax bases of assets and liabilities and their carrying amounts (temporary differences). Deferred tax asset is recognised for the deductible losses that can be carried forward to subsequent years for deduction of the taxable profit in accordance with the tax laws. No deferred tax asset or deferred tax liability is recognised for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or deductible loss). At the balance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax assets are only recognised for deductible temporary differences, deductible losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary

171

172

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) differences, deductible losses and tax credits can be utilised. Deferred tax liabilities are recognised for temporary differences arising from investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing of reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. When it is probable that the temporary differences arising from investments in subsidiaries, associates and joint ventures will be reversed in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilised, the corresponding deferred tax assets are recognised. Deferred tax assets and liabilities are offset when: • the deferred taxes are related to the same tax payer within the Group and the same taxation authority; and, • that tax payer within the Group has a legally enforceable right to settle the current tax assets and current tax liabilities on net basis.

2.27 Leases A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. An operating lease is a lease other than a finance lease. • As a lessee under operating leases Lease payments under an operating lease are recognized in profit or loss by a lessee on a straight-line basis over the lease term. Initial direct cost is also charged to profit or loss. Contingent rents are recorded into profit or loss of the period in which they actually arise. • As a lessor under finance leases At the lease commencement date, the present value of the aggregation of the minimum lease payment receivable from the lessee, unguaranteed residual value and initial direct costs is recognized as a receivable. The difference between the receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognized over the term of the lease using an interest rate which reflects a constant rate of return, as interest income in the comprehensive income statement. Contingent rents are recorded into profit or loss of the period in which they actually arise. The differences between the finance lease receivables less the unearned finance income are presented in “other assets”. When making the judgment of de-recognition or impairment measurement, finance lease receivables are considered as loans and receivables. • As a lessor under operating lease When the Group is the lessor in an operating lease, the assets subject to the operating lease continue to be recognized as the Group’s property and equipment. Rental income from operating leases is recognized as Other Operating Income in the consolidated income statement on a straight-line basis over the term of the related lease.

2.28 Segment reporting The Group identifies operating segment on the basis of internal organization structure, management requirement and internal report system, and forms the segment report and discloses the segment information based on operating segment.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Operating segment represents the segment satisfying the following conditions at the same time: (i) The segment produces income and expense in daily activities; (ii) The Group’s management regularly evaluates the performance of the segment, and decides to allocate resources to the segment and to assess its performance; and (iii) The Group can obtain financial position, operation performance, cash flow and other relevant accounting information of the segment. Two or more operating segments with similar economic characteristics are combined into an operating segment, provided that certain conditions are met.

2.29 Critical accounting estimates and judgements The Group makes regular assessments on accounting judgments and estimates based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Areas susceptible to significant changes in estimates and judgments, which affect the carrying value of assets and liabilities of next accounting period, are set out below. It is possible that actual results may be materially different from the estimates and judgments referred below. (1)Impairment losses on loans and advances The Group reviews its loan portfolios to assess impairment regularly besides individual impairment loss assessment on identified non-performing loans. In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgments as to whether there is any observable evidence indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers (e.g. payment delinquency or default), or national or local economic conditions that correlate with defaults on assets. Management makes estimation based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The management regularly reviews the methods and assumptions adopted to forecast the future cash flows to reduce the difference between the estimated loss and actual loss. (2)Fair value of financial instruments The fair values of financial instruments that are not quoted in active markets are determined by using valuation technique. Valuation technique includes using recent arm's length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. The Group uses market information in maximum extent. However, if market information is not available, management might estimate the credit risk, market fluctuations and relevance of the Group and its counterpart. Changes in assumptions about these factors could affect reported fair value of financial instruments. (3)Income taxes, value added taxes, and business taxes Significant estimates are required in determining the provision for income tax, value added tax and business tax. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax issues arising from new tax regulations or other uncertain tax arrangements based on estimates of whether additional taxes will be due. The deductibility of certain items is subject to tax authority’s final approval. Where the final tax outcome of these matters is different from the amounts that were initially estimated, such differences will affect the current income taxes and business taxes and/or deferred tax provisions in the period in which such determination is made.

173

174

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) (4)Held-to-maturity investments The Group follows the guidance of IAS 39 on classifying certain non-derivative financial assets with fixed or determinable payments and fixed maturity date as held-to-maturity. The classification of held-to-maturity investment requires significant judgment. (5)Consolidation of structured entities Management applies its judgment to determine whether the Group is acting as an agent or a principle in relation to the structured entities in which the Group acts as an asset manager. In assessing whether the Group is acting as agent, the Group considers factors such as scope of the asset manager’s decision-making authority, rights held by other parties, remuneration to which it is entitled, and exposure to viability of returns and makes regular reassessment. The Group performs re-assessment periodically. (6)Goodwill impairment Goodwill impairment reviews are undertaken annually or more frequently, and it’s also needed if events or changes indicate a potential impairment. For the purpose of impairment testing, Goodwill acquired in a business combination is allocated to each of the CGU, or groups of CGUs. The Group forecasts future cash flow of the CGU and CGUs, and applies appropriate discount rate for the calculation of the present value of future cash flow. (7)De-recognition of financial assets The Group’s transfer of financial assets include transfer of loans and advances to customers, securitization and financial assets sold under repurchase agreements. When assess whether the transfer of financial asset meet the de-recognition requirement of financial asset, it is required to assess whether the Group has transferred the right to receive cash flows of financial asset, or has transferred the contractual rights to receive cash flows from the financial asset to another party which meet the requirement of “pass-through”, whether nearly all the risks and rewards of ownership of the financial asset have been transferred out and whether its control over the transferred financial asset has been given up.

3 TAXATION The applicable taxes/surcharges categories and tax/surcharge rate for the Group are the follows: Tax and surcharge rate

Taxes/surcharges

Tax/surcharge base

Business tax (1)

Taxable turnover

Value added tax (“VAT”) (1)

Taxable value added amount (Tax payable is calculated using the taxable sales amount multiplied by the applicable tax rate less deductible VAT input of current period)

City maintenance and construction tax

Business tax and VAT payable

1%~7%

Educational surcharge

Business tax and VAT payable

3%~5%

Corporate income tax

Taxable income

5%

3%、5%、6%、17%

Mainland China:25% Outside mainland China:the tax rate of branches and subsidiaries is calculated with applied tax rate

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

In accordance with the Notice of the Ministry of Finance and the State Administration of Taxation on the Tax Policies for Implementing across the Country the Pilot Program of Levying Value-Added Tax in Lieu of Business Tax (Cai Shui (2016) No.36) issued by the Ministry of Finance and the State Administration of Taxation, the Group's financial service business income is subject to VAT at the rate of 6% from 1 May 2016, before which the above business is subject to business tax at the rate of 5%.

4 NOTES TO THE FINANCIAL STATEMENTS 1 Cash and balances with central bank Group 2016-12-31

2015-12-31

2016-12-31

2015-12-31

7,221

7,159

7,101

7,032

440,445

406,210

438,097

404,134

68,950

67,039

67,845

65,743

614

749

580

735

517,230

481,157

513,623

477,644

Cash Mandatory reserves with central bank Excess reserves with central bank Fiscal deposits with central bank Total

Bank

The Group is required to place mandatory reserves with the PBOC, which are not allowed to be used in the Group’s daily operations. The reserve rate for deposits denominated in RMB is 15% at 31 December 2016 (31 December 2015: 15%). The reserve rate for deposits denominated in foreign currencies is 5% at 31 December 2016 (31 December 2015: 5%). The reserve rate for foreign exchange risk reserve is 20% at 31 December 2016 (31 December 2015: 20%).

2 Due from banks and other financial institutions Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Due from domestic banks

180,656

73,905

173,210

70,853

Due from overseas banks

53,567

37,483

53,511

37,481

234,223

111,388

226,721

108,334

Total

3 Placements with banks and other financial institutions Group 2016-12-31

Bank 2015-12-31

2016-12-31

2015-12-31

Placements with domestic banks

5,172

6,000

5,172

6,000

Placements with overseas banks

9,947

32,564

9,947

32,564

103,773

99,242

106,819

99,242

118,892

137,806

121,938

137,806

Placements with domestic other financial institutions Total

175

176

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

4 Financial assets at fair value through profit or loss Held for trading:

Group 2016-12-31

2015-12-31

Trading financial assets: Government bonds Bonds issued by policy banks Bonds issued by financial institutions Deposit certificates issued by other financial institutions

530

-

3,275

1,257

-

400

31,506

8,635

Corporate bonds

6,905

32,957

Fund investments

6,777

8,025

48,993

51,274

8,019

8,154

Sub-total Financial assets designated at fair value through profit or loss Borrowings from non-bank financial institutions (Note1) Trust and asset management plans

4,408

-

111,382

-

4,401

4,318

Sub-total

128,210

12,472

Total

177,203

63,746

Other debt instruments (Note1, Note 2) Other investment (Note 3)

Held for trading:

Bank 2016-12-31

2015-12-31

530

-

3,275

1,257

-

400

31,506

8,635

Corporate bonds

6,472

32,957

Fund investments

6,000

8,025

47,783

51,274

8,019

8,154

111,382

-

Trading financial assets: Government bonds Bonds issued by policy banks Bonds issued by financial institutions Deposit certificates issued by other financial institutions

Sub-total Financial assets designated at fair value through profit or loss Borrowings from non-bank financial institutions (Note1) Other debt instruments (Note 1, Note2) Other investment (Note 3)

4,237

4,318

Sub-total

123,638

12,472

Total

171,421

63,746

Note 1: The amount of changes in fair value arising from the changes in the credit risk of non-bank financial institution counterparties is insignificant. Note 2: Other debt instruments are financing products issued to corporates by the Bank. Note 3: Other investments mainly include the long-term employee benefits payable to Changjiang Pension Insurance Co., Ltd. for investment entrusted by the Group. As at 31 December 2016, the fair value of the investment amounts to RMB 4,373 million(31 December 2015: RMB 4,258 million).

2016 Annual Report

177

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5 Derivative financial instruments 2016-12-31 Fair Value Group and Bank

Notional amount

Assets

Liabilities

Currency swap contracts

952,453

13,130

(10,499)

Interest rate swap contracts

783,631

581

(875)

Option contracts

108,015

618

(871)

Precious metal derivative financial instruments

57,127

1,005

(336)

Foreign exchange forward contracts

46,729

423

(472)

6,109

275

-

15,082

164

(38)

790

37

-

16,233

(13,091)

Derivative financial instruments not held for hedging:

Commodity contracts Derivative financial instruments held as hedging instruments at fair value: Interest rate swap Cross-currency interest rate swap Total

2015-12-31 Fair Value Group and Bank

Notional amount

Assets

Liabilities

Derivative financial instruments not held for hedging: Currency swap contracts

659,926

6,824

(5,498)

Interest rate swap contracts

632,405

296

(1,090)

Precious metal derivative financial instruments

43,197

2,812

(196)

Foreign exchange forward contracts

42,079

356

(194)

Option contracts

30,254

302

(283)

7,127

20

(58)

10,610

(7,319)

Derivative financial instruments held as hedging instruments at fair value: Interest rate swap contracts Total

The notional amounts of certain types of financial instruments provide a basis for comparison with instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Group’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest rates or foreign exchange rates relative to their terms. The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

6 Financial assets purchased under resale agreements Group and Bank

Bonds Deposit certificates issued by other financial institutions Bills Total

2016-12-31

2015-12-31

2,864

4,980

137

-

-

105,238

3,001

110,218

178

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

7 Interests receivable Group

Bonds and other investments classified as loans and receivables

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

12,243

10,828

12,139

10,828

Loans

7,877

7,604

7,868

7,543

Balance with central banks and inter-bank

2,311

1,650

2,290

1,650

478

355

-

-

2

-

2

-

22,911

20,437

22,299

20,021

Finance lease receivables Financial assets purchased under resale agreements

Total

8 Loans and advances to customers Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

1,707,344

1,564,247

1,696,336

1,552,924

Trade finance

23,970

31,887

23,970

31,887

Discounted bills

61,293

62,080

60,977

61,712

Mortgage loans

458,215

260,568

457,317

259,991

Loans to finance family business

157,538

144,469

151,252

138,443

Credit card and overdraft

267,119

111,055

267,119

111,055

87,327

71,212

86,281

70,530

2,762,806

2,245,518

2,743,252

2,226,542

Corporates loans Commercial Loans

Retail loans

Others Gross loans and advances to customers Individual impairment allowances

(15,475)

(9,963)

(15,475)

(9,963)

Collective impairment allowances

(72,774)

(64,142)

(71,882)

(63,369)

Total impairment allowances

(88,249)

(74,105)

(87,357)

(73,332)

2,674,557

2,171,413

2,655,895

2,153,210

Loans and advances to customers, net

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

8.1 Loans and advances to customers analysed by way of assessment Impaired loans Group

Non-impaired loans subject to collective assessment

Collective assessment

Individual assessment

Sub-total

Total

1,751,198

12,544

28,865

41,409

1,792,607

As at 31 December 2016 Corporates loans Retail loans

Allowance for impairment Loans and advances to customers, net

959,430

10,769

-

10,769

970,199

2,710,628

23,313

28,865

52,178

2,762,806

(57,764)

(15,010)

(15,475)

(30,485)

(88,249)

2,652,864

8,303

13,390

21,693

2,674,557

1,630,928

9,431

17,855

27,286

1,658,214

579,536

7,768

-

7,768

587,304

As at 31 December 2015 Corporates loans Retail loans

Allowance for impairment Loans and advances to customers, net

2,210,464

17,199

17,855

35,054

2,245,518

(53,016)

(11,126)

(9,963)

(21,089)

(74,105)

2,157,448

6,073

7,892

13,965

2,171,413

Sub-total

Total

Impaired loans Bank

Non-impaired loans subject to collective assessment

Collective assessment

Individual assessment

1,740,121

12,297

28,865

41,162

1,781,283

951,324

10,645

-

10,645

961,969

2,691,445

22,942

28,865

51,807

2,743,252

(57,078)

(14,804)

(15,475)

(30,279)

(87,357)

2,634,367

8,138

13,390

21,528

2,655,895

1,619,426

9,242

17,855

27,097

1,646,523

572,309

7,710

-

7,710

580,019

2,191,735

16,952

17,855

34,807

2,226,542

(52,381)

(10,988)

(9,963)

(20,951)

(73,332)

2,139,354

5,964

7,892

13,856

2,153,210

As at 31 December 2016 Corporates loans Retail loans

Allowance for impairment Loans and advances to customers, net As at 31 December 2015 Corporates loans Retail loans

Allowance for impairment Loans and advances to customers, net

179

180

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

8.2 Loans and advances to customers analysed by industry Group

2016-12-31

2015-12-31

Amount

(%)

Amount

(%)

Manufacturing

337,188

12.21

350,252

15.61

Wholesale and retail

303,465

10.98

299,024

13.32

Real estate

244,285

8.84

236,579

10.54

Lease and commercial service

244,088

8.83

168,908

7.52

Construction

125,173

4.53

125,383

5.58

Transportation, warehouse and postal services

111,969

4.05

99,416

4.43

Water, environment and public facilities management

101,138

3.66

92,399

4.11

Mining

65,748

2.38

60,021

2.67

Energy and utilities

58,505

2.12

46,785

2.08

Agriculture, forestry, farming and fishery

21,590

0.78

19,924

0.89

Research and technology services

18,254

0.66

7,616

0.34

Information transmission, software and IT services

16,340

0.59

12,452

0.55

Public management, social security and social organization

15,421

0.56

15,073

0.67

Healthcare and social welfare

13,591

0.49

11,416

0.51

Education

10,191

0.37

11,204

0.50

Culture, sports and entertainment

10,024

0.36

7,717

0.34

Hotel and catering

9,999

0.36

11,858

0.53

Resident services, repairing and other services

9,882

0.36

11,787

0.52

Financial services

8,747

0.32

4,386

0.20

Others

5,716

0.21

3,934

0.18

1,731,314

62.66

1,596,134

71.09

Discounted bank acceptances

33,514

1.21

48,043

2.14

Re-discount

20,543

0.75

8,785

0.39

7,236

0.26

5,252

0.23

Corporate loans

Discounted commercial acceptances

Retail loans Total

61,293

2.22

62,080

2.76

970,199

35.12

587,304

26.15

2,762,806

100.00

2,245,518 100.00

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

8.2 Loans and advances to customers analysed by industry (Continued) Bank

2016-12-31

2015-12-31

Amount

(%)

Amount

(%)

Manufacturing

331,040

12.07

344,246

15.46

Wholesale and retail

301,329

10.98

296,975

13.34

Real estate

244,264

8.90

236,552

10.62

Lease and commercial service

244,949

8.93

168,692

7.57

Construction

124,449

4.54

124,600

5.60

Transportation, warehouse and postal services

111,854

4.08

99,328

4.46

Water, environment and public facilities management

101,011

3.68

92,292

4.14

Mining

65,582

2.39

59,861

2.69

Energy and utilities

58,046

2.12

46,396

2.08

Agriculture, forestry, farming and fishery

20,076

0.73

18,544

0.83

Research and technology services

18,238

0.67

7,616

0.34

Information transmission, software and IT services

16,284

0.59

12,416

0.56

Public management, social security and social organization

15,421

0.56

15,073

0.68

Healthcare and social welfare

13,535

0.49

11,373

0.51

Education

Corporate loans

10,150

0.37

11,139

0.50

Culture, sports and entertainment

9,975

0.36

7,704

0.35

Hotel and catering

9,844

0.36

11,749

0.53

Resident services, repairing and other services

9,797

0.36

11,711

0.53

Financial services

8,747

0.32

4,610

0.21

Others

5,715

0.21

3,934

0.18

1,720,306

62.71

1,584,811

71.18

Discounted bank acceptances

33,226

1.21

47,675

2.14

Re-discount

20,543

0.75

8,785

0.39

7,208

0.26

5,252

0.24

Discounted commercial acceptances

Retail loans Total

60,977

2.22-

61,712

2.77

961,969

35.07

580,019

26.05

2,743,252

100.00

2,226,542 100.00

181

182

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

8.3 Loans and advances to customers analysed by geography Group

2016-12-31

2015-12-31

Amount

(%)

Amount

(%)

Headquarter

331,611

12.00

165,417

7.37

Yangtze River Delta

764,740

27.69

684,878

30.50

255,951

9.26

189,971

8.46

Bohai Rim

374,460

13.55

306,002

13.63

Central China

384,345

13.91

326,562

14.54

Western China

413,968

14.98

351,284

15.64

North-east China

165,938

6.01

163,123

7.26

Pearl River Delta and West Side of Taiwan Strait

Overseas and subsidiaries

71,793

2.60

58,281

2.60

Total

2,762,806

100.00

2,245,518

100.00

Bank

2016-12-31

2015-12-31

Amount

(%)

Amount

(%)

Headquarter

331,611

12.09

165,417

7.43

Yangtze River Delta

764,740

27.87

684,878

30.75

255,951

9.33

189,971

8.53

Bohai Rim

375,165

13.68

306,002

13.74

Central China

384,345

14.01

326,562

14.67

Western China

413,968

15.09

351,284

15.78

North-east China

165,938

6.05

163,123

7.33

51,534

1.88

39,305

1.77

2,743,252

100.00

2,226,542

100.00

Pearl River Delta and West Side of Taiwan Strait

Overseas and subsidiaries Total

8.4 Loans and advances to customers analysed by collateral type Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

1,157,707

977,172

1,150,482

971,345

Guaranteed loans

682,061

631,413

671,370

620,755

Unsecured loans

744,151

470,744

744,229

470,236

Pledged loans

178,887

166,189

177,171

164,206

2,762,806

2,245,518

2,743,252

2,226,542

Collateralised loans

Gross loans and advances to customers

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

8.5 Overdue loans and advances to customers 2016-12-31 Group

Past due up to 90 days (including 90 days)

Past due 90 days to 1 year (including 1 year)

Past due 1 year to 3 years (including 3 years)

Past due over 3 years

Total

11,398

18,927

9,429

506

40,260

Collateralised loans

5,648

14,974

7,806

1,325

29,753

Unsecured loans

1,951

4,253

3,034

156

9,394

301

1,538

930

18

2,787

19,298

39,692

21,199

2,005

82,194

Guaranteed loans

Pledged loans Total

2015-12-31 Past due up to 90 days (including 90 days)

Past due 90 days to 1 year (including 1 year)

Past due 1 year to 3 years (including 3 years)

Past due over 3 years

Total

Guaranteed loans

6,162

13,916

6,950

83

27,111

Collateralised loans

5,806

11,655

6,944

542

24,947

Unsecured loans

1,555

1,366

2,163

86

5,170

294

1,008

654

1

1,957

Total

13,817

27,945

16,711

712

59,185

Bank

Past due up to 90 days (including 90 days)

Past due 90 days to 1 year (including 1 year)

Pledged loans

2016-12-31

Guaranteed loans

Past due 1 year to 3 years (including 3 years)

Past due over 3 years

Total

11,196

18,645

9,282

504

39,627

Collateralised loans

5,566

14,862

7,657

1,323

29,408

Unsecured loans

1,951

4,243

3,034

156

9,384

Pledged loans Total

301

1,538

921

18

2,778

19,014

39,288

20,894

2,001

81,197

2015-12-31 Past due up to 90 days (including 90 days)

Past due 90 days to 1 year (including 1 year)

Past due 1 year to 3 years (including 3 years)

Past due over 3 years

Total

Guaranteed loans

6,001

13,698

6,916

83

26,698

Collateralised loans

5,767

11,515

6,934

521

24,737

Unsecured loans

1,555

1,366

2,163

86

5,170

275

983

654

1

1,913

13,598

27,562

16,667

691

58,518

Pledged loans Total

183

184

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

8.6 Allowance for impairment of loans and advances to customers 2016 Group

2015

Individually assessed

Collectively assessed

9,963

64,142

Balance at beginning of the year

Total

Individually assessed

Collectively assessed

Total

74,105

6,081

47,685

53,766

Charge for the year

22,828

24,017

46,845

10,836

26,234

37,070

Write-off

(2,936)

(12,354)

(15,290)

(4,078)

(5,966)

(10,044)

(14,265)

(3,684)

(17,949)

(2,588)

(3,844)

(6,432)

703

947

1,650

314

316

630

(818)

(348)

(1,166)

(602)

(312)

(914)

-

54

54

-

29

29

15,475

72,774

88,249

9,963

64,142

74,105

Individually assessed

Collectively assessed

Total

Individually assessed

Collectively assessed

Total 53,195

Transfer-out Recovery of loans and advances written off in previous years

Unwind of discount on impairment allowance Exchange difference Balance at end of the year

2016 Bank Balance at beginning of the year

2015

9,963

63,369

73,332

6,081

47,114

Charge for the year

22,828

23,753

46,581

10,836

25,970

36,806

Write-off

(2,936)

(12,209)

(15,145)

(4,078)

(5,904)

(9,982)

(14,265)

(3,684)

(17,949)

(2,588)

(3,844)

(6,432)

Transfer-out Recovery of loans and advances written off in previous years

Unwind of discount on impairment allowance Exchange difference Balance at end of the year

703

947

1,650

314

316

630

(818)

(348)

(1,166)

(602)

(312)

(914)

-

54

54

-

29

29

15,475

71,882

87,357

9,963

63,369

73,332

2016 Annual Report

185

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

9 Available-for-sale financial assets Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Government bonds

37,182

58,148

37,182

58,148

Bonds issued by policy banks

29,675

63,416

29,675

63,416

Bonds issued by financial institutions

61,018

32,662

61,018

32,662

Deposit certificates issued by other financial institutions

76,940

22,579

76,940

22,579

Corporate bonds

47,956

50,955

45,555

50,955

Assets backed securities (“ABS”)

73,507

-

73,507

-

Trust and asset management plans

23,492

-

21,116

-

2,896

1,926

2,118

1,596

Wealth management products managed by other banks

160,526

-

160,526

-

Fund investments

102,990

19,467

102,062

19,467

4,281

5,693

2,902

5,693

620,463

254,846

612,601

254,516

At fair value

Equity investments

Others Total

186

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) (a) Detail information of available-for-sale financial assets is as follows: Measured at the fair value of available for sale financial assets: Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

- Fair value

349,770

227,760

344,993

227,760

- Amortized cost

350,213

220,885

345,440

220,885

- Accumulate amount recognized in other comprehensive income

(213)

6,903

(217)

6,903

- Accumulate amount recognized in profit or loss (Note 1)

(213)

(12)

(213)

(12)

(17)

(16)

(17)

(16)

- Fair value

2,896

1,926

2,118

1,596

- Amortized cost

2,433

1,458

1,705

1,128

463

468

413

468

Bonds and other debt instruments:

- Accumulate provision of impairment

Equity investments

- Accumulate amount recognized in other comprehensive income

Wealth management products managed by other banks、fund investments and others - Fair value

267,797

25,160

265,490

25,160

- Amortized cost

268,028

25,008

265,635

25,008

(161)

217

(75)

217

(70)

(65)

(70)

(65)

- Fair value

620,463

254,846

612,601

254,516

- Amortized cost

620,674

247,351

612,780

247,021

89

7,588

121

7,588

(213)

(12)

(213)

(12)

(87)

(81)

(87)

(81)

- Accumulate amount recognized in other comprehensive income - Accumulate provision of impairment

Total

- Accumulate amount recognized in other comprehensive income - Accumulate amount recognized in profit or loss (Note 1) - Accumulate provision of impairment

Note 1: The Bank’s Hong Kong branch hedged the fair value changes of available-for-sale bonds caused by interest rates using cross currency and interest rate swaps. The fair value changes of these hedged bonds are recognized in current profits or losses (Note 4.41).

2016 Annual Report

187

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(b) Detail information of the impairment of available for sale financial assets are as follows: Group and bank 2016-12-31

2015-12-31

17

16

70

65

87

81

Available-for-sale bonds Wealth management products managed by other banks、fund investments and others Total

10 Investment securities held-to-maturity Group and bank 2016-12-31

2015-12-31

Government bonds

162,156

121,052

Bonds issued by policy banks

153,469

105,797

5,194

5,100

-

658

6,179

7,096

(48)

-

326,950

239,703

Bonds issued by financial institutions Deposit certificates issued by other financial institutions Corporate bonds Less:impairment allowance Total

11 Investment securities - loans and receivables Group

bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Government bonds

41,828

190

41,828

190

Bonds issued by financial institutions

14,219

16,707

14,219

16,707

Corporate bonds

22,039

25,940

22,039

25,940

4,798

9,459

4,798

9,459

82,884

52,296

82,884

52,296

Bonds

ABS

Trust and asset management plans (Note 1)

821,881

1,112,886

816,891

1,112,886

Wealth management products managed by other banks

74,129

150,066

74,129

150,066

Others (Note 2)

37,387

14,394

37,187

14,394

933,397

1,277,346

928,207

1,277,346

Individual assessed impairment allowances

(1,476)

(117)

(1,476)

(117)

Collectively assessed impairment allowances

(4,333)

(4,493)

(4,333)

(4,493)

Sub-total

(5,809)

(4,610)

(5,809)

(4,610)

1,010,472

1,325,032

1,005,282

1,325,032

Loans and receivables, net

Note 1: Certain trust companies and security companies established these trust and asset management plans and are responsible for the management of these products. Investment decisions are also made by these trust companies or security companies. These products are ultimately invested in trust loans, bill assets and bonds. Note 2: These are the assets invested by certain principal-guaranteed wealth management products issued and managed by the Group. The ultimate investments of these wealth management products include bonds, trust loans, senior tranche of structured entities.

188

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12 Long-term equity investments Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Joint ventures

731

625

731

625

Associates

218

974

-

974

-

-

22,980

3,486

949

1,599

23,711

5,085

Subsidiaries (Note6.1) Total

The Group does not have significant restrictions in long-term equity investments realization. As at 31 December 2016, there is no restriction for capital transfer from the Group’s subsidiaries and joint ventures to the Bank. Long-term equity investments accounted for using equity method: Group and bank Movement 2015-12-31

Business Other Exchange 2016-12-31 combinations equity rate of entities not movement adjustment under common control

Increase or (decrease) in investment cost

Share of profit or loss

-

86

-

AXA SPDB Investment Joint ventures

126

SPD Silicon Valley Bank

Joint ventures

499

-

7

First Sino Bank

Associates

974

(1,062)

70

Others

Associates

-

181

17

Managers Co., Ltd.

-

-

212

-

-

13

519

-

18

-

-

20

-

-

218

Group and bank Movement 2015-12-31

Increase or (decrease) in investment cost

Share of profit or loss

Other equity movement

Exchange 2016-12-31 rate adjustment

AXA SPDB Investment Joint ventures

126

-

86

-

-

212

SPD Silicon Valley Bank

Joint ventures

499

-

7

-

13

519

First Sino Bank

Associates

974

(1,062)

70

18

-

-

Managers Co., Ltd.

Interest in joint ventures and associates refer Note 6.2

2016 Annual Report

189

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

13 Fixed assets Group

Transfer from business combinations Disposals

2016-12-31

2015-12-31

Additions

Cost

26,862

4,904

568

(1,488)

30,846

Land and buildings

10,575

1,381

495

-

12,451

475

28

3

(42)

464

Aircraft equipment

5,942

1,800

-

-

7,742

Electronic computers and other equipment

6,708

992

70

(330)

7,440

Construction in progress

3,162

703

-

(1,116)

2,749

Accumulated depreciation

7,800

1,791

-

(350)

9,241

Land and buildings

2,986

392

-

-

3,378

327

49

-

(37)

339

Motor vehicles

Motor vehicles Aircraft equipment Electronic computers and other equipment Construction in progress Net book value Land and buildings

177

355

-

-

532

4,310

995

-

(313)

4,992

-

-

-

-

-

19,062

21,605

7,589

9,073

148

125

Aircraft equipment

5,765

7,210

Electronic computers and other equipment

2,398

2,448

Construction in progress

3,162

2,749

Motor vehicles

The depreciation expense recognized in profit or loss for the year ended 31 December 2016 is RMB 1,791 million(31 December 2015: RMB 1,328 million). As at 31 December 2016, the net book value of 7,210 million (31 December 2015: net book value of 5,765 million) of Flight equipment of Group’s subsidiary SPDB Financial Leasing Co., Ltd has been leased. Buildings and constructions, with the cost of RMB 942 million and net book value of RMB 811 million as at 31 December 2016(31 December 2015: cost of RMB 1,199 million and net book value of RMB 1,139 million), which have been in use while the property right registration were still in progress.

190

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

13 Fixed assets (Continued) Bank 2015-12-31

Additions

Disposals

2016-12-31

Cost

20,810

3,039

(1,461)

22,388

Land and buildings

10,573

1,359

-

11,932

450

26

(39)

437

Electronic computers and other equipment

6,625

968

(314)

7,279

Construction in progress

3,162

686

(1,108)

2,740

Accumulated depreciation

7,561

1,375

(332)

8,604

Land and buildings

2,986

370

-

3,356

311

45

(35)

321

4,264

960

(297)

4,927

-

-

-

Motor vehicles

Motor vehicles Electronic computers and other equipment Construction in progress

-

13,249

13,784

7,587

8,576

139

116

Electronic computers and other equipment

2,361

2,352

Construction in progress

3,162

2,740

Net book value Land and buildings Motor vehicles

The depreciation expense recognized in profit or loss for the year ended 31 December 2016 is RMB 1,375 million(31 December 2015: RMB 1,146 million).

14 Intangible assets Group

Cost Land use rights Software and others Contractual customer relationships Brand and franchise right Accumulated amortization Land use rights Software and others Contractual customer relationships Brand and franchise right

Transfer from business combinations Disposals

2016-12-31

2015-12-31

Additions

2,275

329

2,940

-

5,544

347

58

3

-

408

1,928

271

13

-

2,212

-

-

688

-

688

-

-

2,236

-

2,236

1,396

752

-

-

2,148

45

12

-

-

57

1,351

339

-

-

1,690

-

401

-

-

401

-

-

-

-

-

Net book value

879

3,396

Land use rights

302

351

Software and others

577

522

Contractual customer relationships

-

287

Brand and franchise right

-

2,236

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The amortization expense recognized in profit or loss for the year ended 31 December 2016 is RMB 752 million(31 December 2015: RMB 303 million). According to the Group’s impairment test result, the brand and franchise right are not impaired in 31 December, 2016. Bank Cost

2015-12-31

Additions

Disposals

2016-12-31

2,261

313

-

2,574

347

58

-

405

Software and others

1,914

255

-

2,169

Accumulated amortization

1,392

342

-

1,734

45

12

-

57

1,347

330

-

1,677

Land use rights

Land use rights Software and others Net book value

869

840

Land use rights

302

348

Software and others

567

492

The amortization expense recognized in profit or loss for the year ended 31 December 2016 is RMB 342 million(31 December 2015: RMB 301 million).

15 Goodwill 31 December 2015

Increase in the current year

Decrease in the current year

31 December 2016

Goodwill-Shanghai International Trust Corp., Ltd.

-

6,981

-

6,981

Impairment allowances(a)

-

-

-

-

-

6,981

-

6,981

In March 2016, the Bank issued ordinary shares to acquire 97.33% equity of Shanghai Trust. The difference amounting to RMB 6,981 million between fair value of the Bank’s issued shares and net assets of Shanghai Trust attributable to parent company on acquisition date is recognised as goodwill (Note 5.1). (a)Impairment allowances The goodwill allocated to the asset groups and groups of asset groups are summarised by operating segments as follows: 31 December 2016 Shanghai Trust

4,739

Subsidiaries of Shanghai Trust

2,242 6,981

191

192

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The Group calculated the recoverable amount of CGU using cash flow projections based on the management’s five -year financial forecasts. The cash flows beyond the five-year period are calculated based on the following estimated growth rates. The main assumptions applied in calculating discounted future cash flows are as follows: Shanghai Trust

Subsidiaries of Shanghai Trust

3%

3%

14.30%

14.40%-16.40%

Growth rate Discount rate

The average growth rates used by the Group are consistent with the forecasts included in industry reports, and do not exceed the long-term average growth rates of each product. The management used pre-tax interest rates that are able to reflect specific risks relating to the relevant CGU and CGUs. The above assumptions are used to analyse the recovery amounts of the CGU and CGUs within the business segment.

16 Long-term deferred expenditures Group Leasehold improvements Leasing expense Others Total

2015-12-31

Increase

Decrease

2016-12-31

1,511

425

(575)

1,361

102

6

(37)

71

44

169

(35)

178

1,657

600

(647)

1,610

The Group’s amortization expense recognized in profit or loss for the year ended 31 December 2016 is RMB 641 million(31 December 2015: RMB 597 million). 2015-12-31

Increase

Decrease

2016-12-31

1,455

400

(546)

1,309

Leasing expense

97

5

(35)

67

Others

18

151

(28)

141

1,570

556

(609)

1,517

Bank Leasehold improvements

Total

The Bank’s amortization expense recognized in profit or loss for the year ended 31 December 2016 is RMB 603 million(31 December 2015: RMB 566 million).

2016 Annual Report

193

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

17 Deferred income tax 17.1 The table below includes the deferred income tax assets and liabilities of the Group and the Bank after offsetting qualifying amounts. Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

21,838

14,427

21,502

14,212

(717)

(7)

-

-

Deferred income tax assets Deferred income tax liabilities

17.2 Deferred income tax assets/liabilities and related temporary differences, before offsetting qualifying amounts, are attributable to the following items: 2016-12-31

Group

Impairment allowances for loans and other assets Amortization for long-term assets Employee benefits payable Fair value changes of available-for-sale financial assets recognized in other comprehensive income Fair value changes of hedged available-for-sale financial assets recognized in profit or loss

Deductible/ (Taxable) temporary differences

2015-12-31

Deferred Deductible/ income tax (Taxable) assets/ temporary (Liabilities) differences

Deferred income tax assets/ (Liabilities)

92,618

23,155

67,660

16,915

32

8

39

10

148

37

123

31

142

36

-

-

213

53

12

3

233

58

-

-

Fair value changes of financial assets and liabilities at fair value through profit or loss Fair value changes of precious metals Deferred income tax assets before offsetting

-

-

1,254

314

93,386

23,347

69,088

17,273

194

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

17.2 Deferred income tax assets/liabilities and related temporary differences, before offsetting qualifying amounts, are attributable to the following items(continued): 2016-12-31 Deductible/ (Taxable) temporary differences

2015-12-31

Deferred Deductible/ income tax (Taxable) assets/ temporary (liabilities) differences

Deferred income tax assets/ (liabilities)

Fair value changes of financial assets and liabilities at fair value through profit or loss Fair value changes of precious metals Fair value changes of available-for-sale financial assets recognized in other comprehensive income Fair value changes of derivative financial instruments Depreciation

(1,843)

(461)

(484)

(121)

(782)

(196)

-

-

(231)

(58)

(7,588)

(1,897)

(3,142)

(786)

(3,291)

(823)

(33)

(8)

(19)

(5)

(2,852)

(713)

-

-

Differences between fair value and carrying amount of identifiable net assets arising from business combinations of entities not under common control Others Deferred tax liabilities before offsetting

(16)

(4)

(28)

(7)

(8,899)

(2,226)

(11,410)

(2,853)

As at 31 December 2016, the Group offset deferred income tax assets and liabilities of RMB 1,509 million (31 December 2015: RMB 2,846 million). 2016-12-31

Bank

Impairment allowances for loans and other assets Amortization for long-term assets Fair value changes of hedged available-for-sale financial assets recognized in profit or loss Fair value changes of precious metals Deferred income tax assets before offsetting

Deductible/ (Taxable) temporary differences

2015-12-31

Deferred Deductible/ income tax (Taxable) assets/ temporary (liabilities) differences

Deferred income tax assets/ (liabilities)

91,678

22,920

66,925

16,731

32

8

39

10

213

53

12

3

-

-

1,254

314

91,923

22,981

68,230

17,058

2016 Annual Report

195

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

17.2 Deferred income tax assets/liabilities and related temporary differences, before offsetting qualifying amounts, are attributable to the following items(continued): 2016-12-31

Bank

Deductible/ (Taxable) temporary differences

2015-12-31

Deferred Deductible/ income tax (Taxable) assets/ temporary (liabilities) differences

Deferred income tax assets/ (liabilities)

Fair value changes of financial assets and liabilities at fair value through profit or loss Fair value changes of precious metals

(1,843)

(461)

(484)

(121)

(782)

(196)

-

-

(121)

(30)

(7,588)

(1,897)

(3,142)

(786)

(3,291)

(823)

(25)

(6)

(19)

(5)

(5,913)

(1,479)

(11,382)

(2,846)

Fair value changes of available-for-sale financial assets recognized in other comprehensive income Fair value changes of derivative financial instruments Depreciation Deferred tax liabilities before offsetting

As at 31 December 2016, the Bank offset deferred income tax assets and liabilities of RMB 1,479 million (31 December 2015: RMB 2,846 million).

17.3 The movement of the deferred income tax account is as follows: Group Balance at beginning of the year

2016 14,420

Credited to profit or loss(Note 4.45)

5,579

Credited to other comprehensive income(Note 4.33)

1,875

Deferred tax assets transferred in from business combination(Note5.1(c))

67

Deferred tax liabilities transferred in from business combination(Note5.1(c))

(3)

Differences between fair value and carrying amount of identifiable net assets arising from business combinations not involving entities under common control(Note5.1(c)) Balance at end of the year Bank Balance at beginning of the year Credited to profit or loss(Note 4.45) Credited to other comprehensive income(Note 4.33) Balance at end of the year

(817) 21,121 2016 14,212 5,423 1,867 21,502

196

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

18 Other assets Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

40,988

31,395

-

-

Settlement and clearing accounts

8,781

6,725

8,781

6,725

Margin deposits for precious metal trading

5,908

4,084

5,908

4,084

Other receivables (Note 2)

5,297

3,151

4,267

2,870

Prepayment for land-using right and constructions

5,003

5,475

5,003

5,475

Payments to Trust Protection Fund on behalf of investors

2,300

-

-

-

924

818

921

815

69,201

51,648

24,880

19,969

Net finance lease receivable (Note 1)

Foreclosed assets Total Note 1: Finance lease receivable

Group

2016-12-31

2015-12-31

Within 1 year (including 1 year)

13,551

10,133

1 to 2 years (including 2 years)

10,194

8,336

2 to 3 years (including 3 years)

9,056

6,868

15,344

11,406

Over 3 years Gross amount of finance lease receivable

48,145

36,743

Less:Unearned income

(5,820)

(4,347)

Less:Impairment allowance

(1,337)

(1,001)

Net finance lease receivable

40,988

31,395

Note 2: Other receivables are analysed by aging as follows:

Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

5,133

3,354

4,126

3,073

1 to 2 years

344

222

335

222

2 to 3 years

635

442

623

442

1,072

826

1,066

826

Within 1 year

Over 3 years

Less: Impairment allowance Net other receivables

7,184

4,844

6,150

4,563

(1,887)

(1,693)

(1,883)

(1,693)

5,297

3,151

4,267

2,870

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

19 Impairment allowances for assets 2015-12-31

Charge

Write-off

Transferout

Others

2016-12-31

74,105

46,845

(15,290)

(17,949)

538

88,249

Investments classified as loans and receivables

4,610

1,209

-

-

(10)

5,809

Other receivables

1,693

264

(70)

-

-

1,887

Foreclosed assets

595

18

-

-

-

613

1,001

336

-

-

-

1,337

523

384

-

-

-

907

81

-

-

-

6

87

-

48

-

-

-

48

Total

82,608

49,104

(15,360)

(17,949)

534

98,937

Bank

2015-12-31

Charge

Write-off

Transferout

Others

2016-12-31

73,332

46,581

(15,145)

(17,949)

538

87,357

Investments classified as loans and receivables

4,610

1,209

-

-

(10)

5,809

Other receivables

1,693

260

(70)

-

-

1,883

Foreclosed assets

595

18

-

-

-

613

Interest receivable

523

384

-

-

-

907

81

-

-

-

6

87

Group Loans and advances to customers

Finance lease receivable Interest receivable Available-for-sale financial assets Investment securities- held –to -maturity

Loans and advances to customers

Available-for-sale financial assets Investment securities-held-to-maturity Total

-

48

-

-

-

48

80,834

48,500

(15,215)

(17,949)

534

96,704

20 Due to banks and other financial institutions Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Due to domestic banks

477,276

306,367

481,622

311,801

Due to other domestic financial institutions

808,390

670,275

809,220

670,476

Due to overseas banks

17,335

32,665

17,335

32,665

Due to other overseas financial institutions

38,962

33,641

38,962

33,641

1,341,963

1,042,948

1,347,139

1,048,583

Total

197

198

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

21 Placements from banks and other financial institutions Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Placements from domestic banks

59,952

94,415

22,750

66,598

Placements from overseas banks

35,680

4,174

35,680

3,377

Placements from other domestic financial institutions Total

1,500

1,000

1,500

1,000

97,132

99,589

59,930

70,975

22 Financial liabilities at fair value through profit or loss Group Financial liabilities related to precious metals Interest of other unitholders in consolidated structured entities (a) Others Total

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

24,301

210

24,301

210

5,004

-

-

-

221

-

221

-

29,526

210

24,522

210

(a) The Group designated interests attributable to other unitholders in consolidated structured entities as financial liabilities at fair value through profit or loss which indicates the relevant financial assets at fair value through profit or loss. As to 31 Dec, 2016, no significant fair value changes have occurred due to changes in the group's own credit risk .

23 Financial assets sold under repurchase agreements Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Bonds

72,606

43,756

72,606

43,756

Bills

20,344

74,995

20,322

74,943

250

454

-

-

93,200

119,205

92,928

118,699

Other financial assets Total

2016 Annual Report

199

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

24 Deposits from customers Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

1,213,075

956,336

1,204,059

948,317

163,074

129,912

160,670

127,839

1,042,125

1,144,900

1,036,914

1,138,843

310,746

372,036

302,017

365,397

235,879

319,832

233,825

317,037

Fiscal deposits

33,904

27,451

33,874

27,451

Other deposits

3,212

3,682

3,090

3,579

3,002,015

2,954,149

2,974,449

2,928,463

Current deposits -Corporate -Retail Time deposits -Corporate -Retail Pledged deposits

Total

25 Employee benefits payable Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Short-term employee benefits payable

2,195

1,360

1,329

1,181

Long-term employee benefits payable(Note1)

4,233

4,324

4,172

4,280

Total

6,428

5,684

5,501

5,461

2015-12-31

Addition

Transfer from business combinations

4,324

1,357

8

(1,476)

20

4,233

792

15,494

411

(15,082)

-

1,615

-

560

-

(560)

-

-

122

2,623

1

(2,597)

-

149

20

970

-

(961)

-

29

426

406

1

(431)

-

402

5,684

21,410

421

(21,107)

20

6,428

Group Long-term employee benefits payable

Payment

Others

2016-12-31

Short-term employee benefits payable Salaries and bonuses Welfare fund Social insurance Housing fund Labour union fund and staff education fund

200

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

25 Employee benefits payable(Continued) Bank

2015-12-31

Addition

Payment

Others

2016-12-31

4,280

1,325

(1,453)

20

4,172

613

14,693

(14,557)

-

749

-

531

(531)

-

-

122

2,553

(2,526)

-

149

20

948

(939)

-

29

426

391

(415)

-

402

5,461

20,441

(20,421)

20

5,501

Long-term employee benefits payable Short-term employee benefits payable Salaries and bonuses Welfare fund Social insurance Housing fund Labour union fund and staff education fund

Note 1: According to the requirements of the authorities and the relevant regulations of the Bank, the deferred payment part of the employee benefits payable will be paid in the next three years gradually.

26 Taxes payable Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

13,811

12,276

13,394

12,155

3,073

-

2,949

-

-

2,042

-

2,022

736

458

685

509

17,620

14,776

17,028

14,686

Corporate income tax Value added tax Business tax Withholding tax and others Total

27 Interest payable Group

Interest payable for customer deposits

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

26,434

30,446

26,170

30,210

4,588

3,867

4,437

3,786

2,982

1,863

2,982

1,863

15

35

15

28

Interest payable for due to banks and other financial institutions, Placements from banks and other financial institutions Interest payable for bonds issued Interest payable for securities sold under repurchase agreements Others Total

63

24

63

24

34,082

36,235

33,667

35,911

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

28 Bonds issued 2016-12-31

2015-12-31

Subordinated bond issued in 2011 (Note 1)

18,400

18,400

Subordinated bond issued in 2012 (Note 2)

12,000

12,000

Other bond issued in 2012 (Note 3)

30,000

30,000

RMB bond issued in Hong Kong (Note 4)

1,000

1,000

Tier II capital bond issued in 2015(Note 5)

Group and Bank Bonds issued

30,000

30,000

USD medium-term note (Note 6)

3,474

3,247

Green financial bond 01 (Note 7)

20,000

-

Green financial bond 02 (Note 8)

15,000

-

15,000

-

144,874

94,647

(79)

(51)

Net book value

144,795

94,596

Deposit certificates issued

519,888

305,310

Total

664,683

399,906

Green financial bond 03 (Note 9) Sub-total Less: Unamortized issue cost

Note 1: The Bank issued subordinated bond in the amount of RMB 18.4 billion in the domestic inter-bank market on 11 October 2011 which have a term of 15 years through maturity, with a fixed annual coupon rate of 6.15%. The Bank is entitled to redeem entire portion of bond at face value on its tenth anniversary. Note 2: The Bank issued subordinated bond in the amount of RMB 12.0 billion in the domestic inter-bank market on 28 December 2012 which have a term of 15 years through maturity, with a fixed annual coupon rate of 5.20%. The Bank is entitled to redeem entire portion of bond at face value on its tenth anniversary. Note 3: The Bank issued financial bond in the amount of RMB 30 billion in the domestic inter-bank market on 28 February 2012 which have a term of 5 years, with a fixed annual coupon rate of 4.20%. Note 4: The Bank issued RMB bond in Hong Kong Exchanges and Clearing Limited in the amount of RMB 1 billion on 22 May 2014 which have a term of 3 years, with a fixed annual coupon rate of 4.08%. Note 5: The Bank issued Tier II capital instruments in the amount of RMB 30 billion in the domestic inter-bank market on 10 September 2015 which have a term of 10 years through maturity, with a fixed annual coupon rate of 4.5%. The Bank is entitled to redeem entire portion or part of the instruments at par value on its fifth anniversary under certain circumstances. Note 6: The Bank issued USD 500 million medium-term note in Hong Kong Exchange and Clearing Limited on 18 September 2015 which has a term of 3 years through maturity, with a fixed annual coupon rate of 2.5%. Note 7: The Bank issued its first “Green Financial Bond” in the amount of RMB 20 billion in the domestic inter-bank market on 27 January 2016 which have a term of 3 years through maturity, with a fixed annual coupon rate of 2.95%. Note 8: The Bank issued its second “Green Financial Bond” in the amount of RMB 15 billion in the domestic inter-bank market on 25 March 2016 which have a term of 5 years through maturity, with a fixed annual coupon rate of 3.20%. Note 9: The Bank issued its third “Green Financial Bond” in the amount of RMB 15 billion in the domestic inter-bank market on 14 July 2016 which have a term of 5 years through maturity, with a fixed annual coupon rate of 3.40%.

201

202

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

29 Other liabilities Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

19,712

12,580

19,712

12,580

Advances from and deposits under lease agreements

4,572

3,132

-

-

Deferred revenue

3,741

2,092

2,381

954

Due to Trust Protection Fund

2,300

-

-

-

Accrued expenses

1,560

885

1,538

885

Relending

717

434

717

434

Proceeds from customers for subscribing mutual funds

279

369

279

369

Fiscal deposits in transition

166

456

165

456

Settlement and clearing accounts

Long term undrawn deposits Others Total

114

99

114

99

3,076

2,020

1,786

1,754

36,237

22,067

26,692

17,531

30 Ordinary shares

RMB ordinary shares

2015-12-31

Newly issued

Transfer from capital surplus to paid-in capital

2016-12-31

18,653

1,000

1,965

21,618

In March 2016, the Bank issued domestic RMB ordinary shares of 999,510,332 shares to 11 parties including Shanghai International Group Co., Ltd. (“Shanghai International Group Co., Ltd.”). Par value of RMB 1 per share, the premium is RMB 16,004 million and recognised into capital surplus. The additional issuance has completed registration at China Securities Depository and Clearing Corporation Limited Shanghai Branch. Shares subscribed are restricted for stock trading of 12 months. After the transaction, the Bank’s total ordinary share increased from 18,653,471,415 shares to 19,652,981,747 shares. Pursuant to the resolution of 2015 Annual General Meeting on 28 April 2016, the Bank converted the capital surplus into ordinary shares in the proportion of 1 share for every 10 shares held, which increased the total number of capital shares by 1,965,298,175 shares. And the number of shares after conversion is 21,618,279,922 shares.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

31 Other equity instruments (1)Information of other equity instruments Name of other equity instrument Tranche 1

Tranche 2

Dividend rate 6% for the first five years 5.5% for the first five years

Par value

2015-12-31 Carrying Number value

100 150 million

100 150 million

14,960

Increase in this Year

-

2016-12-31 Carrying value

Maturity Date

Converted (Yes/No)

14,960

No Maturity Date

No

No Maturity Date

No

14,960

-

14,960

29,920

-

29,920

On 28 November 2014 and 6 March 2015, the Bank issued non-cumulative preference shares with the par value of RMB 30 billion. The proceeds after deducting transaction costs amounted to RMB 29.92 billion and were recorded as Preference shares. The Bank has the option to redeem part or all outstanding preference shares on any dividend payment date after five years from the issuance if certain conditions are met, under the approval obtained from the CBRC. Holders of the preference shares have no right to require the Bank to redeem the outstanding preference shares. Dividends of the preference shares are payable in cash on annual basis at a fixed dividend rate which is adjusted every five years. The Bank at its discretion has the right not to declare and distribute the dividends of the preference shares in part or full. Upon occurrence of any of the following triggering events and subject to the approval from the CBRC, the Bank’s outstanding preference shares shall be mandatorily converted in part or full to the Bank’s ordinary shares: i) When the core tier 1 capital adequacy ratio of the Bank decreases to 5.125% or below, upon the approval from the Board of Directors, the outstanding preference share shall be converted into the Bank’s ordinary shares in part or full at a pre-determined mandatory conversion price so as to bring the Bank’s core tier 1 capital adequacy ratio back to 5.125% and above; ii) When any triggering event of the Bank’s tier 2 capital instruments occurs, the outstanding preference shares shall be converted to the Bank’s ordinary A shares at the pre-determined mandatory conversion price. Under the approval from regulatory authority, the outstanding preference shares will be fully or partially converted to ordinary A shares at the price of RMB 10.96 per share when meeting the mandatory conversion triggering conditions. If the Bank subsequently appropriates bonus shares, transfers retained earnings to ordinary shares, issues new ordinary shares (excluding any increase of ordinary shares due to conversion of convertible financial instruments issued by the Bank, such as preference shares and convertible bonds, etc) or issue rights, the conversion price shall be adjusted subject to the terms and formula provided by the offering documents to adjust for the dilutive effects of these specified increases in ordinary shares. Pursuant to the relevant laws and regulations, and the Approval from CBRC on the Bank’s Non-Public Offering of Preference Shares and Corresponding Revisions to the Article of Association (YJF[2014]No.564), the proceeds from the issuance of preference shares shall be used to supplement the other tier 1 capital of the Bank. Upon liquidation, the holders of the Bank’s preference shares are entitled to the repayment at the par value of the outstanding preference shares prior to any distribution to the holders of the Bank’s ordinary shares. If the remaining assets of the Bank are not sufficient to cover the par value, they are allocated to the holders of preference shares on proportionate basis.

203

204

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) (2)Equity attributable to the holders of other equity instruments Group 2016-12-31

2015-12-31

338,027

285,250

29,920

29,920

4,987

3,430

Equity attributable to the Bank’s shareholders Equity attributable to the Bank’s shareholders which held ordinary shares Equity attributable to the Bank’s shareholders for which held other equity instruments (Note 1) Non-controlling interests

Note 1: please refer to Note 4.36 for dividends distribution to preferred shareholders of the Bank in this year.

32 Capital surplus Group Share premium

2015-12-31

Increase

Decrease

2016-12-31

60,568

16,004

(1,965)

74,607

50

-

-

50

Other capital surplus Capital increase of subsidiaries Others Total

Share premium

21

-

-

21

60,639

16,004

(1,965)

74,678

2014-12-31

Increase

Decrease

2015-12-31

60,568

-

-

60,568

50

-

-

50

Other capital surplus Capital increase of subsidiaries Others

21

-

-

21

Total

60,639

-

-

60,639

Bank

2015-12-31

Increase

Decrease

2016-12-31

60,568

16,004

(1,965)

74,607

Share premium Other capital surplus Others Total

Share premium

21

-

-

21

60,589

16,004

(1,965)

74,628

2014-12-31

Increase

Decrease

2015-12-31

60,568

-

-

60,568

21

-

-

21

60,589

-

-

60,589

Other capital surplus Others Total

2016 Annual Report

205

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

33 Other comprehensive income Group

Other comprehensive income in balance sheet 2015 attributable to the -12-31 Company after tax

Other comprehensive income in income statement in 2016

2016 Amount -12-31 before tax

Less: Transfer to profit or loss in current year

Less: attributable attributable to the to minority tax Company interest after tax after tax

Items that may be subsequently reclassified to profit or loss Share of other comprehensive income of associates and joint ventures, after tax Unrealized gains/(losses) from available-for-sale Exchange differences from the translation of foreign operations

(18)

18

-

18

-

-

18

-

5,692

(5,623)

69

(4,157)

(3,342)

1,875

(5,623)

(1)

39

125

164

127

-

-

125

2

5,713

(5,480)

233

(4,012)

(3,342)

1,875

(5,480)

1

Other comprehensive income in balance sheet 2014 Attributable to the -12-31 Company after tax

Other comprehensive income in income statement in 2015

2015 Amount -12-31 before tax

Less: Transfer to profit or loss in current year

Less: Attributable Attributable to the to minority tax Company interest after tax after tax

Items that may be subsequently reclassified to profit or loss Share of other comprehensive income of associates and joint ventures, after tax Unrealized gains/(losses) from available-for-sale Exchange differences from the translation of foreign operations

Bank

19

(37)

(18)

(37)

-

-

(37)

-

1,236

4,456

5,692

5,750

191

(1,485)

4,456

-

-

39

39

35

-

-

39

(4)

1,255

4,458

5,713

5,748

191

(1,485)

4,458

(4)

Other comprehensive income in balance sheet 2015 Attributable to the -12-31 Company after tax

Other comprehensive income in income statement in 2016

2016 -12-31

Amount before tax

Less: Transfer to profit or loss in current year

Less: tax

Attributable to the Company after tax

Items that may be subsequently reclassified to profit or loss Share of other comprehensive income of associates and joint ventures, after tax Unrealized gains/(losses) from available-for-sale Exchange differences from the translation of foreign operations

(18)

18

-

18

-

-

18

5,692

(5,600)

92

(4,275)

(3,192)

1,867

(5,600)

27

69

96

69

-

-

69

5,701

(5,513)

188

(4,188)

(3,192)

1,867

(5,513)

206

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

33 Other comprehensive income (Continued) Other comprehensive income in balance sheet 2014 Attributable to the -12-31 Company after tax

Other comprehensive income in income statement in 2015

2015 -12-31

Amount before tax

Less: Transfer to profit or loss in current year

Less: tax

Attributable to the Company after tax

Items that may be subsequently reclassified to profit or loss Share of other comprehensive income of associates and joint ventures, after tax Unrealized gains/(losses) from available-for-sale Exchange differences from the translation of foreign operations

19

(37)

(18)

(37)

-

-

(37)

1,236

4,456

5,692

5,750

191

(1,485)

4,456

-

27

27

27

-

-

27

1,255

4,446

5,701

5,740

191

(1,485)

4,446

34 Surplus reserves 2015-12-31

Increase

2016-12-31

Statutory reserve

22,206

-

22,206

Discretionary reserve

41,445

15,038

56,483

Total

63,651

15,038

78,689

2014-12-31

Increase

2015-12-31

Statutory reserve

17,538

4,668

22,206

Discretionary reserve

32,109

9,336

41,445

Total

49,647

14,004

63,651

Group and bank

Pursuant to related PRC regulations, the Bank is required to appropriate 10% of its annual net profit to a nondistributable statutory reserve until such reserve has reached 50% of ordinary shares. After the appropriation of statutory reserve, the Bank may further appropriate discretionary reserve.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

35 General risk reserve Group

2015-12-31

Increase

2016-12-31

45,924

19,569

65,493

2014-12-31

Increase

2015-12-31

36,858

9,066

45,924

2015-12-31

Increase

2016-12-31

45,600

19,445

65,045

2014-12-31

Increase

2015-12-31

36,700

8,900

45,600

General risk reserve

General risk reserve Bank General risk reserve

General risk reserve

Pursuant to Caijin [2012] No. 20 “Administration Rules on Appropriation to General Risk Reserve for Financial Institutions” issued by the Ministry of Finance (“MOF”), the Bank and its domestic subsidiaries are required to make appropriation to a general risk reserve effective from 1 July 2012 and the balance of such reserve shall not be less than 1.5% of the entity’s risk.

36 Retained earnings Group Opening balance of retained earnings Plus: Net profit attributable to the Bank’s

2016

2015

90,670

78,157

53,099

50,604

Shareholders for the year -

(4,668)

Appropriation to discretionary reserve

(15,038)

(9,336)

Appropriation to general risk reserve

(19,569)

(9,066)

Less: Appropriation to statutory reserve

Cash dividends paid to preference shareholders Cash dividends paid to ordinary shareholders Ending balance of retained earnings

(1,725)

(900)

(10,121)

(14,121)

97,316

90,670

207

208

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

36 Retained earnings (Continued) Bank Opening balance of retained earnings Plus: Net profit attributable to the Bank’s

2016

2015

89,648

77,446

51,697

50,127

Shareholders for the year -

(4,668)

Appropriation to discretionary reserve

(15,038)

(9,336)

Appropriation to general risk reserve

(19,445)

(8,900)

(1,725)

(900)

(10,121)

(14,121)

95,016

89,648

Less: Appropriation to statutory reserve

Cash dividends paid to preference shareholders Cash dividends paid to ordinary shareholders Ending balance of retained earnings

Pursuant to the resolution of 2015 Annual General Meeting on 28 April 2016, the Bank appropriated 30% of its net profit for the year ended 31 December 2015 to the discretionary reserve in the amount of RMB 15,038 million. The Bank further appropriated RMB 19,445 million to general risk reserve. Upon the issuance on 18 March 2016, ordinary shares were increased to 19,652,981,747 shares, cash dividends of RMB 10,121 billion (RMB 5.15 before tax per 10 ordinary shares) were approved by shareholders. And the Bank converted the capital surplus into share capital in the proportion of 1 share for every 10 shares held, the total amount converted is RMB 1.965 billion. In accordance with a resolution of the board meeting on 4 February 2016, the Bank declared cash dividends on preference share Pufayou 2. The dividend is calculated at a rate of 5.50% of the Par value of Pufayou 2. The dividend was paid at a rate of RMB 5.5 per share (before tax), totalling RMB 825 million (before tax). In accordance with a resolution of the board meeting on 28 October 2016, the Bank declared cash dividends on preference share Pufayou 1. The dividend is calculated at a rate of 6.00% of the Par value of Pufayou 1. The dividend was paid at a rate of RMB 6.0 per share (before tax), totalling RMB 900 million (before tax). In accordance with a resolution of the board meeting on 30 March 2017, the Board of Directors proposed to appropriate 30% of the Bank’s net profit for the year ended 31 December 2016 to the discretionary reserve in the amount of RMB 15.509 billion. The Bank further proposed an appropriation of RMB 9.855 billion to general risk reserve. Cash dividends of RMB 4.324 billion (RMB 2.0 before tax per 10 ordinary shares) based on the total number of ordinary shares of 21,618,279,922 at the end of 2016, and stock dividends of RMB 6.485 billion (3 shares per 10 ordinary shares) to be appropriated from capital surplus were also proposed. These appropriations are subject to final approval by shareholders.

2016 Annual Report

209

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

37 Minority interests Minority interests of the Group is as follows: 2016-12-31

2015-12-31

SPD Financial Leasing Co., Ltd.

1,855

1,603

Shanghai Trust

1,201

-

Mianzhu SPD Rural Bank Co., Ltd.

54

51

Liyang SPD Rural Bank Co., Ltd.

158

153

Gongyi SPD Rural Bank Co., Ltd.

149

144

Fengxian SPD Rural Bank Co., Ltd.

145

135

Zixing SPD Rural Bank Co., Ltd.

104

111

74

67

Zouping SPD Rural Bank Co., Ltd.

127

128

Zezhou SPD Rural Bank Co., Ltd.

160

161

Dalian Ganjingzi SPD Rural Bank Co., Ltd.

41

46

Hancheng SPD Rural Bank Co., Ltd.

46

41

Jiangyin SPD Rural Bank Co., Ltd.

92

90

Pingyang SPD Rural Bank Co., Ltd.

69

69

Xinchang SPD Rural Bank Co., Ltd.

108

102

Yuanjiang SPD Rural Bank Co., Ltd.

40

34

Chaling SPD Rural Bank Co., Ltd.

47

40

Linchuan SPD Rural Bank Co., Ltd.

90

72

Linwu SPD Rural Bank Co., Ltd.

42

35

Hengnan SPD Rural Bank Co., Ltd.

37

32

Haerbing hulan SPD Rural Bank Co., Ltd.

56

55

Gongzhulin SPD Rural Bank Co., Ltd.

22

24

Yuzhong SPD Rural Bank Co., Ltd.

44

35

Yunnan Fumin Rural Bank Co., Ltd.

36

33

Ningbo Haishu Rural Bank Co., Ltd.

58

55

Urumchi Midong SPD Rural Bank Co., Ltd.

64

56

Tianjin Baodi SPD Rural Bank Co., Ltd.

68

58

4,987

3,430

Chongqing Banan SPD Rural Bank Co., Ltd.

Total

210

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

38 Net interest income Bank

Group 2016

2015

2016

2015

Balance with central bank

7,422

7,554

7,384

7,511

Due from banks and other financial institutions

2,688

2,373

2,547

2,200

Placements with banks and other financial institutions

5,527

3,892

5,545

3,892

Financial assets purchased under resale agreements

1,012

6,866

1,012

6,866

- Corporate loans

79,751

94,157

78,983

93,393

- Retail loans

36,918

31,169

36,426

30,678

2,562

2,947

2,548

2,916

21,165

19,348

21,165

19,348

54,956

57,278

54,649

57,278

2,368

2,104

-

-

445

566

445

566

214,814

228,254

210,704

224,648

1,166

914

1,166

914

(2,142)

(1,489)

(2,128)

(1,464)

(34,335)

(36,464)

(33,321)

(35,511)

(1,898)

(1,516)

(1,879)

(1,487)

Deposits from customers

(47,666)

(65,012)

(47,210)

(64,550)

Bonds issued

(19,499)

(10,140)

(19,499)

(10,140)

(1,154)

(624)

(1,154)

(624)

(106,694)

(115,245)

(105,191)

(113,776)

108,120

113,009

105,513

110,872

Interest income

Loans and advances to customers

- Discounted and rediscounted bills Bonds investment and deposit certificates issued by other financial institutions Investment classified as loans and receivables other than bonds investment and deposit certificates issued by other financial institutions Finance lease activities receivables Others Sub-total Including: interest income accrued on impaired financial assets Interest expense Due to central bank Due to and placements from banks and other financial institutions Financial assets sold under repurchase agreements

Others Sub-total Net interest income

2016 Annual Report

211

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

39 Net fee and commission income Group

Bank

2016

2015

2016

2015

Wealth management fees

12,872

8,489

12,872

8,489

Fees from bank cards

12,670

6,683

12,668

6,681

Custodian fees

6,022

3,123

3,539

3,123

Fees from investment banking activities

3,713

3,227

3,609

3,133

Credit commitment fees

2,261

2,899

2,252

2,889

Agency commissions

1,938

1,519

1,936

1,518

863

979

863

978

Fee and commission income

Settlement and clearing fees

2,897

2,394

2,464

2,111

Sub-total

43,236

29,313

40,203

28,922

Fee and commission expense

(2,544)

(1,515)

(2,559)

(1,474)

Net fee and commission income

40,692

27,798

37,644

27,448

Others

40 Investment income Group

Investment income from available-for sale equity instruments Subsidiaries’dividend Equity investments accounts for at equity method

Bank

2016

2015

2016

2015

64

70

37

70

-

-

81

86

180

159

163

159

1,068

-

1,068

-

549

187

486

187

- Available-for-sale financial assets

3,117

978

2,967

978

Investment securities loans and receivables

1,217

-

1,217

-

Investment income from disposal of equity investments Net income from financial assets - Financial assets at fair value through profit or loss

Trading of precious metals

74

(705)

74

(705)

Net income from derivative financial instruments

411

(286)

411

(286)

Net income from fund investment

353

-

353

-

-

58

-

58

7,033

461

6,857

547

Others Total

There were no restrictions on the remitting of investments income to the Group in 2016.

212

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

41 Gain or loss from change of fair value Group

Bank

2016

2015

2016

2015

Derivative financial instruments

(149)

3,982

(149)

3,982

Precious metals

2,036

(1,328)

2,036

(1,328)

(40)

76

(40)

76

Financial assets designated at fair value through profit or loss

1,166

254

1,399

254

Fair value changes of hedged bonds

(201)

7

(201)

7

Total

2,812

2,991

3,045

2,991

Trading securities

42 Business tax and surcharges Group Business tax

Bank

2016

2015

2016

2015

2,917

7,978

2,876

7,888

Urban maintenance and construction tax

762

558

735

548

Education fee and levy

360

297

347

292

Other levies Total

405

143

390

142

4,444

8,976

4,348

8,870

2016

2015

2016

16,851

14,763

43 Operating expenses Group Wages and salaries, bonuses, allowances and subsidies Welfare fund

Bank 16,018

2015 14,506

560

491

531

480

2,623

2,457

2,553

2,435

Housing fund

970

890

948

881

Labour union fund and staff education fund

Social insurance

406

477

391

472

Rental expenses

2,780

2,531

2,672

2,483

Depreciation and amortization

3,184

2,228

2,320

2,013

782

705

768

694

Electronic equipment operating and maintenance expenses Others Total

9,082

7,492

8,638

7,340

37,238

32,034

34,839

31,304

2016 Annual Report

213

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

44 Impairment losses on assets Group Loans and advances to customers Investments classified as loans and receivables

Bank

2016

2015

2016

2015

46,845

37,070

46,581

36,806

1,209

955

1,209

955

Interest receivable

384

157

384

157

Finance lease receivables

336

321

-

-

Other receivables

264

271

260

271

- held-to-maturity

48

-

48

-

Foreclosed assets

18

21

18

21

49,104

38,795

48,500

38,210

Investment securities

Total

45 Income tax expense Group 2016

Bank 2015

2016

2015

Current income tax expense

21,876

21,093

20,998

20,657

Deferred income tax expense

(5,579)

(5,213)

(5,423)

(5,121)

Total

16,297

15,880

15,575

15,536

Reconciliations between the Group’s theoretical income tax expense using the statutory Chinese mainland tax rate and actual amount are as follows: Group

Bank

2016

2015

2016

2015

Profit before income tax

69,975

66,877

67,272

65,663

Tax calculated at an applicable tax rate

17,483

16,719

16,818

16,416

513

249

398

215

(1,713)

(1,379)

(1,650)

(1,372)

Tax effect of expenses that are not deductible for tax purpose Tax effect arising from income not subject to tax Adjustments on income tax for prior years which affect current profit or loss Income tax expense

14

291

9

277

16,297

15,880

15,575

15,536

214

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

46 Earnings per share Basic earnings per share (EPS) is calculated by dividing consolidated net profit for the year attributable to the holders of the Bank’s ordinary shares by the weighted average number of ordinary shares outstanding during the year. The conversion feature of preference shares is considered to fall within the category of contingently issuable ordinary shares. The triggering events of share conversion did not occur during the year of 2016. Therefore, the conversion feature of preference shares has no effect on the calculation of basic and diluted earnings per share. 2016

2015 (Restate)

Profit for the year attributable to equity holders of the Bank

53,099

50,604

Less: declared dividends attributable to preference shareholders of the Bank

(1,725)

(900)

Profit for the year attributable to the holders of the Bank’s ordinary shares

51,374

49,704

Weighted average number of outstanding ordinary shares (million)

21,368

20,519

2.404

2.422

Basic and diluted EPS (RMB)

On 28 November 2014 and 6 March 2015, the Bank issued non-cumulative preference shares with aggregated par value of RMB 30 billion. The bank declared cash dividends of RMB 1,725 million for preference share in this year. For the purpose of calculating EPS, dividends on non-cumulative preference shares declared in respect of the period have been deducted from the profit attributable to ordinary shareholders of the Bank. The Bank issued 999,510,332 domestic RMB ordinary shares and completed share registration in March 2016. Upon the issuance, ordinary shares of the Bank was increased from 18,653,471,415 shares to 19,652,981,747 shares. Pursuant to the resolution of 2015 Annual General Meeting on 28 April 2016, the Bank converted the capital surplus into ordinary share in the proportion of 1 share for every 10 shares held, which increased the total number of capital shares by 1,965,298,175. And the number of shares after conversion is 21,618,279,922 shares. The EPS of comparison period has been restated according to adjusted shares.

47 Cash and balances with central bank Group Cash Excess reserves with central banks

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

7,221

7,159

7,101

7,032

68,950

67,039

67,845

65,743

159,685

74,099

154,677

71,407

11,555

116,390

11,555

116,390

247,411

264,687

241,178

260,572

With original maturities no more than three months: - Due from banks and other financial institutions - Inter-bank placements Total

2016 Annual Report

215

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

48 Supplementary information of statement of cash flow Reconciliation of net profit to cash flows from operating activities: Group

Bank

2016

2015

2016

2015

Net profit

53,678

50,997

51,697

50,127

Add: Impairment loss on financial assets

49,104

38,795

48,500

38,210

1,791

1,328

1,375

1,146

Amortization of intangible assets

752

303

342

301

Amortization of long-term deferred expenses

641

597

603

566

4

(65)

4

(65)

Gains and losses on change of fair value

(2,812)

(2,991)

(3,045)

(2,991)

Interest paid for bonds Issued

19,499

10,140

19,499

10,140

(76,121)

(76,626)

(75,814)

(76,626)

Investment income

(5,721)

(1,452)

(5,758)

(1,538)

Increase in deferred income tax assets

(5,469)

(5,213)

(5,423)

(5,121)

(110)

-

-

-

(730,075)

(199,459)

(714,856)

(194,683)

502,846

542,466

481,411

534,448

(191,993)

358,820

(201,465)

353,914

Depreciation of fixed assets

Losses/(Gains) on disposal of long-term assets

Interest received from bond and other investment classified as loans and receivables

Decrease in deferred income tax liabilities Increase in operating receivables Increase in operating payables Net cash flows from operating activities

Significant investing and financing activities that do not involve cash receipts and payments in 2016: a total of 999,510,332 shares of domestic RMB ordinary shares (A share) are publicly issued to acquire 97.33% of equity shares of Shanghai International Trust Investment Company (Note 5.1) (2015: nil). Movement of cash and cash equivalents Group 2016 Ending balance Less: Beginning balance Net (decrease)/increase in cash and cash equivalents

Bank 2015

2016

2015

247,411

264,687

241,178

260,572

(264,687)

(188,784)

(260,572)

(184,861)

(17,276)

75,903

(19,394)

75,711

On March 2016, the bank issued RMB ordinary shares to acquire Shanghai Trust, the cash received from acquiring Shanghai Trust is RMB 779 million.

216

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

49 Transfers of financial assets The Group’s transfers of financial assets mainly include financial assets sold under repurchase agreements, assets backed securitization transactions and transfer of loans and advances to customers in the normal course of business. The note of financial assets sold under repurchase agreements refers to Note 4.23. For the year ended 31 December 2016, the Group transferred financial assets amounted to 102,359 million through asset securitization transactions and external transfer of financial assets. Assets backed securitization transaction For the year ended 31 December 2016, the Group transferred financial assets amounted to RMB 58,383 million through assets backed securitization transactions. (2015: RMB 1,941 million). Among them, the transferred financial assets amounted to RMB 54,554 million (2015: RMB 1,941 million) meet the requirement of derecogniton, and the rest of them were impaired loans with original amount of RMB 3,829 million transferred by the Group in the Banking Credit Assets Registration and Transfer Center, the Group continued involving in the transferred impaired loans. As at 31 December 2016, the Group recognized continuing involvement asset amounted to RMB 1,719 million and recognized provision for impairment amounted to RMB 1,719 million. (2015: Nil) Transfer of loans For the year ended 31 December 2016, the Group transferred total amount of RMB 43,976 million impaired loans to assets management companies (2015: RMB 21,034 million) and derecognized these transferred impaired loans.

5 CHANGES OF THE EXTENT OF CONSOLIDATION 1 Business combinations involving enterprises not under common control (a)Business combinations involving enterprises not under common control in the current period

Acquisition date

Acquisition cost

Percentage of equity shares obtained

Acquisition method

Acquisition date

Determination basis on the acquisition date

Shanghai 15 March Trust 2016

17,011

97.33%

Equity transfer

15 March 2016

Transfer of rights and obligations

Acquiree

Revenue of the acquiree from acquisition date to the end of the period

Net profit of the acquiree from acquisition date to the end of the period

Cash flows from operating activities of the acquiree from acquisition date to the end of the period

Net cash flows of the acquiree from acquisition date to the end of the period

2,861

956

(2,202)

45

(b)Details of cost of combination and goodwill recognition are as follows: Shanghai International Trust Corp., Ltd Cost of combination Directional domestically-listed RMB-denominated ordinary shares (A shares) Less: Fair value of the identifiable net assets obtained Goodwill

17,011 (10,030) 6,981

The above Goodwill is from the expected economic benefits of the Group derived from Shanghai Trust’s favorable industry position and profitability. After the acquisition of Shanghai Trust, the Group is expected to experience a synergistic effect with Shanghai Trust to enlarge customer group and enrich business products.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(c) Assets and liabilities of the acquiree at acquisition date are listed below: Shanghai International Trust Corp.,Ltd. Acquisition date Fair value

Acquisition date Carrying amount

31 December2015 Carrying amount

Due from banks and other financial institutions

2,697

2,697

2,813

Financial assets at fair value through profit or loss

1,747

1,747

1,582

Interest receivable Available-for-sale financial assets Long-term equity investments Fixed assets

32

32

42

4,279

4,279

4,233

20

20

15

568

226

232

2,940

16

18

67

67

56

1,084

1,084

945

-

11

11

value through profit or loss

(33)

(33)

(35)

Employee benefits payable

(420)

(420)

(586)

Taxes payable

(624)

(624)

(523)

Deferred tax liabilities

(820)

(4)

(39)

Intangible assets Deferred tax assets Other assets Goodwill Less: Financial liabilities at fair

Other liabilities Net assets Minority interests attributable to Shanghai Trust Net assets attributable to shareholders of Shanghai Trust Less: Minority interests Net assets obtained Consideration paid in cash

(320)

(320)

(320)

11,217

8,779

8,444

(912)

(912)

10,305

7,867

(275)

(210)

10,030

7,657 -

Less: Cash and cash equivalents obtained from subsidiaries

(779)

Net cash paid in acquisition of subsidiaries

(779)

Except for fixed assets and intangible assets, assets and liabilities of Shanghai Trust are mainly items that are measured at fair value or have no significant differences between their fair value and carrying amounts. The Group adopts income approach to determine the fair value of the acquiree at acquisition date, the key assumptions are as follows: The Group assumes that the various franchise right purchased from Shanghai Trust can be extended when due and relevant approval from regulators is obtained; Customer relationship value between the Group and clients is continuously effective and are carried out effectively. The Group's brand influence can sustain the current customer base and events that will have impact on the Group’s development and profit will not occur in the future. The current operating and managing mode and customer service will be sustained. Shangtou Mansion, the Group’s fixed asset, is valued by market comparison approach and income approach. The key assumption is the acquiree maintains operation and is traded in open market.

217

218

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

6 INTEREST IN OTHER ENTITIES 6.1 Interest in subsidiaries 6.1.1 PRINCIPAL SUBSIDIARIES of THE GROUP

Name of subsidiaries

Main operating address

Registration address

Obtain method

Percentage of equity interest (directly)

Shanghai

Shanghai

Establishedt

61.02%

SPD Bank Financial Leasing Co., Ltd. Shanghai Trust (Note a)

Shanghai

Shanghai

Acquisition

97.33%

Hong Kong

Hong Kong

Acquisition

100.00%

Mianzhu SPD Rural Bank Co., Ltd.

Sichuan

Sichuan

Established

55.00%

Liyang SPD Rural Bank Co., Ltd.

Jiangsu

Jiangsu

Established

51.00%

SPDB International Holding ,Ltd.

Gongyi SPD Rural Bank Co., Ltd.

Henan

Henan

Established

51.00%

Shanghai

Shanghai

Established

51.00%

Hunan

Hunan

Established

51.00%

Chongqing Banan SPD Rural Bank Co.,Ltd.

Chongqing

Chongqing

Established

51.00%

Zouping SPD Rural Bank Co., Ltd.

Shandong

Shandong

Established

51.00%

Zezhou SPD Rural Bank Co., Ltd.

Shanxi

Shanxi

Established

51.00%

Dalian Ganjingzi SPD Rural Bank Co., Ltd.

Liaoning

Liaoning

Established

51.00%

Hancheng SPD Rural Bank Co., Ltd.

Shaanxi

Shaanxi

Established

51.00%

Jiangyin SPD Rural Bank Co., Ltd.

Jiangsu

Jiangsu

Established

51.00%

Pingyang SPD Rural Bank Co., Ltd.

Zhejiang

Zhejiang

Established

51.00%

Xinchang SPD Rural Bank Co., Ltd.

Zhejiang

Zhejiang

Established

51.00%

Yuanjiang SPD Rural Bank Co., Ltd

Hunan

Hunan

Established

51.00%

Chaling SPD Rural Bank Co., Ltd

Hunan

Hunan

Established

51.00%

Linchuan SPD Rural Bank Co., Ltd

Jiangxi

Jiangxi

Established

51.00%

Linwu SPD Rura Bank Co., Ltd

Hunan

Hunan

Established

51.00%

Hengnan SPD Rural Bank Co., Ltd

Hunan

Hunan

Established

51.00%

Heilongjiang

Heilongjiang

Established

51.00%

Jilin

Jilin

Established

51.00%

Yuzhong SPD Rural Bank Co., Ltd.

Gansu

Gansu

Established

51.00%

Yunnan Fumin Rural Bank Co., Ltd.

Yunnan

Yunnan

Established

51.00%

Ningbo Haishu Rural Bank Co., Ltd.

Zhejiang

Zhejiang

Established

51.00%

Urumchi Midong SPD Rural Bank Co., Ltd.

Xinjiang

Xinjiang

Established

51.00%

Tianjin

Tianjin

Established

49.00%

Fengxian SPD Rural Bank Co., Ltd. Zixing SPD Rural Bank Co., Ltd.

Haerbin Hulan SPD Rural Bank Co., Ltd. Gongzhuling SPD Rural Bank Co., Ltd

Tianjin Baodi SPD Rural Bank Co., Ltd. (Note b)

(a) On March 2016, the Bank issued ordinary shares to acquire 97.33% equity of Shanghai Trust. The difference between fair value of the Bank’s issued shares and net assets of Shanghai Trust attributable to parent company on acquisition date, amounting to RMB 6,981 million, is recognised as goodwill.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(b) In accordance with Articles of association of Baodi Tianjin SPD Rural Bank Co., Ltd., resolutions on the company’s operating and development strategy, operating plan and investment scheme are required to be approved by more than 50% directors and the Bank has 4 of 7 seats in the Board of Directors. Although the Bank only has 49% voting rights in Baodi Tianjin SPD Rural Bank Col, Ltd., the Bank is able to control it through the Board of Directors. As a result, it is a consolidated subsidiary of the Bank. All subsidiaries are unlisted and consolidated in the Bank’s financial statements. The subsidiaries of the Bank includes commercial banks, finance leasing company and investment consulting company. business scope of commercial banks: absorb deposit from the public; issue short-term; medium-term and long-term loans; domestic settlement; acceptance and discount of negotiable instruments; placements from banks and other financial institutions; bank card issuance; issue and underwriting government bonds; agent for receipts and payments; and other business approved by the CBRC. 2) business scope of finance leasing company: finance lease services; transfer and sale of finance lease assets articles; invest in fixed income securities investment; accepting lease deposit from the lessee; accepting time deposits over 3 months (inclusive) from shareholders; placements from banks and other financial institutions; borrowing from the financial institutions; borrowing from the overseas; sell off of rental; economy consulting; establish a company within the territory of the bonded area to conduct financing and leasing business; provide security for the controlling subsidiaries for their financing. 3) business scope of investment consulting company: advising on securities and corporate finance and providing asset management services under the Securities and Futures Ordinance. 4) The business scope of Trust Company includes fund trust, chattel trust, real estate trust, negotiable securities trust, trust of other properties or property rights, engagement in the business of investment funds in the capacity of a sponsor of investment funds or fund management companies, and the businesses involving reorganisation of corporate assets, mergers and acquisitions, project financing, corporate wealth management and financial advisory services, operation of the securities underwriting business approved by the relevant departments of the State Council; handling of intermediary, consulting and credit investigation, custody and safekeeping services; interbank lending and borrowings, loans, leasing, investment based on inherent assets; provision of guarantee for other parties with inherent assets; engagement in interbank lending and borrowings; and other businesses as approved by laws and regulations or the CBRC. None of these subsidiaries is restricted to transfer funds to the Bank. 6.1.2 Relevant information of significant partly-owned subsidiaries After individual assessment, the Group concluded that no subsidiary has non-controlling interest that is material to the Group and therefore no additional information disclosure is required.

6.2 Interest in joint ventures and associates 6.2.1 General information of joint ventures and associates Name of the investees

Places of incorporation

Registration place

Strategic to the Group

Percentage of shareholding

Nature of business

Joint ventures— AXA SPDB Investment Managers Co., Ltd. (a)

Shanghai

Shanghai

Yes

51%

Financial industry

SPD Silicon Valley Bank Co., Ltd.

Shanghai

Shanghai

Yes

50%

Financial industry

219

2016 Annual Report

220

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) The Group measured above investments with equity method. (a) According to the Articles of Association of AXA SPDB Investment Managers Co., Ltd., resolutions on certain significant operate and finance decisions shall be approved by shareholders representing more than two thirds voting shares. These resolutions include the company’s strategic plan, investment plan, annual financial budget and financial statements and profit appropriations etc. Although the Group owns 51% voting shares of AXA SPDB Investment Management Co., Ltd., it has to exercise influences over the company jointly with another major shareholder. 6.2.2 Key financial information of associate and joint ventures The Group’s joint ventures and associates are all unlisted companies. The Group is of the view that these joint ventures and associates are not material to the Group in terms of their aggregated net profit and net assets and therefore no additional information disclosure is required. There are no contingent liabilities of the Group in these joint ventures and associates.  

7 INTEREST IN STRUCTURED ENTITIES 7.1 Structured entities that are not consolidated 7.1.1 Unconsolidated structured entities managed by the Group As at 31 Dec 2016, unconsolidated structured entities established and managed by the Group amounted to RMB 2,579,031 million, as an agent are wealth management product vehicles, securitization vehicles and trust plans. i)Wealth management products These wealth management products are designed and issued to specific customers based on analysis of potential target customers, and the proceeds from these products are invested in certain financial market or investment products in accordance with guidelines determined in the contracts. The returns on investment are distributed to investors pursuant to contract terms. As the asset manager, the Group is entitled to sales commission, a fixed management fee and a floating management fee based on performance of the product. The Group has performed analysis and concluded that its variable return related to these structured entities is not material. As at 31 Dec 2016, unconsolidated wealth management products established and managed by the Group amounted to RMB 1,541.20 billion (2015: RMB 1,018.30 billion). As the asset manager, the Group actively manages the maturities of assets and liabilities, the position and proportion of current assets of these wealth management products vehicles to maximize the return for the investors. The Group makes the placements with the wealth management products, the transaction is not a contractual obligation to the Group. The price of the temporary funding is based on market price. As at 31 December 2016, the placement balance of unconsolidated wealth management products with specific purpose is RMB 0, and the maximum risk exposure of unconsolidated wealth management products is commission fee. For the year ended 31 December 2016, the average daily exposure of placement for unconsolidated wealth management products with specific purpose amounts to RMB 14.06 billion, with interest income of RMB 473 million (2015: 278 million).

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

ii)The special purpose vehicles established by trust company for the asset securitization In the Group’s asset securitization business, another type of unconsolidated structured entities originated by the Group is the special purpose vehicles (“SPV”) established by trust company for the asset securitization of part of the Group’s credit assets. The Group acts as a service provider and manages loan assets transferred to SPVs and is entitled to the commission fee. The Group also holds part of the issued asset backed securities. The Group concluded that its variable returns from these SPVs are not material. As at 31 December 2016, the Group’s maximum risk exposure in these unconsolidated SPVs amounted to RMB 10,460 million (31 December 2015: RMB 191 million), being the aggregated carrying value of asset backed securities classified as “investment securities-loans and receivables”, and loan service agency commission fee which is not material. As at 31 December 2016, total assets of these unconsolidated SPVs amounted to RMB 56,151 million (31 December 2015: RMB 3,796 million). The Group has not provide financing support to these unconsolidated SPVs (2015: Nil). iii)Trust plans managed by the Group In accordance with the ‘Trust Law of the People's Republic of China’, “Trust property should be separated from properties owned by trustee (“inherent property”), and cannot be included or become part of the inherent property”. Inherent property and trust property are managed and accounted for separately by the Group. Trust plans managed by the Group refer to a basic unit of trust property under the Group’s separately or collectively management, utilization and disposal as per agreement. Each trust plan is an independent accounting subject which is accounted for independently as regards to the trust property’s management, utilization and disposal. As at 31 Dec 2016, total assets of these unconsolidated trust plans amounted to RMB 811,297 million (31 December 2015: Nil). The Bank did not provide financing support to these unconsolidated trust plans for 2016 (2015: Nil). iv)Asset management plans managed by the Group Entrusted assets management refers to business that the Group, as the manager, signed entrusted assets management contracts with clients and invests and manages the assets as various financial portfolios in financial market to maximize profit. The Group provides professional services and charges management fee, trustee fee, etc. The clients bear risks and gain profits per contracts. As at 31 Dec 2016, total assets of these unconsolidated asset management plans amounted to RMB 17,520 million (31 December 2015: RMB 62,500 million). The Group did not provide financing support to these unconsolidated asset management plans for 2016 (2015: Nil). v)Securities investment funds In accordance with the ‘Securities Investment Fund Law of the People’s Republic of China’, “Fund assets shall be independent from a fund management institution's or a fund custodian's own assets. The fund management institution or fund custodian shall not incorporate any fund assets into its own assets”. The Group charges management fee by managing the fund property for investors. Investors take the relative risks and profits according to the contractual agreements. As at 31 Dec 2016, total assets of these unconsolidated securities investment funds amounted to RMB 152,863 million (31 December 2015: Nil). The Group did not provide financing support to these securities investment funds for 2016 (2015: Nil).

221

222

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) 7.1.2 Unconsolidated structured entities invested by the Group As at 31 Dec 2016 unconsolidated structured entities that are invested by the Group amounted to RMB 1,313,603 million, mainly included wealth management products, asset backed securities, and trust and assets management plans. The Group did not provide financing support to these structured entities in 2016 (2015: Nil). The carrying value of assets of these unconsolidated structured entities and the Group’s maximum risk exposure on loss are listed as follows: As at 31 December 2016

Carrying Value

Maximum risk exposure on loss

Total volume of structured entities

Financial assets at fair value through profit or loss Trust and asset management plans

4,408

4,408

290,433

Fund investments

6,777

6,777

Note 1

Other investments

4,373

4,373

4,373

Available-for-sale financial assets Trust and asset management plans

23,492

23,492

206,966

102,990

102,990

Note 1

160,526

160,526

Note 1

73,507

73,507

Note 1

4,281

4,281

Note 1

74,157

74,157

Note 1

4,803

4,803

Note 1

Trust and asset management plans

854,289

854,289

864,004

As at 31 December 2015

Carrying Value

Fund investments Wealth management products Managed by other banks ABS Others Investment securities - loans and receivables Wealth management products managed by other banks ABS

Maximum risk exposure on loss

Total volume of structured entities

Financial assets at fair value through profit or loss Fund investments

8,025

8,025

Note 1

Available-for-sale financial assets Trust and asset management plans

6,135

6,135

6,135

Fund investments

19,467

19,467

Note 1

150,066

150,066

Note 1

9,531

9,531

Note 1

1,109,717

1,109,717

1,114,293

Investment securities - loans and receivables Wealth management products managed by other banks ABS Trust and asset management plans

Note 1: Total volume of these unconsolidated structured entities is not available in the public information.

The Group earns interest income, commission income and investment income as return on holding these investments and providing services to these structured entities.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

7.2 Consolidated structured entities Consolidated structured entities include wealth management product vehicles established and managed by the Group with the total amount of RMB 59,132 million at 31 December 2016 (RMB 65,740 million at 31 December 2015). The Group did not provide financial support to these consolidated structured entities in 2016 (2015: Nil). entities in 2016 (2015: Nil).

8 SEGMENT REPORTING Top management of the Group reviews the performance of the Bank’s branches and subsidiaries in different economic regions from geographic perspective. The branches and subsidiaries of the Bank mainly provide services to local customers domiciled in respective geographic areas, therefore operating segments are analysed principally based on the location of the assets. The operating segments’ principal income are mainly from various commercial and investment banking services, including deposits and loans, discounted bills, trade finance, inter-bank money market and investments etc. In 2016, The Group merges two or more regional operating segments with similar economic characteristics. The Group’s operating segments of different regions after merging are set out as follows: Headquarter:

Headquarters (including the direct institutions under headquarters and the branches)

Yangtze River Delta:

Shanghai, Jiangsu, Zhejiang

Pearl River Delta and West Side of Taiwan Strait:

Guangdong, Fujian

Bohai Rim:

Beijing, Tianjin, Hebei, Shandong

Central China:

Shanxi, Henan, Hubei, Hunan, Anhui, Jiangxi, Hainan

Western China:

Chongqing, Sichuan, Guizhou, Yunnan, Guangxi, Shanxi,Gansu, Qinghai, Ningxia, Xinjiang, Inner Mongoli, Tibet

North-east China:

Liaoning, Jilin, Heilongjiang

Overseas and subsidiaries:

Overseas branches and domestic and overseassubsidiaries

223

11,337 43,457

Yangtze River Delta 32,348 108,360

Headquarter

47,674

181,981

Operating income

Interest income

22,251 (33,651)

65,236 (80,919)

(169,048)

Internal interest income

(22,036) 1,090 161 40

(57,009) 3,526 260 397

26,565

5,595

3,029

(1,139)

Internal interest expense

Net fee and commission income

Investment income

Changes in fair value through gains and losses

240 (8,086) (320) (2,791) (4,876)

724 (18,067) (1,015) (7,943) (9,054)

691

(21,663)

(1,184)

(9,744)

(10,731)

Business tax and surcharges

Operating expenses

Impairment charges

Net position of assets and liabilities

Total liabilities

Deposits from customers

Total assets

Loans and advances to customers

31 December 2016

Total segment profit

323,339

1,501,552

127,209

1,824,891

3,246

565,006

14,308

286,675

1,556,806

568,252

1,059,035

1,571,114

248,735

3,260

14,273

26,034

Less: non-operating expense

746,396

18 (9)

62 (70)

31 (8)

Add: non-operating income

308,171

(99) 3,251

(55) 14,281

(4)

Operating profit

Other operating costs

26,011

Other operating income

Operating costs

Exchange gains or losses

(11,615)

(23,910)

(34,977)

(134,071)

External interest expense

Including:

Interest expense

21,206

43,124

44,095

137,886

External interest income

Including:

Year ended 31 December 2016

Pearl River Delta and West Side of TaiwanStrait

9,549

974,585

477,272

984,134

367,211

9,524

(14)

53

9,485

(54)

(4,643)

(4,734)

(500)

(9,931)

625

100

-

214

1,759

(32,370)

(15,413)

(47,783)

31,717

32,784

64,501

19,416

Bohai Rim

6,133

590,488

453,020

596,621

372,800

6,102

(5)

58

6,049

(36)

(8,075)

(3,736)

(529)

(12,376)

176

27

-

175

1,937

(21,222)

(7,417)

(28,639)

19,351

25,398

44,749

18,425

Central China

4,165

598,741

388,673

602,906

398,819

4,128

(18)

29

4,117

(22)

(9,167)

(3,665)

(553)

(13,407)

76

20

-

222

1,559

(24,938)

(6,804)

(31,742)

19,241

28,148

47,389

17,524

Western China

3,214

288,314

150,062

291,528

161,251

3,207

(15)

14

3,208

(30)

(1,891)

(2,015)

(247)

(4,183)

92

28

-

100

981

(10,481)

(3,269)

(13,750)

6,337

13,603

19,940

7,391

North-east China

8,980

206,887

60,069

215,867

71,174

3,447

(5)

194

3,258

(46)

(667)

(2,610)

(96)

(3,419)

39

(1)

(217)

306

3,275

(201)

(3,289)

(3,490)

309

6,456

6,765

6,677

Overseas and subsidiaries

-

(798,050)

-

(798,050)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

302,328

-

302,328

(302,328)

-

(302,328)

-

Elimination

Total

372,934

5,484,329

3,002,015

5,857,263

2,674,557

69,975

(144)

459

69,660

(346)

(49,104)

(37,238)

(4,444)

(91,132)

2,663

(528)

2,812

7,033

40,692

-

(106,694)

(106,694)

-

214,814

214,814

160,792

224 2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

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

3,400 -

15,200

518

Internal interest expense

37 (8) 4,350

9,592 352 (42) 9,902

18,088

103

(51)

18,140

Add: non-operating income

Less: non-operating expense

Net position of assets and liabilities

Total liabilities

Deposits from customers

Total assets

Loans and advances to customers

31 December 2015

Total segment profit

Operating profit

266,531

1,216,804

146,456

1,483,335

9,748

1,380,719

996,034

1,390,467

4,309

582,574

262,010

586,883

183,493

4,321

(81)

(31)

661,253

(144)

(12,727)

(8,034)

Impairment charges

151,068

(3,664)

(7,864)

(6,800)

Operating expenses

Other operating costs

(687) (2,623)

(2,464)

(1,251)

Business tax and surcharges

223 (7,118)

803 (23,136)

1,007

Other operating income

46

(16,116)

316

(1,294)

Exchange gains or losses

-

-

1,141

(22,896)

(12,615)

(35,511)

21,920

Operating costs

-

3,019

Changes in fair value through gains and losses

Investment income

Net fee and commission income

(60,966)

(29,176)

(139,611)

External interest expense

Including: (30,532)

(91,498)

(168,787)

Internal interest income

Interest expense

69,240

35,935

148,606

External interest income

Including: 23,620

45,540

34,204

184,541

Interest income

50,467

11,439

32,728 119,707

Headquarter

Year ended 31 December 2015

Operating income

9,970

882,121

497,959

892,091

299,455

10,039

(13)

39

10,013

(196)

(3,173)

(4,534)

(1,200)

(9,103)

522

111

-

-

2,199

(32,315)

(16,815)

(49,130)

32,857

32,557

65,414

19,116

Pearl River Delta and West Sideof TaiwanStrait Bohai Rim

Yangtze River Delta

8,841

495,254

427,549

504,095

316,836

8,917

(26)

167

8,776

(31)

(4,501)

(3,625)

(1,267)

(9,424)

188

25

-

2

2,095

(23,379)

(9,814)

(33,193)

19,683

29,400

49,083

18,200

Central China

9,886

595,254

392,699

605,140

342,976

9,966

(21)

35

9,952

(114)

(4,209)

(3,765)

(1,381)

(9,469)

163

33

-

-

2,286

(28,826)

(9,406)

(38,232)

21,482

33,689

55,171

19,421

Western China

3,900

334,276

184,176

338,176

158,834

3,937

(6)

16

3,927

(81)

(1,805)

(1,934)

(618)

(4,438)

77

33

-

8

987

(12,826)

(4,055)

(16,881)

7,023

17,118

24,141

8,365

North-east China

5,415

148,984

47,266

154,399

57,498

1,626

(6)

234

1,398

-

(682)

(889)

(108)

(1,679)

21

17

(28)

(67)

490

(376)

(2,832)

(3,208)

384

5,468

5,852

3,077

Overseas and subsidiaries

-

-

(910,234)

-

(910,234)

-

-

-

-

-

-

-

-

318,600

4,725,752

2,954,149

5,044,352

2,171,413

66,877

(173)

983

66,067

(678)

(38,795)

(32,034)

(8,976)

3,004 (80,483)

-

(713) -

461 -

2,991

27,798 -

-

321,195

(115,245)

(115,245)

321,195 -

-

228,254

228,254

146,550

Total

(321,195)

-

(321,195)

-

Elimination

2016 Annual Report

225

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

226

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

9 CONTINGENCIES AND COMMITMENTS 9.1 Credit commitment The Group’s credit commitment is listed as follows: 2016-12-31

2015-12-31

Bank acceptances

510,767

645,273

Bills acceptance under letters of credit

125,121

154,902

Letters of guarantee issued

124,507

122,459

12,975

11,641

Item

Letters of credit issued Credit card and other commitments

188,722

118,289

Total

962,092

1,052,564

As at 31 December 2016, there is no outstanding commitment on security underwriting (31 December 2015: Nil).

9.2 Commitment on early redemption of certificate treasury bonds The Group is entrusted by the MOF to underwrite certificate treasury bonds. The investors of these treasury bonds have a right to redeem the bonds at any time prior to maturity and the Group is committed to redeem these treasury bonds. The redemption price is the principal value of the bonds plus unpaid interest at the redemption date. As at 31 December 2016, the outstanding principal value of the treasury bonds sold by the Group amounted to RMB 3,940 million (31 December 2015: RMB 3,619 million). The MOF will not provide funding for the early redemption of these treasury bonds on a back-to-back basis but will pay interest and repay the principal at maturity. The management expects the amount of the bonds of which redemption is through the Group before the maturity dates will not be material.

9.3 Operating lease commitment According to the lease contract terms, the minimum lease payment commitment of the Group is as follows: 2016-12-31

2015-12-31

Within 1 year

2,148

1,941

1 to 5 years

5,889

5,330

Over 5 years

1,830

1,849

Total

9,867

9,120

9.4 Capital commitment As at 31 December 2016, the major capital commitment the Group had signed but not paid amounted to RMB 1,506 million (31 December 2015: RMB 155 million).

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

9.5 Legal proceedings As at 31 December 2016, the number of outstanding legal proceedings where the Group acts as the defendant was 185, and the amount involved was about RMB 1,735 million. The possibility of loss is not large, no provision was required (At 31 December 2015: the number of outstanding litigations where the Group acted as defendant was 125, and the amount involved was about RMB 1,559 million, the possibility of loss is not large, no provision was required.).

10 FIDUCIARY BUSINESSES The Group provides safe-keeping and entrusted loan businesses to independent third party customers. The assets arising from these businesses are not recorded on the Group’s statement of financial position. As at 31 December 2016, the balance of entrusted loan business was RMB 203 billion (As at 31 December 2015: RMB 198.4 billion).

11 RELATED PARTIES 11.1 Major related parties The related parties of the Bank mainly include its subsidiaries, associates, joint ventures, the major shareholders who hold 5% or more ordinary shares of the Bank and their Group companies (including parent and all subsidiaries), key management personnel of the Bank (including directors, supervisors and senior management personnel) and their close family members, and the companies that are controlled, or under common control of, or significant influence by these key management personnel and their close family members.

11.2 Major shareholders holding more than 5% shares of the Bank As at 31 December 2016, major shareholders holding more than 5% ordinary shares of the Bank are as follows: Percentage

Major business

Shanghai International Group Co., Ltd.

19.53%

Financial Services

China Mobile Group Guangdong Company Limited

18.98%

Mobile and Communication

Funde Sino Life Insurance Co., Ltd. – Traditional

9.89%

Insurance Business

Funde Sino Life Insurance Co., Ltd. – Capital

6.27%

Insurance Business

11.3 Subsidiaries For general information of the Bank’s subsidiaries, please refer to Note 6 “Interest in other entities”.

11.4 Associates and joint ventures For general information of associates and joint ventures, please refer to Note 6 “Interest in other entities”.

11.5 Other major related parties Other related parties mainly include respective group companies of shareholders who hold 5% or more ordinary shares of the Bank, key management personnel of the Bank (including the directors, supervisors and senior management) and their close family members, and the companies that are controlled, or under common control of, or significant influence by these key management personnel and their close family members.

227

228

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

11.6 Transactions and balances with related parties The major transactions between the Group and its related parties are loans and deposits. These transactions are conducted and priced under the normal commercial terms and business procedures as if they were conducted with independent third parties. The amount of transactions with related parties is not significant to the total volume of each type of the Group’s business. (1) Loans and advances to customers 2016-12-31

2015-12-31

Associates and joint ventures

44

41

Companies with significant influence by key management personnel

-

49

324

637

Group companies of major shareholders Total

Interest income

368

727

Year ended 31

Year ended 31

December 2016

December 2015

16

21

2016-12-31

2015-12-31

(2) Due from banks and other financial institutions

Associates and joint ventures

Interest income

-

60

Year ended 31

Year ended 31

December 2016

December 2015

-

2

2016-12-31

2015-12-31

5,317

4,583

(3) Deposits from customers

Major shareholders Companies with significant influence by key management personnel

8,058

5,673

Group companies of major shareholders

35,414

37,454

Total

48,789

47,710

Interest income

Year ended 31

Year ended 31

December 2016

December 2015

1,445

1,568

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(4) Due to other banks and financial institutions 2016-12-31

2015-12-31

Associates and joint ventures

4,566

814

Group companies of major shareholders

3,103

3,325

Total

7,669

4,139

Year ended 31 December 2016

Year ended 31 December 2015

113

190

Year ended 31 December 2016

Year ended 31 December 2015

-

6

Associates and joint ventures

66

20

Total

66

26

Year ended 31 December 2016

Year ended 31 December 2015 2

Interest expense

(5) Commission income from related parties

Group companies of major shareholders

(6) Operating expenses

Major shareholders

5

3

Group companies of major shareholders

200

266

Total

205

269

The Group makes payments to one major shareholder and its group companies for purchase of mobile communication services. (7) Letters of guarantee issued 2016-12-31

2015-12-31

5,950

6,299

-

3

5,950

6,302

Group companies of major shareholders Associates and joint ventures Total

The outstanding letters of guarantee as at 31 December 2016 will expire in 2018.

229

230

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) (8) Related parties that are controlled by the Bank Related parties that are controlled by the Bank are the subsidiaries of the Bank (refer to Note 6 for details). Major transactions with these subsidiaries are eliminated in the consolidated financial statements, and are summarized as follows: Balances at year end: Balance with other banks and financial institutions Interest receivable Due to banks and other financial institutions Interest payable Deposits from customers

2016-12-31

2015-12-31

1,316

910

33

-

6,246

5,660

24

4

138

48

Placements with other banks and financial institutions

3,047

-

Loans and advances to customers

1,250

223

40

-

Others Transactions for the year: Interest income from balance with other banks and

Year ended 31

Year ended 31

December 2016

December 2015

15

21

18

40

120

105

financial institutions Interest income from placements with other banks and financial institutions Interest expense from Due to banks and other financial institutions Interest income from loans and advances to customers

25

1

Fee and commission income

30

15

Fee and commission expense

43

-

7

-

Other operating expense

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(9) Compensation of key management personnel Transactions between the Group and its key management personnel are conducted under normal commercial terms. During 2016, individual amounts of transactions with key management personnel are not significant. According to the relevant regulations, the 2016 annual compensation of Bank’s directors, supervisors and senior management personnel is yet to be approved by relevant authorities. The compensation of key management personnel does not have significant impact on the Group and the Bank’s financial statements of 2016 (The aggregated compensation of Bank’s directors, supervisors and senior management personnel for 2015 was RMB 12.88 million).

12 FINANCIAL RISK MANAGEMENT The Group exposes to a variety of financial risks. The Group analyses, evaluates, accepts and manages some degree of risks or risk portfolios. Managing financial risk is core to the financial industry, and the inherent risks are an inevitable consequence of business operation. The Group’s aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse impact on the Group’s financial performance. The Group designs a series of risk management policies to identify and analyse these risks, and has set appropriate risk limits and control procedures to monitor the risks and limits through reliable information systems. The most significant types of risks to the Group are credit risk, market risk and liquidity risk. Market risk mainly consists of currency risk, interest rate risk and commodity risk. The Board of Directors of the Bank is responsible for determining the Group's overall risk appetite. Within this framework, the senior management of the Bank designs risk management policies and procedures for credit risk, market risk and liquidity risk accordingly. After the policies and procedures are approved by the Board of Directors, related departments of the head office are responsible for their implementation.

12.1 Credit risk Credit risk is the risk that a customer or counterparty may be failing or unwilling to discharge an obligation or commitment to the Group resulting in a financial loss to the Group. Credit risk is greater when counterparties are concentrated in one industry or geographic region, because a group of otherwise unrelated counterparties could be adversely affected in their ability to fulfill their obligations due to same economic factors affecting their common industry or region. The Group has established relevant mechanism, and set limit for individual borrower’s tolerable credit risk. The Group regularly monitors and reviews this credit risk limit. The Group conducts credit evaluation before granting facilities to specific customer, and regularly examines the credit limit granted. The approaches of credit risk management include obtaining collateral and guarantee. For off-balance sheet credit commitments, the Group generally obtains guarantee deposits to mitigate the credit risk. The credit risks of trust plan are mainly arising from the possibility of counter parties’ non-performance of their obligations; mainly in the process of loan, asset repurchase, subsequent financial arrangement, guarantee, performance commitment, fund transfer flow and security investment, etc.; counter parties including the borrower, the

231

232

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

guarantor or the depository (the trustee), securities investment accounts dealer and the bank, are failing to or unable or unwilling to perform the contract commitments, thus resulting in the possibility of potential loss of trust property or inherent property. 12.1.1 Credit risk measurement (i) Loans The Group has established a five-grade classification system to measure and manage the credit quality of its loans and advances to corporate and retail customers. Such classification system is based on “Guideline for Credit Risk Classification” (the “Guideline”) issued by the CBRC on 3 July 2007. The Group’s own system and the Guideline require the Group to classify its credit assets and off-balance sheet credit exposures into five categories, which are namely pass, special-mention, substandard, doubtful and loss, among which loans classified in the substandard, doubtful and loss categories are regarded as non-performing loans. The core definition of the credit asset classification is as follows: Pass: loans for which borrowers can fulfill the terms of the contracts, and there is no reason to believe their ability to repay principal or interest of loans on a timely basis is in doubt. Special Mention: loans for which borrowers are able to service the loans currently, although there exist some negative factors which may affect the borrower to repay the loans on time. Substandard: loans for which borrowers’ ability to service loans is apparently in doubt and borrowers cannot rely on their proceeds from normal operations to repay the principal and interest of loans. Certain losses may be incurred by the Group even when guarantees are executed. Doubtful: loans for which borrowers cannot repay the principal and interest of loans in full and significant losses will be incurred by the Group even when guarantees are executed. Loss: principal and interest of loans cannot be recovered or only a small portion can be recovered after taking all possible measures and proceeding necessary legal procedures. (ii) Bonds and other bills The Group manages the credit risk exposure of bonds and other bills through controlling the investment scale and issuer’s credit rating and establishing post lending management standards. Generally, for foreign currency securities, only those with credit ratings (by Standard & Poor or equivalent agencies) equivalent to or higher than BBB can be invested. Investments in RMB debt securities are limited to those bonds with credit rating equivalent to or above BBB+ assigned by rating agencies recognized by the PBOC. For middle or long term RMB debt securities, their credit ratings granted by PBOC recognized agencies cannot be lower than A-. For short term RMB debt securities, their credit ratings granted by the PBOC recognized agencies cannot be lower than A-1. (iii) Other financial assets classified as loans and receivables Other financial assets classified as loans and receivables, include wealth management products issued and managed by other banks, trust plans and asset management plans. The Group established a risk evaluation system on the trust companies, security companies and fund management companies, set up credit limit for parties repurchasing

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

trust beneficial rights, issuers of wealth management products, ultimate borrowers of asset management schemes, and performs ongoing post-lending monitoring on timely basis. (iv) Inter-bank transactions The Group reviews and monitors the credit risk of individual financial institutions on regularly basis. Limits are set for each individual bank or non-banking financial institution which has business relationship with the Group. (v) Derivative financial instruments The Group strictly controls the volume of derivative transactions. For corporate customers, the Group mitigates credit risk associated with derivative financial instruments by acquiring margin deposits from counterparties. (vi) Credit commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Letters to guarantee issued, acceptances, bill acceptance and letters of credit, which represent irrevocable commitment that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. When the amount of credit commitment exceeds the original credit limit, margin deposits are required to mitigate the credit risk. The Group's exposure of credit risk is equivalent to the total amount of credit commitments. (vii)Trust plan The Group strictly enforces the policy “pre-loan investigation, in-process review, post-loan inspection” over trust plan. In the design of the product trade structure, it introduces guarantee mechanism including financial institution credit, property mortgage, rights pledge in terms of product transaction structure design. And the Group comprehensively applies the methods of avoidance, prevention, dispersion, transfer, compensation to manage risks, disperses and transfers credit risks of financing entities ,so as to reduce risk exposure. 12.1.2 Credit risk limit management and mitigation procedures The Group manages and limits the concentrations of credit risk, including concentration to individual counterparty, group, industry and region. The Group continuously optimizes the credit risk structure by setting limits on the borrower, group of borrowers, geographical and industry segments. Concentration risks are monitored on ongoing basis and subject to an annual or more frequent review where necessary. The Group manages the exposure to credit risk through regular analyses of borrowers and potential borrowers’ abilities to fulfill interest and principal repayment obligations and amends the lending limits where appropriate. The Group has established relevant policies to mitigate credit risk. One of the most important measures is to obtain collateral, pledged assets, guarantee deposits or guarantees from corporates or individuals. The Group provides guidelines on the acceptance of specific classes of collateral. The principal types of collateral for loans and advances are:

233

234

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) • Residential property and land use right; • Commercial assets, such as commercial property, inventory and accounts receivables; • Financial instruments, such as debt securities and equity shares. Fair value of collateral is usually required to be assessed by professional valuer designated by the Group. When there is objective evidence of impairment, the value of collateral will be reviewed by the Group to assess whether it could sufficiently cover the credit exposure of relevant loans. To mitigate the credit risk, the Group has implemented loan-to-value ratio requirement based on type of collateral as follows: Collateral

Maximum loan-to-value ratio

Time deposit

95%-100%

PRC treasury bonds

90%-100%

PRC financial institution bonds

90%

Right to collect fees

70%

Right to operate a business

60%

Commercial property and plant

60%

Residential property

70%

Land use right

60%

Fair value of collateral was determined by management based on the latest available external valuation results, taking into account experience adjustments for current market conditions and estimated expenses to be incurred in the disposal process. For loans guaranteed by third parties, the Group will review the financial condition and credit history of guarantors and evaluate the ability of the guarantors to meet obligations on regular basis.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12.1.3 Maximum exposure to credit risk without considering collateral or other credit enhancements 2016-12-31

2015-12-31

Balances with central bank

510,009

473,998

Due from banks and other financial institutions

234,223

111,388

Placements with banks and other financial institutions

118,892

137,806

Financial assets at fair value through profit or loss

161,617

63,746

16,233

10,610

Credit risk exposure relating to balance sheet items:

Derivative financial assets Financial assets purchased under resale agreements Interest receivable

3,001

110,218

22,911

20,437

2,674,557

2,171,413

Available-for-sale financial assets

349,770

247,227

Investment securities - held-to-maturity

326,950

239,703

1,010,472

1,325,032

57,366

41,271

5,486,001

4,952,849

Bank acceptance

510,767

645,273

Bills acceptance under letter of credit

125,121

154,902

Letters of guarantee issued

124,507

122,459

Loans and advances to customers

Investment securities - loans and receivables Other financial assets Sub-total Credit risk exposure relating to off-balance sheet items:

Letters of credit issued Unused credit card and other commitments Sub-total Total

12,975

11,641

188,722

118,289

962,092

1,052,564

6,448,093

6,005,413

The table above represents the worst case scenario of credit risk exposure to the Group, without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on carrying amounts as reported in the balance sheet. 12.1.4 Due from and placements with banks and other financial institutions and financial assets purchased under resale agreements All those assets are neither past due nor impaired. Credit risk of those assets can be analysed by type of counterparty as follows:

Domestic commercial banks Overseas commercial banks Domestic non-bank financial institutions

2016-12-31

2015-12-31

185,828

79,905

63,514

70,047

103,773

99,242

353,115

249,194

Financial assets purchased under resale agreements, which are fully pledged by bank accepted bills and bonds or deposit certificates issued by other banks, amounted to RMB 3 billion as at 31 December 2016 (31 December 2015: RMB 110.2 billion). The Group does not expect significant credit risk from them.

235

236

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) 12.1.5 Loans and advances to customers 2016-12-31

2015-12-31

2,679,309

2,186,179

Past due but not impaired

31,319

24,285

Impaired

52,178

35,054

2,762,806

2,245,518

(88,249)

(74,105)

2,674,557

2,171,413

Group Neither past due nor impaired

Total Less: Impairment allowance Net

(i) Neither past due nor impaired The Group classifies loan assets according to related regulations issued by the CBRC, which are provided in Note 12.1.1. Loans and advances neither past due nor impaired are further analysed as follows: 2016-12-31 Pass Special mention

Corporate loans

Retail loans

Total

1,651,543

953,499

2,605,042

70,686

3,581

74,267

1,722,229

957,080

2,679,309

1,570,908

574,673

2,145,581

2015-12-31 Pass Special mention

37,280

3,318

40,598

1,608,188

577,991

2,186,179

(ii) Past due but not impaired The Group’s loans that are past due but not impaired are analysed below: 2016-12-31

Corporate loans Retail loans

Past due up to 30 days (including 30 days)

Past due 30 to 60 days (including 60 days)

Past due 60 to 90 days (including 90 days)

Past due over 90 days

Total

6,570

5,371

4,146

12,882

28,969

810

661

776

103

2,350

7,380

6,032

4,922

12,985

31,319

2015-12-31

Corporate loans Retail loans

Past due up to 30 days (including 30 days)

Past due 30 to 60 days (including 60 days)

Past due 60 to 90 days (including 90 days)

Past due over 90 days

Total

5,509

2,859

3,441

10,931

22,740

843

372

263

67

1,545

6,352

3,231

3,704

10,998

24,285

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The Group is of the view that these past due loans can be recovered from the operation income of borrowers, the payment from guarantors or disposal of collateral, are therefore not impaired. As at 31 December 2016, the fair value of collateral for corporate loans that were past due but not impaired amounted to RMB 31.9 billion (31 December 2015: RMB 25.5 billion). The fair value of collateral for retail loans that were past due but not impaired amounted to RMB 3.4 billion (31 December 2015: RMB 5.2 billion). (iii) Impaired loans 2016-12-31

2015-12-31

Corporate loans

41,409

27,286

Retail loans

10,769

7,768

52,178

35,054

Group

(iv) As at 31 December 2016, carrying value of loans originally impaired but the original contract terms have been modified amounted to RMB 110 million (31 December 2015: RMB 133 million). 12.1.6 Investment securities The table below analyses the Group’s investment securities by external rating agencies, including S&P or equivalent agencies recognized by the PBOC. Foreign currency investments Bonds and other Financial assets at fair investments value through profit or loss

Available-for-sale financial assets

Loans and receivable

Total

7,727

-

7,727

2016-12-31 AAA

-

7,218

877

8,095

413

14,695

-

15,108

413

29,640

877

30,930

AAA

-

12,057

195

12,252

AA

-

288

654

942

Unrated-bond

-

902

-

902

-

13,247

849

14,096

AA Unrated-bond

2015-12-31

237

238

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) 12.1.6 Investment securities (Continued) Investments denominated in RMB

Financial assets at fair value through profit or loss

Availablefor-sale financial assets

Investment securities - held-tomaturity

Investment securities - loans and receivables

Total

AAA

406

95,384

11,715

21,205

128,710

AA+ to AA-

755

36,284

-

8,112

45,151

31 December 2016 Medium or long term:

A to A-

-

-

-

108

108

Below A-

-

357

-

300

657

5,822

22,643

-

127

28,592

530

33,561

162,156

41,827

238,074

3,275

29,645

153,079

-

185,999

-

-

-

10,328

10,328

31,015

76,169

-

-

107,184

-

351

-

-

351

-

24,606

-

816,311

840,917

Short term: A-1 Unrated bonds and other investments: Government bonds(Note 1) Bonds issued by policy banks Financial bonds (Note 1) Deposit certificates issued by other banks Corporate bonds Beneficial rights of trust and asset management plans(Note 3) Wealth management products purchased from other banks (Note 2) Loans to non-bank financial institutions

-

-

-

74,129

74,129

8,019

-

-

-

8,019

111,382

860

-

-

112,242

Other investments in debt instruments (Note 4) Other investments

-

270

-

37,148

37,418

161,204

320,130

326,950

1,009,595

1,817,879

Note 1: Included in unrated financial bonds held by the Group are mainly the subordinated bonds issued by listed insurance companies and securities companies. Local municipal government bonds are mainly issued under the name of local municipal government or Ministry of Finance. Note 2: Wealth management products are principal guaranteed products issued by state-owned commercial banks in China. Note 3: As at 31 December 2016, the national amount of overdue fund trust plan and wealth management plan is RMB 4,052 million, and the provision for impairment recognized is RMB 1,614 million.(31 December 2015: national amount is RMB 2,627 million, provision for impairment is RMB 140 million). Note 4: Other equity instruments are financing products issued by the Bank to enterprises, as at 31 December 2016, such instruments are not overdue.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12.1.6 Investment securities (Continued) Investments denominated in RMB

Financial assets at fair value through profit or loss

Availablefor-sale financial assets

Investment securities - held-tomaturity

Investment securities - loans and receivables

Total

194

50,385

63,943

22,163

136,685

1,738

15,789

4,618

10,714

32,859

180

212

-

793

1,185

31,245

5,364

-

880

37,489

2015-12-31 Medium or long term: AAA AA- to AAA to AShort term: A-1 Unrated bonds and other investments: Government bonds Bonds issued by policy banks Financial bonds

-

56,768

91,986

190

148,944

1,257

63,416

78,498

-

143,171

-

-

-

16,707

16,707

8,635

22,579

658

-

31,872

-

-

-

1,108,309

1,108,309

-

-

-

150,066

150,066

8,025

19,467

-

-

27,492

-

8,154

Deposit certificates issued by other banks Beneficial rights of trust and asset management plans Wealth management products purchased from other banks Fund investments Loans to non-bank financial institutions

8,154

-

-

Other investments

4,318

-

-

14,361

18,679

239,703

1,324,183

1,861,612

63,746

233,980

12.2 Market risk Market risk is the risk of loss arising from on and off-balance sheet businesses from adverse movements in market prices, such as interest rates, exchange rates, equity and commodities. Both the Group’s trading book and banking book face market risk, which mainly consists of interest rate risk, currency risk and commodity risk. The Group considers the exposure to the commodity risk to be insignificant.   The Board of Directors of the Bank is ultimately responsible for monitoring the market risk management activities and ensuring the Group can effectively identify, measure, monitor and control the market risk associated with the Group's business activities. Under the authorisation of the Board of Directors, the senior management of the Group is responsible for establishing the group-wide market risk management system, organisational structure with welldefined roles and responsibilities, limit structures and accountability mechanism. Relevant departments of head office are responsible for carrying out detailed market risk management activities including policies and procedures, measurement approaches and models, analyses and reporting and monitoring of various limits etc in order to timely and accurately identify, measure, monitor and control the market risk exposures in respective business areas and reporting to the senior management and Board of Directors on timely basis. Meanwhile, group-wide market risk

239

240

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

management system incorporates the established internal controls and independent inspections. Relevant business units are responsible for executing the daily control activities. A three-line defence system includes business units as the fine line defence, market risk management and compliance departments as the second line defence and internal audit department as the third line defence. The Group measures market risk based on predetermined benchmarks. The major measurement approaches include stress testing, analysis on value at risk, back testing, gap analysis and sensitivity analysis etc. The market risk of new products and businesses should be identified before these new products and businesses are launched according to relevant policies. 12.2.1 Currency risk The Group mainly operates in the PRC and its main business activities are conducted in the PRC. Majority of its foreign currency business are conducted in USD. The table below summarizes the Group’s exposure to currency risk. Included in the table are the Group’s assets and liabilities at carrying amounts in RMB, categorized by original currency. 2016-12-31 Item

RMB

USD

HKD

Others

Total

Into RMB

Into RMB

Into RMB

Into RMB

Cash and balances with central bank

511,215

5,562

219

234

517,230

Due from banks and other financial institutions

170,391

39,922

14,779

9,131

234,223

Placements with banks and other financial institutions

96,253

18,924

3,237

478

118,892

176,790

413

-

-

177,203

Derivative financial assets

1,097

14,727

6

403

16,233

Financial assets purchased under resale agreements

3,001

-

-

-

3,001

Financial assets at fair value through profit or loss

Interest receivables Loans and advances to customers Available-for-sale financial assets Investment securities - held-to-maturity Investment securities - loans and receivables Other financial assets Total financial assets Due to central bank

22,191

632

51

37

22,911

2,539,492

108,138

20,585

6,342

2,674,557

590,823

24,236

4,646

758

620,463

326,950

-

-

-

326,950

1,009,595

-

-

877

1,010,472

50,290 5,498,088

6,918

156

2

57,366

219,472

43,679

18,262

5,779,501

147,622

-

-

-

147,622

1,264,326

50,076

25,050

2,511

1,341,963

Placements from banks and financial institutions

43,750

48,765

3,029

1,588

97,132

Financial liabilities at fair value through profit or loss

29,438

88

-

-

29,526

Derivative financial liabilities

10,689

2,056

-

346

13,091

Due to banks and financial institutions

Financial assets sold under repurchase agreements Deposits from customers Interest payable

91,238

1,962

-

-

93,200

2,805,248

161,583

21,090

14,094

3,002,015

33,055

853

105

69

34,082

642,407

12,114

10,162

-

664,683

Other financial liabilities

22,248

321

-

440

23,009

Total financial Liabilities

5,090,021

277,818

59,436

19,048

5,446,323

408,067

(58,346)

(15,757)

(786)

333,178

Bonds issued

Net position of financial instruments

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12.2.1 Currency risk (Continued) 2015-12-31 Item Cash and balances with central bank Due from banks and other financial institutions Placements with banks and other financial institutions Financial assets at fair value through profit or loss Derivative financial assets Financial assets purchased under resale agreements Interest receivables Loans and advances to customers Available-for-sale financial assets Investment securities - held-to-maturity Investment securities - loans and receivables Other financial assets Total financial assets Due to central bank Due to banks and financial institutions Placements from banks and financial institutions Financial liabilities at fair value through profit or loss Derivative financial liabilities Financial assets sold under repurchase agreements Deposits from customers Interest payable Bonds issued

RMB

USD

HKD

Others

Total

Into RMB

Into RMB

Into RMB

Into RMB

474,513

6,034

407

203

481,157

56,254

40,958

6,965

7,211

111,388

104,715

29,090

3,494

507

137,806

63,746

-

-

-

63,746

3,073

5,431

49

2,057

10,610

110,218

-

-

-

110,218

19,670

704

40

23

20,437

2,056,552

93,872

18,259

2,730

2,171,413

241,599

10,901

2,203

143

254,846

239,703

-

-

-

239,703

1,324,183

195

-

654

1,325,032

39,009

2,184

55

23

41,271

4,733,235

189,369

31,472

13,551

4,967,627

23,645

-

-

-

23,645

1,004,512

23,834

12,988

1,614

1,042,948

74,342

25,247

-

-

99,589

210

-

-

-

210

5,254

1,734

5

326

7,319

119,205

-

-

-

119,205

2,752,903

154,669

13,299

33,278

2,954,149

35,333

559

48

295

36,235

385,269

9,292

4,431

914

399,906

Other financial liabilities

13,071

72

-

426

13,569

Total financial Liabilities

4,413,744

215,407

30,771

36,853

4,696,775

319,491

(26,038)

701

(23,302)

270,852

Net position of financial instruments

241

242

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The Group measures the possible effect on net profit arising from foreign exchange rate fluctuation using sensitivity analysis. The table below shows the result of sensitivity analysis on the financial reporting date. Increase/(decrease) of net profit for the year

2016-12-31 Exchange rate fluctuation % -1%

USD against RMB Other currencies against RMB

2015-12-31 Exchange rate fluctuation %

1%

-1%

1%

(336)

336

225

(225)

196

(196)

180

(180)

The above sensitivity analysis was performed on the basis of static characteristics of the interest risk of the assets and liabilities. The analysis measures only the impact of changes in the interest rates within one year, showing how annualized interest income would have been affected by repricing of the Group’s assets and liabilities within the oneyear period. The assumptions are shown as below: Exchange rate sensitivity represents the exchange gain or loss resulting from the 1% change in daily closing exchange rates (middle) on the financial reporting date; Exchange rates for all currencies are fluctuating simultaneously and in the same direction; Foreign currency position contains spot exchange position and forward exchange position. The actual exchange gain or loss may differ from the sensitivity analysis result due to these assumptions. 12.2.2 Interest rate risk Interest rate risk is the risk of loss arising from adverse movements in factors such as interest rates, term structure, etc., including interest rate risk from bank book and trading book respectively. On 26 August 2015, PBOC removed the upper limit of interest rate of time deposit with term longer than a year (excluding one year), and set the upper limit of interest rate of other kinds of deposit as 1.5 times of the benchmark interest rate. On 24 October 2015, PBOC removed the upper limit of deposit interest rate of commercial banks and rural cooperative financial institutions. On 20 July 2013 PBOC also removed the bottom limit (i.e. 70% of benchmark) for loans (excluding retail mortgage loans). The Group determines the loan interest rate independently. The Group's interest rate risk mainly results from re-pricing risk of bank book. The Group considers its exposure to the interest rate risk of trading book to be insignificant. The Group has established an internal transfer pricing system, which enables the Group to manage the interest rate risk of bank book centrally. The Group measures and monitors interest rate risk in trading accounts using value-at-risk and sensitivity analysis etc. The table below summarizes the Group’s exposures to interest rate risk. The table presents the Group’s assets and liabilities at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12.2.2 Interest rate risk (Continued) 2016-12-31 Within 1 month

1 to 3 months

3 to 12 months

1 to 5 years

Over 5 years

Non-interest bearing

Total

Assets Cash and balances with 503,863

-

-

-

-

13,367

517,230

99,999

91,319

42,905

-

-

-

234,223

11,579

3,315

88,020

15,978

-

-

118,892

4,748

47,185

93,137

16,237

310

-

161,617

-

-

-

-

-

16,233

16,233

1,001

2,000

-

-

-

-

3,001

-

-

-

-

-

22,911

22,911

1,495,317

274,195

748,855

137,958

18,232

-

2,674,557

9,342

13,694

137,440

154,327

34,189

778

349,770

3,222

12,686

26,902

202,074

82,066

-

326,950

168,032

169,980

364,352

266,401

41,707

-

1,010,472

Other financial assets

4,103

1,212

772

34,900

-

16,379

57,366

Total financial assets

2,301,206

615,586

1,502,383

827,875

176,504

69,668

5,493,222

central banks Due from banks and other financial institutions Placements with banks and other financial institutions Financial assets at fair value through profit or loss Derivative financial assets Financial assets purchased under resale agreements Interest receivable Loans and advances to customers Available-for-sale financial assets Investment securities-held-tomaturity Investment securities - loans and receivables

2016-12-31 Within 1 month

1 to 3 months

3 to 12 months

1 to 5 years

Over 5 years

Non-interest bearing

Total

17,005

10,143

120,474

-

-

-

147,622

737,858

369,916

233,607

177

-

405

1,341,963

14,482

24,874

43,117

319

14,340

-

97,132

1,151

-

1,243

2,127

466

24,539

29,526

-

-

-

-

-

13,091

13,091

84,594

4,452

4,154

-

-

-

93,200

1,967,746

243,407

604,903

185,959

-

-

3,002,015

Liabilities Due to central bank Due to banks and other financial institutions Placements from banks and other financial institutions Financial liabilities at fair value through profit or loss Derivative financial liabilities Financial assets sold under repurchase agreements Deposits from customers Interest payable Debts securities issued

-

-

-

-

-

34,082

34,082

84,367

120,008

346,389

53,519

60,400

-

664,683

Other financial liabilities

1,779

1,517

-

-

-

19,713

23,009

Total financial liabilities

2,908,982

774,317

1,353,887

242,101

75,206

91,830

5,446,323

Total interest repricing gap

(607,776)

(158,731)

148,496

585,774

101,298

(22,162)

46,899

243

244

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) 12.2.2 Interest rate risk (Continued) 2015-12-31 Within 1 month

1 to 3 months

3 to 12 months

1 to 5 years

Over 5 years

Non-interest bearing

Total

Assets Cash and balances with 468,588

-

-

-

-

12,569

481,157

68,163

8,478

34,747

-

-

-

111,388

102,699

15,350

15,621

4,136

-

-

137,806

3,963

16,140

23,309

11,704

605

8,025

63,746

-

-

-

-

-

10,610

10,610

58,787

33,750

17,681

-

-

-

110,218

-

-

-

-

-

20,437

20,437

977,262

267,370

825,051

89,111

12,619

-

2,171,413

6,779

19,380

35,808

102,753

65,057

17,450

247,227

2,306

11,983

23,376

157,394

44,644

-

239,703

111,312

167,101

800,626

192,783

53,210

-

1,325,032

Other financial assets

3,518

936

930

26,012

-

9,875

41,271

Total financial assets

1,803,377

540,488

1,777,149

583,893

176,135

78,966

4,960,008

central banks Due from banks and other financial institutions Placements with banks and other financial institutions Financial assets at fair value through profit or loss Derivative financial assets Financial assets purchased under resale agreements Interest receivable Loans and advances to customers Available-for-sale financial assets Investment securities-held-tomaturity Investment securities - loans and receivables

2015-12-31 Within 1 month

1 to 3 months

3 to 12 months

1 to 5 years

Over 5 years

Non-interest bearing

Total

23,050

272

323

-

-

-

23,645

581,226

233,135

224,460

3,727

-

400

1,042,948

66,145

12,863

16,874

500

3,207

-

99,589

-

-

-

-

-

210

210

-

-

-

-

-

7,319

7,319

98,700

16,050

4,455

-

-

-

119,205

1,779,092

363,488

650,230

160,639

700

-

2,954,149

Liabilities Due to central bank Due to banks and other financial institutions Placements from banks and other financial institutions Financial liabilities at fair value through profit or loss Derivative financial liabilities Financial assets sold under repurchase agreements Deposits from customers Interest payable

-

-

-

-

-

36,235

36,235

Debts securities issued

39,119

115,143

145,235

36,020

64,389

-

399,906

Other financial liabilities

555

-

434

-

-

12,580

13,569

Total financial liabilities

2,587,887

740,951

1,042,011

200,886

68,296

56,744

4,696,775

Total interest repricing gap

(784,510)

(200,463)

735,138

383,007

107,839

22,222

263,233

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The Group performs sensitivity analysis by measuring the potential impact of a change in interest rate on net profit and equity. The table below shows the results of the sensitivity analysis on the financial reporting date. 2016-12-31 Interest rate fluctuation (Basis points)

2015-12-31 Interest rate fluctuation (Basis points)

-100

+100

-100

+100

(Decreases)/increases in net profit

(1,327)

1,327

385

(385)

Increase/(decrease) in revaluation reserve

4,463

(4,106)

5,705

(5,351)

The above sensitivity analysis was performed on the basis of static characteristics of the interest risk of the assets and liabilities. The analysis measures only the impact of changes in the interest rates within one year, showing how annualized interest income would have been affected by repricing of the Group’s assets and liabilities within the oneyear period. • Except for current deposits, assets and liabilities, which the maturity date is within three months or more than three months but will be repricing within one year, are re-priced in the middle of each specified period; • The interest rates of current deposits and statutory deposit reserves with central bank remain unchanged; • The yield curve moves in parallel with interest rate; • There are no changes of assets and liabilities at year end. Due to the assumptions, the actual change in net profit may be different from the sensitivity analysis results. Based on the assumption of the parallel movement of the yield curve along with interest rate change, the sensitivity analysis of the equity is derived by remeasuring the fair value of the available-for-sale financial assets as a result of changes in interest rate.

12.3 Liquidity risk The Group’s liquidity risk management is intended to meet the obligations to customers for withdrawal and payment, to achieve the balance between the maturities of assets and liabilities, to reduce the liquidity cost, avoid liquidity crisis of the Group, and to effectively respond to systematic liquidity risk. The Group’s liquidity risk management system comprises mainly regular and contingent management system which includes 10 components, such as policies and strategies, management framework, regulations, management tool, daily operation, stress test, system construction, risk monitoring, risk report, and emergency management and drilling. In addition, the Group carries out various liquidity risk management activities such as liquidity forecast, real-time monitoring of liquidity position by each currency, analysis of liquidity gap for on and off-balance sheet position, and early reporting of large disbursement requests etc. The Group also assesses the liquidity risk arising from on and off-balance sheet exposures, actively obtains the external fundings and manages the maturities of its assets and liabilities in accordance with the Group’s liquidity risk management policy and limit requirement. The objective of these activities is to maintain the appropriate level of liquidity to support the Group’s business development.

245

246

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The table below presents the cash flows payable by the Group under non-derivative financial assets and liabilities by remaining contractual maturities at the financial reporting date. 12.3.1 Cash flows of non-derivative financial assets and liabilities 2016-12-31 Repayable on demand

Within 3 months

3 to 12 months

1 to 5 years

Over 5 years

Total

-

517,230

-

-

-

-

517,230

-

71,921

120,055

43,916

-

-

235,892

-

-

17,079

91,308

20,581

-

128,968

-

21

51,251

94,354

17,588

342

163,556

-

-

3,026

-

-

-

3,026

69,035

-

539,403

920,378

835,374

770,461

3,134,651

110

-

32,127

152,430

243,721

91,235

519,623

-

-

10,816

34,909

240,441

94,373

380,539

1,598

-

335,458

379,288

312,360

43,840

1,072,544

Overdue Assets Cash and balances with central banks Due from banks and other financial institutions Placements with banks and other financial institutions Financial assets at fair value through profit or loss Financial assets purchased under resale agreements Loans and advances to customers Available-for-sale financial assets Investment securities held-to-maturity Investment securities - loans and receivables Other financial assets

123

16,379

3,370

8,453

29,685

4,908

62,918

Total financial assets

70,866

605,551

1,112,585

1,725,036

1,699,750

1,005,159

6,218,947

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12.3.1 Cash flows of non-derivative financial assets and liabilities (Continued) 2016-12-31 Overdue

Repayable on demand

Within 3 months

3 to 12 months

1 to 5 years

Over 5 years

Total

-

-

27,846

122,903

-

-

150,749

-

365,207

806,521

246,190

194

-

1,418,112

-

-

40,867

44,033

346

15,773

101,019

1,151

24,622

-

1,243

2,142

468

29,626

-

-

89,112

4,194

-

-

93,306

-

1,448,375

766,434

623,770

206,117

-

3,044,696

Bonds issued

-

-

207,297

357,042

70,935

75,202

710,476

Other financial liabilities

-

19,827

1,673

848

725

-

23,073

Total financial liabilities

1,151

1,858,031

1,939,750

1,400,223

280,459

91,443

5,571,057

69,715

(1,252,480)

(827,165)

324,813

1,419,291

913,716

647,890

Liabilities Due to central bank Due to banks and other financial institutions Placements from banks and other financial institutions Financial liabilities at fair value through profit or loss Financial assets sold under repurchase agreements Deposits from customers

Net liquidity

2015-12-31 Repayable on demand

Within 3 months

3 to 12 months

1 to 5 years

Over 5 years

Total

-

481,157

-

-

-

-

481,157

-

62,077

14,659

38,805

-

-

115,541

-

-

118,488

16,188

4,571

-

139,247

-

8,025

20,013

23,906

13,676

625

66,245

-

-

92,826

17,862

-

-

110,688

48,200

-

382,697

903,317

682,700

702,530

2,719,444

-

17,450

26,262

42,726

125,362

68,661

280,461

-

-

7,946

30,430

192,977

54,294

285,647

2,627

-

272,510

837,332

241,740

61,750

1,415,959

Overdue Assets Cash and balances with central banks Due from banks and other financial institutions Placements with banks and other financial institutions Financial assets at fair value through profit or loss Financial assets purchased under resale agreements Loans and advances to customers Available-for-sale financial assets Investment securities held-to-maturity Investment securities - loans and receivables Other financial assets

1,070

9,876

2,141

6,922

23,495

3,114

46,618

Total financial assets

51,897

578,585

937,542

1,917,488

1,284,521

890,974

5,661,007

247

248

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12.3.1 Cash flows of non-derivative financial assets and liabilities (Continued) 2015-12-31 Overdue

Repayable on demand

Within 3 months

3 to 12 months

1 to 5 years

Over 5 years

Total

-

-

23,529

330

-

-

23,859

-

274,543

587,716

233,509

3,827

-

1,099,595

-

-

79,698

17,886

579

4,103

102,266

-

210

-

-

-

-

210

-

-

114,914

4,487

-

-

119,401

-

1,247,086 -

982,332

682,832

206,592

941

3,119,783

155,956

151,913

49,935

431,334

12,679 1,534,518 (955,933)

456 1,944,601 (1,007,059)

1,090,957 826,531

434 261,367 1,023,154

73,530 78,574

13,569 4,910,017

812,400

750,990

Liabilities Due to central bank Due to banks and other financial institutions Placements from banks and other financial institutions Financial liabilities at fair value through profit or loss Financial assets sold under repurchase agreements Deposits from customers Bonds issued Other financial liabilities Total financial liabilities Net liquidity

51,897

12.3.2 Cash flow of derivative financial instruments a. Derivative financial instruments settled on a net basis Derivative financial instruments held by the Group that will be settled on a net basis comprise currency forward, currency swaps, interest rate swaps, foreign exchange options and precious metals derivatives. The table analyses the Group’s derivative financial instruments that will be settled on a net basis into relevant maturity groupings based on the remaining period at the financial reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

2016-12-31 Foreign exchange derivatives Interest rate swap

Within 1 month

1-3 months

3-12 months

1-5 years

484

650

1,615

(16)

5

6

(364)

130

Over 5 years -

Total 2,733

5

(218)

Foreign exchange options

(57)

(8)

(189)

-

-

(254)

Precious metals derivatives

(48)

311

426

-

-

689

-

242

-

Commodity swap contracts

37

21

421

980

1,488

356

5

3,250

Within 1 month

1-3 months

3-12 months

1-5 years

Over 5 years

Total

(4)

(18)

(448)

(501)

(8)

(979)

8

10

-

-

-

18

Precious metals derivatives

93

1,369

1,180

-

-

2,642

Total

97

1,361

732

(501)

(8)

1,681

Total

2015-12-31 Interest rate swap Foreign exchange options

300

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

b. Derivative financial instruments settled on a gross basis Derivative financial instruments held by the Group that will be settled on a gross basis are foreign exchange derivatives, including currency forward and currency swaps. The table below shows the distribution of contractual maturity for derivative financial instruments held by the Group that will be settled on a gross basis. The amounts disclosed in the table are the contractual undiscounted cash flows.

2016-12-31

Within 1 month

1-3 months

3-12 months

1-5 years

Total

(115,382)

(62,153)

(167,854)

(29,467)

(374,856)

Foreign exchange derivatives -Outflow

115,008

61,832

167,461

29,687

373,988

Within 1 month

1-3 months

3-12 months

1-5 years

Total

(148,917)

(111,809)

(427,204)

(12,825)

(700,755)

149,073

111,957

427,769

13,063

701,862

-Inflow 2015-12-31 Foreign exchange derivatives -Outflow -Inflow

12.3.3 Off-balance sheet items Group 2016-12-31

Within 1 year

1 to 5 years

Over 5 years

Total

Bank bill acceptance

510,767

-

-

510,767

Acceptance bills of exchange under letter of credit

125,121

-

-

125,121

Letters to guarantee issued

73,414

45,824

5,269

124,507

Letters of credit issued

12,629

346

-

12,975

Credit cards and other commitments

188,722

-

-

188,722

Total

910,653

46,170

5,269

962,092

Group 2015-12-31

Within 1 year

1 to 5 years

Over 5 years

Total

Bank bill acceptance

645,273

-

-

645,273

Acceptance bills of exchange under letter of credit

154,902

-

-

154,902

Letters to guarantee issued

64,470

43,875

14,114

122,459

Letters of credit issued

11,482

159

-

11,641

Credit cards and other commitments

118,289

-

-

118,289

Total

994,416

44,034

14,114

1,052,564

12.4 Fair value of financial instruments 12.4.1 Fair value hierarchy According to the significance of the lowest inputs used in making the measurements, the fair value hierarchy shall have the following levels:

249

250

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities, including listed equity securities on exchange or debt instruments. Level 2 - Valuation technique using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. This level includes the majority of the over-the-counter derivative contracts and debt securities for which quotations like yield curve or counterparty credit risk are available from Thomson Reuters, Bloomberg and China Bond. Level 3 - Valuation technique using inputs for the asset or liability that is not based on observable market data (unobservable inputs). This level includes equity investments and debt instruments with significant unobservable components. 12.4.2 Financial instruments not measured at fair value The financial assets and financial liabilities not measured at fair value in the financial statements include balances with central banks, due from and placements with banks and other financial institutions, financial assets purchased under resale agreements, loans and advances to customers, investment securities classified as held-to-maturity, investment securities-classified as loans and receivables, due to and placements from banks and other financial institutions, financial assets sold under repurchase agreements, deposits from customers and bonds issued. The table below summarizes the carrying amount and relevant fair value of investment securities classified as heldto-maturity and loans and receivable, bonds issued of the Group as at financial reporting date.

Group

Carrying amount

Level 1

326,950

-

1,010,472

664,683

2016-12-31 Fair value Level 2

Level 3

Total

329,957

-

329,957

-

80,752

934,651

1,015,403

-

666,328

-

666,328

Level 3

Total

Financial assets: Investment securities - held-to-maturity Investment securities - loans and receivables Financial liabilities: Bonds issued

2015-12-31 Fair value Level 2

Carrying amount

Level 1

239,703

-

245,574

-

245,574

1,325,032

-

54,592

1,278,790

1,333,382

399,906

-

401,291

-

401,291

Financial assets: Investment securities - held-to-maturity Investment securities - loans and receivables Financial liabilities: Bonds issued

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12.4.2.1 Investment securities classified as held to maturity and loans and receivables Held-to-maturity securities are classified into level 1 when its fair value is based on quoted market price. Loans and receivables are classified into level 3 if its market information is not available and fair values of are calculated using discounted cash flow model. Held-to-maturity securities and loans and receivables are classified into level 2, if fair value can be estimated using quoted market prices for securities with similar credit risk, maturity and yield rate. 12.4.2.2 Bonds issued The fair value of bonds issued is based on quoted market price. For those bonds whose quoted market price is not available, their fair value is calculated using discounted cash flow and the effective interest rate of bonds with similar maturity. Except for the financial assets and liabilities listed above, fair values of financial assets and financial liabilities not measured at fair value are calculated using discounted future cash flow model. Since these financial instruments are in short-term or under floating interest rate linked to market interest rate, their carrying value is approximate to the fair value. 12.4.3 Financial instruments measured at fair value Fair value hierarchy of financial instruments measured at fair value is listed as below: Group 2016-12-31

Level 1

Level 2

Level 3

Total

-Trading securities

-

50,235

-

50,235

-Trust and asset management plans

-

4,408

-

4,408

6,429

-

348

6,777 111,382

Financial assets at fair value through profit or loss

-Fund investments -Other debt instruments -Other investments

-

87,985

23,397

28

-

4,373

4,401

Available-for-sale financial assets 214

326,064

-

326,278

99,343

3,115

532

102,990

-Available-for-sale equity investment

650

-

2,246

2,896

-Trust and asset management plans

-

21,116

2,376

23,492 160,526 4,281

-Available-for-sale bonds and other debt instruments -Fund investments

-Wealth management products of other banks

-

149,519

11,007

-Others

-

1,379

2,902

-

16,233

-

16,233

106,664

660,054

47,181

813,899

-

13,091

-

13,091

Derivative financial assets Total financial assets Derivative financial liabilities Financial liabilities at fair value through profit or loss -Financial liabilities related to precious metals

-

24,301

-

24,301

-Interest of other unitholders in consolidated structured entities

-

2

5,002

5,004

-Others

-

-

221

221

-

37,394

5,223

42,617

Total financial liabilities

251

252

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) 12.4.3 Financial instruments measured at fair value (Continued) Group 2015-12-31

Level 1

Level 2

Level 3

Total

-Trading securities

-

51,403

-

51,403

-Fund investments

-

8,025

-

8,025

-Other investments

-

60

4,258

4,318

-Available-for-sale bonds and other debt instruments

-

227,760

-

227,760

-Fund investments

-

19,467

-

19,467 1,926

Financial assets at fair value through profit or loss

Available-for-sale financial assets

-Available-for-sale equity investment

-

-

1,926

-Others

-

11

5,682

5,693

Derivative financial assets

-

10,610

-

10,610

Total financial assets

-

317,336

11,866

329,202

Derivative financial liabilities

-

7,319

-

7,319

-

210

-

210

7,529

-

7,529

Financial liabilities at fair value through profit or loss -Financial liabilities related to precious metals Total financial liabilities

-

The Group reclassifies the financial instruments when the specific event happens which leads to conversion among different level of fair value hierarchy. In 2016, there is no financial instrument reclassification between level 1 and level 2. (i) Financial instruments in level 2 Valuation technique is used to calculate the fair value of financial instruments not actively traded in the markets (i.e., over-the-counter derivatives). The valuation techniques make use of observable market data as much as possible, and avoid relying on the specific estimations of the subjects. When all required significant inputs are observable in calculation of one financial instruction’s fair value, the related financial instrument is classified into level 2. When one or more required significant inputs are unobservable, the related financial instrument is classified into level 3. Financial assets classified into level 2 includes bonds investment, currency swap contracts, foreign exchange forward contracts, interest rate swap contracts, option contracts, precious metal forward contracts, etc. The fair values of RMB bonds are determined based on the yield curve provided by China Central Depository and Clearing Co., Ltd. The fair values of foreign currency bonds are determined based on the valuation of Bloomberg. The fair values of currency swap contracts, foreign exchange forward contracts, interest rate swap contracts are calculated by discounted cash flow and Black-Scholes Model, etc. All significant valuation inputs are observable market data.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(ii) Financial instruments in level 3 Movements of the Group’s financial assets classified as level 3 are listed below: Financial assets at fair value through profit or loss

Financial liabilities at fair value through profit or loss

Available for sale financial assets

Total

4,258

7,608

-

11,866

24,258

14,240

5,033

33,465

(418)

(2,813)

-

(3,231)

Changes in fair value recognized in profit or loss

20

-

190

(170)

Changes in fair value recognized in other comprehensive income

-

28

-

28

28,118

19,063

5,223

41,958

20

-

(190)

(170)

Financial assets at fair value through profit or loss

Available for sale financial assets

Total

At 1 January 2015

4,010

2,540

6,550

Purchase

1,380

4,841

6,221

(1,297)

-

(1,297)

Changes in fair value recognized in profit or loss

165

-

165

Changes in fair value recognized in other comprehensive income

-

227

227

4,258

7,608

11,866

165

-

165

At 1 January 2016 Purchase/consolidate structured entities Sales

At 31 December 2016 Unrealized gain or loss recognized in profit or loss for the positions held at 31 December 2016

Sales

At 31 December 2015 Unrealized gain or loss recognized in profit or loss for the positions held at 31 December 2015

253

254

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) (ii) Financial instruments in level 3(Continued) Significant unobservable inputs used to calculate the fair value of financial instruments classified as level 3 are as follows: Fair value as at 31 December 2016

Unobservable Inputs Valuation techniques

348

Based on the most recent transaction

23,397

Income approach

4,373

Note 1

Note

Range/ weighted average

Correlation with fair value

Not applicable

Not applicable

Not applicable

Discount 1.26%-12.00% rate

Negative

Note 1

Note 1

Note 1

Financial assets at fair value through profit or loss -Fund investments

-Other debt instruments -Other investments

28,118 Available-for-sale financial assets -Fund investments

532

Based on the most recent transaction

Not applicable

Not applicable

Not applicable

-Available-for-sale equity investment

1,458

Market approach

Discount for liquidity

20%-22%

Negative

Price to book ratio

0.90-1.19

Positive

-Trust and asset management plans -Wealth management products managed by other banks -Others

173

Based on the most recent transaction

Not applicable

Not applicable

Not applicable

615

Income approach

Discount rate

6.53%-6.93%

Negative

2,376

Income approach

Discount rate

5.60%-8.40%

Negative

11,007

Income approach

Discount rate

3.26%-3.93%

Negative

2,902

Income approach

Discount rate

8.45%-9.55%

Negative

19,063

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(ii) Financial instruments in level 3(Continued) Fair value as at 31 December 2016 Financial liabilities at fair value through profit or loss -Interest of other unitholders in consolidated structured entities -Others

5,002 221

Unobservable Inputs Valuation techniques

Note

1,128

-

-

5,000

Note 1,128 2

Note 2 5,000

Income approach

Discount rate

Range/ weighted average

Correlation with fair value

Note 2

Note 2

1.00%3.85%

Negative

5,223

Fair value as at 31 December 2015 Financial assets at fair value through profit or loss -Other investments

4,258

Unobservable Inputs Valuation techniques

Range/ weighted average

Correlation with fair value

Note 1

Note 1

Discount for liquidity

20%-23%

Negative

Price to book ratio

0.91-1.40

Positive

Note

1,128

-

Note 1 1,128

5,000 Note 1 5,000

Available for sale financial assets -Available-for-sale equity investment

-Other

1,492

Market approach

434

Based on the most recent transaction

Not applicable

Not applicable

Not applicable

5,682

Income approach

Discount rate

10.29%

Negative

7,608 Note 1: This refers to the fair value of the assets managed by Chang Jiang Pension Insurance Co., Ltd. in relation to the Bank’s long term employee benefit plan. All of the underlying assets are financial assets and the methods to calculate the fair value of the financial assets are as follows: • The fair value of investments in the money market fund is based on market price; • The fair value of bonds is calculated using discounted cash flow and the yield rate of bonds with similar maturity; • The fair value of other debt instrument is calculated using discounted cash flow model and unobservable discount rates, ranging from 4.15% to 7.25%(31 December 2015: 4.15% to 7.25%). Note 2: The fair value of interest of other unitholders in consolidated structured entities is calculated based on the net asset value of the structured entities.

255

256

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

12.5 Offsetting of financial assets and financial liabilities Some financial assets and financial liabilities in the Group follow executable net amount settlement arrangements or similar agreements. Such arrangements with the Group and counterparties normally allow the net amount settlement under agreements of both parties. If no agreement is reached, it would be settled in full amount. But one party could choose to settle in net amount under the condition that the other party violates the agreement. According to the requirement of IFRS, the Group did not offset these financial assets and financial liabilities. As at 31 December 2016, the amount of the Group’s financial assets and financial liabilities following executable net amount settlement arrangements or similar agreements is not significant.

12.6 Capital management The Group adopts the capital management approaches that can adequately respond to the interest risks associated with the Group’s business and manages capital adequacy strictly in accordance with regulatory requirements. The primary objectives of the Group’s capital management are to maintain capital adequacy ratio to support its businesses and to maximize shareholders’ value. The Group actively adjusts the capital structure in response to the changing economic environment and risk characteristics. Generally, the mechanism of adjusting the capital structure comprises dividend policy and issuance of additional capital instruments such as preference shares and tier-two capital instruments etc. From 1 January 2013, the Group calculates the capital adequacy ratios in accordance with Provisional Administrative Rule on Capital Management of Commercial Banks issued by the CBRC on 7 June 2012. Group

Bank

2016-12-31

2015-12-31

2016-12-31

2015-12-31

Core tier 1 capital – net

330,696

288,195

311,432

280,525

Tier 1 capital - net

360,799

318,213

341,352

310,445

Capital - net

451,681

413,741

430,062

404,943

3,878,740

3,367,834

3,782,418

3,310,015

Core tier 1 capital – net

8.53%

8.56%

8.23%

8.48%

Tier 1 capital - net

9.30%

9.45%

9.02%

9.38%

11.65%

12.29%

11.37%

12.23%

Total risk weighted assets

Capital - net

i.The scope of consolidation for the purpose of calculating the Group’s Capital Adequacy Ratios includes domestic and overseas operating units and other financial subsidiaries specified in the capital rules. ii.The Group’s Core Tier-one Capital includes ordinary shares, the capital reserve (subject to regulatory limitations), surplus reserve, general risk reserve, retained earnings, minority interests (to the extent permitted in the Core Tierone Capital under the Regulation). iii.The Group’s Deductible Items from Core Tier-one Capital include other intangible assets (excluding land use rights). iv.The Group’s other Tier 1 Capital includes preference shares and minority interests to the extent permitted by the capital rules.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

v.The Group’s Tier 2 Capital includes: Tier 2 capital instruments and related premium (to the extent allowed under the Regulation), excessive allowance for loan losses, and minority interests to the extent permitted by the capital rules. vi.Risk-weighted Assets include Credit Risk-weighted Assets, Market Risk-weighted Assets and Operational Riskweighted Assets. The Group adopts risk weighting approach, standardized approach and basic indicator approach to measure Credit Risk-weighted Assets, Market Risk weighted Assets and Operational Risk-weighted Assets respectively.

13 ASSETS PLEDGED Following assets of the Group are pledged as collateral under repurchase agreements and for fiscal deposits. 2016-12-31

2015-12-31

Discounted bills and Re-discount bills

20,345

75,151

Available-for-sale financial assets

11,905

19,487

Investment securities - held-to-maturity Total

76,967

73,739

109,217

168,377

14 EVENTS AFTER THE REPORTING DATE The Hong Kong branch issued USD 500 million Medium-term note in Hong Kong Exchange and Clearing Limited on 14 February 2017 which have a term of 3 years through maturity, with a fixed annual coupon rate of 2.375%. The Bank issued its 2017 first Financial Bond in the amount of RMB 15 billion in the domestic inter-bank market on 24 February 2017 which have a term of 3 years through maturity, with a fixed annual coupon rate of 4.00%. Except for the events described above, as at 30 March 2017, there was no significant subsequent events that requires additional disclosure in the consolidated financial statements for the year ended 2016.

15 COMPARATIVES Certain comparative amounts have been reclassified to conform with the current year’s presentation

257

258

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

1 RETURN ON EQUITY AND EARNINGS PER SHARE 2016

Earnings per share (RMB: Yuan)

Weighted average return on equity

Basic

Diluted

Net profit attributable to the Bank’s ordinary shareholders

16.35%

2.404

2.404

Net profit attributable to the Bank’s ordinary shareholders after deducting non-recurring profit or loss

15.90%

2.338

2.338

2015

Earnings per share (RMB: Yuan) (Restate)

Weighted average return on equity

Basic

Diluted

Net profit attributable to the Bank’s ordinary shareholders

18.82%

2.422

2.422

Net profit attributable to the Bank’s ordinary shareholders after deducting non-recurring profit or loss

18.43%

2.372

2.372

The Bank has no dilutive potential ordinary share.

2 NET PROFIT AFTER DEDUCTING NON-RECURRING PROFIT OR LOSS Items

2016

2015

(13)

539

1,650

630

328

222

Effect of income tax for the non-recurring profit or loss

(491)

(348)

Total

1,474

1,043

1,412

1,043

62

-

Profit or loss arising from the disposal non-current assets Recovery of loans and advances written off in previous year Other non-operating income, net

Including: Non-recurring profit or loss attributable to ordinary equity holders of the parent company Non-recurring profit or loss attributable to minority interests

The Group recognizes non-recurring profit or loss items, according to the Explanatory Notice No.1 for information disclosure of listed company non-recurring profit or loss (CSRC Accounting, No.43, [2008]). The Group doesn’t recognize normal operating income/loss from fair value change of financial assets and liabilities held for trading and investment income from disposal of such assets as well as Investment securities available-for-sale as non-recurring profit or loss items.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

259

260

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Independent Auditor’s Report 2017/SH-016

To the Shareholders of Shanghai Pudong Development Bank Co., Ltd

Opinion What we have audited The financial statements of Shanghai Pudong Development Bank Co., Ltd. (“the Bank”) and its subsidiaries (the “Group”) set out on pages 267 to 316, which comprise: • the Consolidated and the Bank’s statements of comprehensive income for the year ended 31 December 2016; • the Consolidated and the Bank’s statements of financial position as at 31 December 2016; • the Consolidated and the Bank’s statements of changes in equity for the year then ended; • the Consolidated and the Bank’s statements of cash flows for the year then ended; and • notes to the financial statements, which include a summary of significant accounting policies.

Our opinion In our opinion, the financial statements present fairly, in all material respects, the consolidated and the Bank’s financial position as at 31 December 2016, and the consolidated and the Bank’s financial performance and the consolidated and the Bank’s cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”).

Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matters identified in our audit are summarised as follows: • Impairment allowances of loans and advances to customers • Transfer of financial assets • Consolidation assessment of structured entities

261

262

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Key Audit Matters Impairment allowances of loans and advances to customers Please refer to Notes 2.7, 3.1, 5.17, 5.27, 10.1.1, 10.1.5 to the financial statements. As at 31 December 2016, the Group’s gross balance of loans and advances to customers amounted to RMB 2,762,806 million, the related impairment allowances amounted to RMB 88,249 million and the net balance amounted to RMB 2,674,557 million. The Group firstly performed impairment assessment for the loans and advances to customers that was individually significant. Individually significant loans and advances to customers that were not identified as impaired and loans and advances to customers that were not individually significant were grouped by similar credit risk characteristics and collectively assessed for impairment. The individually assessed impairment loss was the difference between the present value of estimated discounted future cash flows and the gross carrying amount of the loans and advances to customers. When loans and advances were collectively assessed for impairment, management used estimates based on historical loss experience for assets with similar credit risk characteristics. The historical loss experience was adjusted by reference to the relevant observable data that reflect current economic conditions. We focused on this area because the net balance of loans and advances to customers accounted for 45.66% of the Group’s total assets and significant estimates and judgements were involved in the assessment of impairment allowances. We particularly focused on the following judgemental area: timely identification of impaired loans, estimation of future cash flows of impaired loans for individual assessment, selection of models, assumptions and parameters used for collective assessment. These assumptions and parameters included historical loss experience, loss identification period, risk adjustment for specific industries, regions and macro-economic environment.

How our audit addressed the Key Audit Matter The audit procedures we performed regarding impairment allowances of loans and advances to customers included: We understood, evaluated and validated the design and operating effectiveness of the relevant controls over impairment assessment and calculation for loans and advances to customers. These controls included controls over timely identification of individual impaired loans and advances to customers, periodically review of the calculation of forecasted future cash flows and assessment of mortgages’ value for individually assessed impairment loss, timely review of the selection of key models and the process of determining, inputting and adjusting key assumptions and parameters used in these models for collective impairment assessment. We tested the loans and advances to customers that were not identified by management as impaired, on a sample basis, by examining the underlying loan information and external evidence available to evaluate if management had timely identified impaired loans and advances to customers. When impairment allowances were assessed on an individual basis, we assessed the management’s forecasted discounted future cash flows and key assumptions by reviewing the financial information of the borrowers and guarantors as well as the assessment of the value of the mortgages by taking consideration of available external market information. When impairment allowances were assessed on a collective basis, we assessed whether the models used by management reflected the current economic environment and the credit risk of loans and advances. We also assessed the key assumptions and parameters used in the models, including historical loss, loss identification period, risk adjustment for specific industries, regions and macro-economic environment, based on our knowledge on industry practices and industry experience. Based on the audit work performed, we found the impairment models, assumptions and parameters used by management in the assessment of impairment allowances acceptable.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Key Audit Matters Transfer of financial assets Refer to Note 2.7, 3.7, 5.42 to the financial statements. In 2016, the Group transferred the financial assets amounting to RMB 102,359 million through asset backed securitization and external disposal. Whether the transferred financial assets could be de-recognized involved significant management judgements, including: 1. Based on the contractual terms, management assessed whether the Group had transferred the right to receive the cash flows deriving from the financial asset to another party or met the “pass-through” requirements to transfer the contractual cash flows to another party. 2. Management used models to perform the risk and reward analysis to assess whether the Group had transferred substantially all the risks and rewards of ownership of these transferred financial assets. 3. If the Group neither transferred nor retained substantially all the risks and rewards of ownership, management further assessed whether the Group retained control over the transferred financial assets. Therefore, we focused on the de-recognition of transferred financial assets.

How our audit addressed the Key Audit Matter The audit procedures we performed regarding transfer of financial assets included: We understood, evaluated and validated the design and operating effectiveness of the relevant controls over transfer of financial assets, including review and approval of pricing and other contractual terms, and review and approval of the de-recognition assessment. We obtained the list of financial assets transferred and examined the completeness of the list. We examined specific terms of financial asset transfer agreements and other related legal documents, on a sample basis, to assess whether the Group had transferred the right to receive the cash flows deriving from the financial asset to another party or whether the Group met the “pass-through” requirements to transfer the contractual cash flows to another party. We assessed the key assumptions and parameters used in management’s risks and rewards model, including future cash flow forecasts under various economic scenarios and discount rates used based on our knowledge of industry practices and industry experience. We tested the mathematical accuracy of the calculations of the model. For those transferred financial assets that the Group neither transferred nor retained substantially all the risks and rewards of ownership, we analysed the contractual terms to assess if the Group retained control over the transferred financial assets. Based on the audit work performed, we found the management’s judgements regarding the de-recognition of the transferred financial assets acceptable.

263

264

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Key Audit Matter Consolidation assessment of structured entities Refer to Notes 2.3, 3.5 and 5.44 to the financial statements. The Group managed or invested in a number of structured entities. As at 31 December 2016, structured entities of approximately RMB 59,132 million were consolidated by the Group; structured entities of RMB 2,579,031 million managed by the Group and structured entities of RMB 1,313,603 million invested by the Group were not consolidated. We focused on this area because the number of structured entities was significant and the assessment of whether the Group should consolidate these structured entities involved significant judgements, including the judgements regarding the Group’s power over the structured entities’ relevant activities, the Group’s variable returns generated from the structured entities, and the Group’s ability to affect these returns.

How our audit addressed the Key Audit Matter The audit procedures we performed regarding consolidation assessment of structured entities included: We understood, evaluated and validated the design and operating effectiveness of the relevant controls over the completeness of managed or invested structured entities, and the controls relating to management’s assessment on whether or not to consolidate the structured entities. We checked the completeness of the list of structured entities. We verified the Group’s assessment on whether the Group controlled the structured entities by examining supporting documents of selected samples of structured entities managed or invested by the Group by performing the following procedures: 1. Evaluating whether the Group has power over structured entities’ relevant activities by analysing business structures and related contractual terms; 2. Reviewing contractual terms regarding variable returns of structured entities, including management fee relating to the Group’s compensation in the investment contracts, the rate of return from the investments’ contracts made by the structured entities and the investors’ investment contracts to the structured entities, and the returns from lending support. We also checked these terms against the information in the management’s list of structured entities. We recalculated the magnitude and variability of returns to the Group from these structured entities. We assessed whether the Group acted as principle or agent based on our analysis of the Group’s power, the Group’s variable returns generated from the structured entities, and the Group’s ability to affect the returns, and compared our assessment result with management’s assessment result. Based on the audit work performed, we found management’s judgements in relation to the consolidation of structured entities acceptable.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Other Information Management is responsible for the other information. The other information comprises all of the information included in the annual report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

265

266

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Zhang Zhou.

PricewaterhouseCoopers Zhong Tian LLP

Shanghai, the People’s Republic of China 30/March/2017

2016 Annual Report

267

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED AND THE BANK’S STATEMENTS INCOME NOTES TO OF THECOMPREHENSIVE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Group

Bank

Note

2016

2015

2016

2015

Interest income

5.1

214,814

228,254

210,704

224,648

Interest expense

5.1

(106,694)

(115,245)

(105,191)

(113,776)

108,120

113,009

105,513

110,872

Net interest income Fee and commission income

5.2

43,236

29,313

40,203

28,922

Fee and commission expense

5.2

(2,544)

(1,515)

(2,559)

(1,474)

40,692

27,798

37,644

27,448

Net fee and commission income

64

70

118

156

Net trading income

5.3

4,199

2,245

4,369

2,245

Net gains arising from financial investments

5.4

4,334

978

4,184

978

Dividend income

Net gains on disposal of associate

1,068

-

1,068

-

Other operating income

2,594

3,274

2,350

3,035

Employee benefit expenses

5.5

(21,410)

(19,078)

(20,441)

(18,774)

Operating expenses

5.6

(13,667)

(11,717)

(12,651)

(11,493)

(2,651)

(2,090)

(2,197)

(1,883)

Business tax and surcharges

5.7

(4,444)

(8,976)

(4,348)

(8,870)

Impairment losses on assets

5.8

(49,104)

(38,795)

(48,500)

(38,210)

Depreciation expenses for property and equipment

Share of results of associates and joint ventures Profit before income tax Income tax expense Net profit for the year

5.9

180

159

163

159

69,975

66,877

67,272

65,663

(16,297)

(15,880)

(15,575)

(15,536)

53,678

50,997

51,697

50,127

The accompanying notes form an integral part of these financial statements.

268

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED AND THE BANK’S STATEMENTS OF COMPREHENSIVE INCOME (Continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Group Note Other comprehensive income

Bank

2016

2015

2016

2015

18

(37)

18

(37)

(5,624)

4,456

(5,600)

4,456

5.10

Items that may be subsequently reclassified to profit or loss - Share of other comprehensive income of associates and joint ventures, after tax - Changes in fair value of available-for-sale financial assets

127

35

69

27

- Other comprehensive income, after tax

(5,479)

4,454

(5,513)

4,446

Total comprehensive income for the year

48,199

55,451

46,184

54,573

53,099

50,604

579

393

53,678

50,997

47,619

55,062

580

389

48,199

55,451

2.404

2.422

- Exchange differences from the translation of foreign operations

Net profit for the year attributable to: - Shareholders of the Bank - Non-controlling interests Total comprehensive income for the year attributable to: - Shareholders of the Bank - Non-controlling interests Basic and diluted earnings per share attributable to the holders of the Bank’s ordinary shares (expressed in RMB per share)

5.11

The accompanying notes form an integral part of these financial statements.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED AND THE BANK’S STATEMENTS OF FINANCIAL POSITION NOTES TO THE FINANCIAL STATEMENTS AS AT 31 DECEMBER 2016 FOR THE YEAR ENDED (All amounts expressed in millions of RMB unless otherwise stated) Group

Bank

31 December

31 December

31 December

31 December

Note

2016

2015

2016

2015

Cash and balances with central bank

5.12

517,230

481,157

513,623

477,644

Due from and placements with banks and other financial institutions

5.13

353,115

249,194

348,659

246,140

9,548

28,724

9,548

28,724

Assets

Precious metals Financial assets at fair value through profit or loss

5.14

177,203

63,746

171,421

63,746

Derivative financial assets

5.15

16,233

10,610

16,233

10,610

Financial assets purchased under resale agreements

5.16

3,001

110,218

3,001

110,218

Loans and advances to customers

5.17

2,674,557

2,171,413

2,655,895

2,153,210

Available-for-sale financial assets

5.18

620,463

254,846

612,601

254,516

Investment securities-held-to-maturity

5.19

326,950

239,703

326,950

239,703

Investment securities-loans and receivables

5.20

1,010,472

1,325,032

1,005,282

1,325,032

Investments in associates and joint ventures

5.21

949

1,599

731

1,599

Investments in subsidiaries

4

-

-

22,980

3,486

Property and equipment

5.22

20,592

17,867

12,704

11,994

Construction in progress

5.23

2,749

3,162

2,740

3,162

Intangible assets

5.24

9,504

-

-

-

Deferred income tax assets

5.25

21,838

14,427

21,502

14,212

Other assets

5.26

92,859

72,654

47,876

40,522

5,857,263

5,044,352

5,771,746

4,984,518

Total assets

The accompanying notes form an integral part of these financial statements.

269

270

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED AND THE BANK’S STATEMENTS OF FINANCIAL POSITION (Continued) NOTES TO THE FINANCIAL STATEMENTS AS ATTHE 31 DECEMBER 2016 FOR YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Group Note

Bank

31 December

31 December

31 December

31 December

2016

2015

2016

2015

147,622

23,645

147,000

23,000

1,439,095

1,142,537

1,407,069

1,119,558

Liabilities Due to central bank Due to and placements from banks and other financial institutions

5.28

Consolidated statement of changes in equity

Financial liabilities at fair value through profit or loss

5.29

29,526

210

Derivative financial liabilities

5.15

13,091

7,319

Financial assets sold under repurchase agreements

5.30

93,200

119,205

92,928

118,699

Deposits from customers

5.31

3,002,015

2,954,149

2,974,449

2,928,463

13,811

12,276

13,394

12,155

664,683

399,906

664,683

399,906

7

-

-

5,484,329

4,725,752

5,406,642

4,670,756

Income tax payable Bonds issued

5.32

Deferred income tax liabilities

5.25

717

Other liabilities

5.33

80,569

Total liabilities

24,522

210

13,091

7,319

OF FINANCIAL POSITION 66,498 69,506 61,446 (CONTINUED)

Equity Ordinary shares

5.34

21,618

18,653

21,618

18,653

Preference shares

5.35

29,920

29,920

29,920

29,920

Capital surplus

5.36

74,678

60,639

74,628

60,589

Surplus reserves

5.37

78,689

63,651

78,689

63,651

General risk reserve

5.38

65,493

45,924

65,045

45,600

Other reserves

5.39

233

5,713

188

5,701

Retained earnings

5.40

Equity attributable to the Bank’s shareholders Non-controlling interests

5.41

Total equity Total liabilities and equity

97,316

90,670

95,016

89,648

367,947

315,170

365,104

313,762

4,987

3,430

-

-

372,934

318,600

365,104

313,762

5,857,263

5,044,352

5,771,746

4,984,518

The accompanying notes form an integral part of these financial statements. These financial statements were approved for issue by the Board of Directors of the Bank on 30 March 2017. Ji Xiaohui

Liu Xinyi

Pan Weidong

Lin Daofeng

Chairman of Board

Governor

Chief Financial Officer

Head of finance and accounting department

-

Total comprehensive income

Non-controlling interest increased from capital increase of subsidiary

21,618

29,920

-

74,678

-

(1,965)

-

-

-

16,004

-

-

-

-

60,639

5.36

Capital Surplus

78,689

-

-

-

-

15,038

-

-

-

-

-

63,651

5.37

Surplus reserves

The accompanying notes form an integral part of these financial statements.

Balance at 31 December 2016

Dividends of subsidiaries

-

-

Cash dividends paid to preference shareholders

-

-

-

-

-

-

-

29,920

5.35

1,965

-

Cash dividends paid to ordinary shareholders

Ordinary shares converted from capital surplus

-

Appropriations to surplus reserves and general risk reserve

1,000

-

Share issued for acquisition of subsidiaries

-

Other comprehensive income

18,653

5.34

Net profit for the year

Balance at 1 January 2016

Note

Ordinary Preference shares shares

65,493

-

-

-

-

19,569

-

-

-

-

-

45,924

5.38

General risk reserve

233

-

-

-

-

-

-

-

(5,480)

(5,480)

-

5,713

5.39

Other reserves

Equity attributable to the Bank’s shareholders

97,316

-

-

(1,725)

(10,121)

(34,607)

-

-

53,099

-

53,099

90,670

5.40

Retained earnings

367,947

-

-

(1,725)

(10,121)

-

17,004

-

47,619

(5,480)

53,099

315,170

Sub-total

4,987

(278)

-

-

-

-

1,187

68

580

1

579

3,430

5.41

Non-controlling interests

372,934

(278)

-

(1,725)

(10,121)

-

18,191

68

48,199

(5,479)

53,678

318,600

Total

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

271

Note

-

Appropriations to surplus reserves and general risk reserve

Cash dividends paid to ordinary shareholders

Cash dividends paid to preference shareholders

Dividends of subsidiaries 29,920

-

-

14,960

-

63,651

45,924

-

-

60,639

-

-

9,066

-

-

-

-

-

-

14,004

-

-

-

-

-

-

-

-

-

-

-

The accompanying notes form an integral part of these financial statements.

18,653

-

-

Preference shares issued

Balance at 31 December 2015

-

-

Total comprehensive income

-

-

Other comprehensive income

-

-

5,713

-

-

-

-

-

4,458

4,458

-

315,170

3,430

(75)

-

90,670

-

-

-

-

389

(4)

393

3,116

5.41

Non-controlling interests

(900)

(14,121)

-

14,960

55,062

4,458

50,604

260,169

Sub-total

(900)

(14,121)

(23,070)

-

50,604

-

50,604

78,157

5.40

1,255

5.39

36,858

5.38

49,647

5.37

60,639

5.36

14,960

5.35

5.34

18,653

Net profit for the year

Balance at 1 January 2015

Retained earnings

Other reserves

General risk reserve

Surplus reserves

Capital Surplus

Equity attributable to the Bank’s shareholders

Ordinary Preference shares shares

318,600

(75)

(900)

(14,121)

-

14,960

55,451

4,454

50,997

263,285

Total

272 2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Continued) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016

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

2016 Annual Report

273

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. THE BANK’S STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Ordinary Preference shares shares Note

Capital Surplus

Surplus General risk reserves reserve

Other Retained reserves earnings

Total

5.34

5.35

5.36

5.37

5.38

5.39

5.40

18,653

29,920

60,589

63,651

45,600

5,701

89,648

313,762

Net profit for the year

-

-

-

-

-

-

51,697

51,697

Other comprehensive income

-

-

-

-

-

(5,513)

-

(5,513)

Total comprehensive income

-

-

-

-

-

(5,513)

51,697

46,184

1,000

-

16,004

-

-

-

-

17,004

Appropriations to surplus reserves and general risk reserve

-

-

-

15,038

19,445

-

(34,483)

-

Cash dividends paid to ordinary shareholders

-

-

-

-

-

-

(10,121)

(10,121)

Cash dividends paid to preference shareholders

-

-

-

-

-

-

(1,725)

(1,725)

Ordinary shares converted from capital surplus

1,965

-

(1,965)

-

-

-

-

-

Balance at 31 December 2016

21,618

29,920

74,628

78,689

65,045

188

95,016

365,104

Ordinary Preference shares shares

Capital Surplus

Other Retained reserves earnings

Total

Balance at 1 January 2016

Share issued for acquisition of subsidiaries

Note

Surplus General risk reserves reserve

5.34

5.35

5.36

5.37

5.38

5.39

5.40

18,653

14,960

60,589

49,647

36,700

1,255

77,446

259,250

Net profit for the year

-

-

-

-

-

-

50,127

50,127

Other comprehensive income

-

-

-

-

-

4,446

-

4,446

Total comprehensive income

-

-

-

-

-

4,446

50,127

54,573

Preference shares issued

-

14,960

-

-

-

-

-

14,960

Appropriations to surplus reserves and general risk reserve

-

-

-

14,004

8,900

-

(22,904)

-

Cash dividends paid to ordinary shareholders

-

-

-

-

-

-

(14,121)

(14,121)

Cash dividends paid to preference shareholders

-

-

-

-

-

-

(900)

(900)

18,653

29,920

60,589

63,651

45,600

5,701

89,648

313,762

Balance at 1 January 2015

Balance at 31 December 2015

The accompanying notes form an integral part of these financial statements.

274

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED AND THE BANK’S STATEMENTS OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Group

Bank

2016

2015

2016

2015

69,975

66,877

67,272

65,663

1. Cash flows from operating activities Profit before income tax Adjusted by: Depreciation Impairment losses of loans and advances to customers Impairment losses of other assets

2,651

2,090

2,197

1,883

46,845

37,070

46,581

36,806

2,259

1,725

1,919

1,404

Interest expense

106,694

115,245

105,191

113,776

Interest income

(214,814)

(228,254)

(210,704)

(224,648)

4

(65)

4

(65)

Net losses/(gains)on disposal of property and equipment Dividend income Share of results of associates and joint ventures Unrealized losses/(gains)on derivative financial instruments Net gains arising from financial investments Exchange gains from investing and financing activities

(64)

(70)

(118)

(156)

(180)

(159)

(163)

(159)

149

(3,982)

149

(3,982)

(4,334)

(978)

(4,184)

(978)

(13)

(11)

(13)

(11)

Net (increase)/decrease in operating assets: (34,235)

40,536

(33,963)

40,193

Due from and placements with banks and other financial institutions

(123,170)

(24,549)

(124,084)

(23,359)

Financial assets at fair value through profit or loss

(113,457)

(30,905)

(107,675)

(30,905)

107,217

85,970

107,217

85,970

19,176

(17,017)

19,176

(17,017)

(517,288)

(217,138)

(516,710)

(216,959)

(20,205)

(14,059)

(7,354)

(10,679)

123,977

2,639

124,000

3,000

Mandatory reserves with central bank

Financial assets purchased under resale agreements Precious metals Loans and advances to customers Other assets Net increase/(decrease) in operating liabilities: Due to central bank Due to and placements from banks and other financial institutions

296,558

317,908

287,511

311,764

Financial assets sold under repurchase agreements

(26,005)

50,965

(25,771)

51,290

47,866

160,925

45,986

158,886

29,316

(102)

24,312

(102)

(22,240)

(10,365)

(31,583)

(8,856)

(223,318)

334,296

(230,807)

332,759

Interest received

142,108

151,250

138,137

146,120

Interest paid

(90,442)

(109,273)

(89,036)

(107,840)

(20,341)

(17,453)

(19,759)

(17,125)

(191,993)

358,820

(201,465)

353,914

Deposits from customers Financial liabilities at fair value through profit or loss Other liabilities Cash (used)/generated from operating activities

Income tax paid Net cash (used)/generated from operating activities

The accompanying notes form an integral part of these financial statements.

2016 Annual Report

275

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. CONSOLIDATED AND THE BANK’S STATEMENTS OF CASH FLOWS (Continued) CONSOLIDATED AND THE NOTES BANK’S TOSTATEMENTS THE FINANCIAL OF CASH STATEMENTS FLOWS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Group

Bank

2016

2015

2016

2015

5,155,924

792,979

5,152,993

792,979

62,152

34,812

62,033

34,899

2. Cash flows from investing activities Redemption of investment securities Investment income received

779

-

-

-

23

96

23

93

Purchase of property and equipment

(3,755)

(6,705)

(1,869)

(2,105)

Purchase of other long term assets

Net cash received from acquired subsidiaries Proceeds from disposal of property and equipment

(1,009)

(5,629)

(974)

(5,600)

Cash paid for additional equity investments

(181)

-

(2,482)

(403)

Proceeds from disposal of equity investments

2,134

-

2,134

-

(5,280,082)

(1,346,773)

(5,268,709)

(1,346,444)

(64,015)

(531,220)

(56,851)

(526,581)

68

-

-

-

-

14,960

-

14,960

Proceeds from issuance of bonds and deposit certificates

1,012,676

434,246

1,012,676

434,246

Repayment of bonds and deposit certificates issued

(747,899)

(181,006)

(747,899)

(181,006)

Interest paid on bonds and deposit certificates issued

(18,379)

(8,322)

(18,379)

(8,322)

Dividends paid

(12,124)

(15,096)

(11,846)

(15,021)

Net cash generated from financing activities

234,342

244,782

234,552

244,857

Purchase of investment securities Net cash used in investing activities 3. Cash flows from financing activities Proceeds from non-controlling interest’s capital increase in subsidiary Proceeds from issuance of preference shares

4,390

3,521

4,370

3,521

5. Net (decrease)/increase in cash and cash equivalents

(17,276)

75,903

(19,394)

75,711

Cash and cash equivalents at the beginning of the year

264,687

188,784

260,572

184,861

Cash and cash equivalents at the end of the year

247,411

264,687

241,178

260,572

7,221

7,159

7,101

7,032

4. Effect of exchange rate changes on cash and cash equivalents

6. Composition of cash and cash equivalents Cash

68,950

67,039

67,845

65,743

Due from and placements with banks and other financial institutions with original maturities no more than three months

171,240

190,489

166,232

187,797

Total

247,411

264,687

241,178

260,572

Excess reserves with central bank

The accompanying notes form an integral part of these financial statements.

276

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

1 GENERAL INFORMATION Shanghai Pudong Development Bank Co., Ltd. (“the Bank” or “SPD”) is a joint-stock commercial bank incorporated in Shanghai, the People’s Republic of China (“the PRC”) on 28 August 1992 in accordance with the approval from the People’s Bank of China (“the PBOC” or “Central Bank”) (YinFu [1992] No.350). The Address of the headquarter is 12 First East Zhongshan Road, Shanghai. The Bank obtained its business licence from Shanghai Municipal Administration of Industry and Commerce (“SMAIC”) on 19 October 1992 and commenced its business on 9 January 1993. On 10 November 1999, the Bank’s ordinary shares denominated in RMB were listed and traded on Shanghai Stock Exchange. On March 2016, the Bank completed non-public offering of domestic RMB ordinary shares (A shares) to acquire 97.33% of equity shares of Shanghai International Trust Investment Company. A total of 999,510,332 ordinary shares were issued to the former shareholders of Shanghai International Trust Corp., Ltd. (“Shanghai Trust”) .Upon the issuance, ordinary shares of the Bank was increased from RMB18,653 million to RMB 19,653 million. Pursuant to the resolution of 2015 Annual General Meeting on 28 April 2016, the Bank converted the capital surplus into ordinary shares in the proportion of 1 share for every 10 shares held, which increased the total number of capital shares by 1,965,298,175. And the number of shares after conversion is 21,618,279,922 shares. The national organization code of the Bank is 9131000013221158XC, and the financial service certificate No. of the Bank is B0015H131000001. As of 31 December 2016, the Bank’s ordinary shares were RMB 21,618 million, with RMB 1 yuan par value, of which RMB 1,099 million were restricted for trading. The Bank’s preference shares was RMB 29,920 million. The Bank and its subsidiaries (collectively referred to as “the Group” or “SPDB Group”) are mainly engaged in financial businesses. The scope of business mainly includes commercial banking services, financial leasing businesses and trust services approved by the PBOC and the China Banking Regulatory Commission (“the CBRC”), investment banking and fund management business defined by Type 4 license (Advising on securities), Type 6 (Advising on corporate finance) and Type 9 (Asset Management) licenses issued by Securities & Futures Commission of Hong Kong. The Bank’s principal regulator is the CBRC. The Bank’s overseas branches and subsidiaries are subject to the supervision by local regulators.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below. These accounting policies have been consistently applied to all the years presented unless otherwise stated.

2.1 Basis of preparation The Group’s accounting year starts on 1 January and ends on 31 December. The financial statements are prepared in accordance with International Financial Report Standards (“IFRS”), on the basis of going concern. The financial statements have been prepared under the historical cost convention, except for precious metals, available-for-sale financial assets, and financial assets and financial liabilities at fair value through profit or loss, which are measured at fair value. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying accounting policies.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Estimates and judgements significant to the financial statements are disclosed in Note 3. (a) New and revised IFRSs applied which were effective in 2016 The Group has applied following new or amended IFRSs, which are applicable for the Group's financial year beginning on 1 January 2016: Amendments to IFRS 11(Revised)

Accounting for acquisitions of interests in joint operation

Amendments to IAS 16 and IAS 38(Revised)

Clarification of acceptable methods of depreciation and amortisation

IFRS (Revised)

Changes from the 2012-2014 cycle of the annual improvements project

Amendments to IFRS 10, IFRS 12 and IAS 28(Revised)

Investment entities: applying the consolidation exception

Amendments to IAS 1(Revised)

Disclosure initiative

Amendments to IAS 27(Revised)

Equity method in separate financial statements

Amendments to IFRS 11(Revised) The amendment requires an investor to apply the principles of business combination accounting when it acquires an interest in a joint operation that constitutes a business’ (as defined in IFRS 3, Business combinations). Specifically, an investor will need to: measure identifiable assets and liabilities at fair value; expense acquisition-related costs; recognize deferred tax; and recognize the residual as goodwill. All other principles of business combination accounting apply unless they conflict with IFRS 11. The amendment is applicable to both the acquisition of the initial interest and a further interest in a joint operation. The previously held interest is not re-measured when the acquisition of an additional interest in the same joint operation with joint control maintained. Amendments to IAS 16 and IAS 38(Revised) The amendments clarify when a method of depreciation or amortisation based on revenue may be appropriate. The amendment to IAS 16 clarifies that depreciation of an item of property, plant and equipment based on revenue generated by using the asset is not appropriate. The amendment to IAS 38 establishes a rebuttable presumption that amortisation of an intangible asset based on revenue generated by using the asset is inappropriate. The presumption may only be rebutted in certain limited circumstances: where the intangible asset is expressed as a measure of revenue; or where it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

277

278

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Annual improvements to IFRSs 2012-2014 Cycle These amendments include changes from the 2012-2014 cycle of the annual improvements project, including following amendment applicable to the Group’s operations: IFRS 7, Financial instruments: Disclosures’ If an entity transfers a financial asset to a third party under conditions which allow the transferor to derecognize the asset, IFRS 7 requires disclosure of all types of continuing involvement that the entity might still have in the transferred assets. It provides guidance about what is meant by continuing involvement. Amendments to IFRS 10, IFRS 12 and IAS 28 (Revised) The amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. The amendments to IFRS 10 clarify that the exception from preparing consolidated financial statements is available to intermediate parent entities which are subsidiaries of investment entities. The exception is available when the investment entity parent measures its subsidiaries at fair value. The intermediate parent would also need to meet the other criteria for exception listed in IFRS 10. The amendments also clarify that an investment entity should consolidate a subsidiary which is not an investment entity and which provides services in support of the investment entity’s investment activities, such that it acts as an extension of the investment entity. However, the amendments also confirm that if the subsidiary is itself an investment entity, the investment entity parent should measure its investment in the subsidiary at fair value through profit or loss. This approach is required regardless of whether the subsidiary provides investment-related services to the parent or to third parties. The amendments to IAS 28 allow an entity which is not an investment entity, but has an interest in an associate or a joint venture which is an investment entity, a relief to retain the fair value measurement applied by the investment entity associate or joint venture, or to unwind the fair value measurement and instead perform a consolidation at the level of the investment entity associate or joint venture for their subsidiaries when applying the equity method. Amendments to IAS 1 (Revised) The amendments clarify guidance in IAS 1 on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies. Although the amendments do not require specific changes, they clarify a number of presentation issues and highlight that preparers are permitted to tailor the format and presentation of the financial statements to their circumstances and the needs of users. The key areas addressed by the changes are as follows: Materiality: an entity should not aggregate or disaggregate information in a manner that obscures useful information. An entity need not provide disclosures if the information is not material; Disaggregation and subtotals: the amendments clarify what additional subtotals are acceptable and how they should be presented;

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Notes: an entity is not required to present the notes to the financial statements in a particular order, and management should tailor the structure of their notes to their circumstances and the needs of their users; Accounting policies: how to identify a significant accounting policy that should be disclosed; Other comprehensive income from equity accounted investments: other comprehensive income of associates and joint ventures should be separated into the share of items that will subsequently be reclassified to profit or loss and those that will not. Amendments to IAS 27(Revised) The amendment allows entities to use equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The adoption of these new standards and amendments does not have a significant impact on the operating results, comprehensive income, or financial position of the Group. (b) New and revised IFRSs issued applicable to the Group but not yet effective Effective for annual period beginning on or after Amendments to IAS 12

Income taxes

1 January 2017

Amendments to IAS 7

Statement of cash flows

1 January 2017

Amendments to IFRS 12

IASB Annual Improvements 2014-2016 cycle

1 January 2017

IFRS 15

Revenue from Contracts with Customers

1 January 2018

IFRS 9

Financial Instruments

1 January 2018

Amendments to IAS 28

IASB Annual Improvements 2014-2016 cycle

1 January 2018

Amendments to IFRS 4

Applying IFRS 9 Financial instruments with IFRS 4 insurance contracts

1 January 2018

Amendments to IAS 40

Transfer of investment property

1 January 2018

Amendments to IFRS 2

Classification and measurement of share-based payment transactions

1 January 2018

IFRS 16

Leases

1 January 2019

Amendments to IFRS 10 and IAS 28(Revised)

Sale or contribution of assets between an investor and its associate or joint venture

The amendments were originally intended to be effective for annual periods beginning on or after 1 January 2016. The effective date has now been deferred/removed

Amendments to IAS 12 The AIA has issued amendments to IAS 12,'Income taxes'. These amendments on the recognition of deferred tax assets for unrealised losses clarify how to account for deferred tax assets related to debt instruments measured at fair value. Amendments to IAS 7

279

280

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The AIA has issued an amendment to IAS 7 introducing an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the AIA’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. Amendments to IFRS 12 The IASB Annual Improvements (2014 2016 Cycle) include the amendments to IFRS 12 -Disclosure of Interest in Other Entities. These amendments clarify the scope of IFRS 12 by specifying that the disclosure requirements, expect for those summarised financial information for subsidiaries, joint ventures and associates, apply to an entity’s interests which are classified as held for sale or discontinued operations in accordance with IFRS 5. IFRS 15 IFRS 15 establishes a comprehensive framework for determining when to recognize revenue and how much revenue to recognize through a 5-step approach: (1) Identify the contract(s) with customer; (2) Identify separate performance obligations in a contract (3) Determine the transaction price (4) Allocate transaction price to performance obligations and (5) recognize revenue when performance obligation is satisfied. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. It moves away from a revenue recognition model based on an earnings processes to an asset-liability’ approach based on transfer of control. IFRS 15 provides specific guidance on capitalization of contract cost and license arrangements. It also includes a cohesive set of disclosure requirements about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts with customers. IFRS 15 replaces the previous revenue standards: IAS 18 Revenue and IAS 11 Construction Contracts, and the related Interpretations on revenue recognition. IFRS 9 IFRS 9 (2014), Financial instruments replaces the whole of IAS 39. IFRS 9 has three financial asset classification categories for investments in debt instruments: amortised cost, fair value through other comprehensive income (“OCI”) and fair value through profit or loss. Classification is driven by the entity’s business model for managing the debt instruments and their contractual cash flow characteristics. Investments in equity instruments are always measured at fair value. However, management can make an irrevocable election to present changes in fair value in OCI, provided the instrument is not held for trading. If the equity instrument is held for trading, changes in fair value are presented in profit or loss. For financial liabilities there are two classification categories: amortised cost and fair value through profit or loss. Where non-derivative financial liabilities are designated at fair value through profit or loss, the changes in the fair value due to changes in the liability’s own credit risk are recognized in OCI, unless such changes in fair value would create an accounting mismatch in profit or loss, in which case, all fair value movements are recognized in profit or loss. There is no subsequent recycling of the amounts in OCI to profit or loss. For financial liabilities held for trading (including derivative financial liabilities), all changes in fair value are presented in profit or loss. IFRS 9 introduces a new model for the recognition of impairment losses the expected credit losses (ECL) model, which constitutes a change from the incurred loss model in IAS 39. IFRS 9 contains a three stage’ approach, which

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

is based on the change in credit quality of financial assets since initial recognition. Assets move through the three stages as credit quality changes and the stages dictate how an entity measures impairment losses and applies the effective interest rate method. The new rules mean that on initial recognition of a non-credit impaired financial asset carried at amortised cost a day-1 loss equal to the 12-month ECL is recognized in profit or loss. In the case of accounts receivables this day-1 loss will be equal to their lifetime ECL. Where there is a significant increase in credit risk, impairment is measured using lifetime ECL rather than 12-month ECL. IFRS 9 applies to all hedging relationships, with the exception of portfolio fair value hedges of interest rate risk. The new guidance better aligns hedge accounting with the risk management activities of an entity and provides relief from the more “rule-based” approach of IAS 39. Amendments to IAS 28 The IASB Annual Improvements (2014 - 2016 Cycle) include the amendments to IAS 28 - Investments in Associates and Joint Ventures. These amendments clarify that the election to measure investees at fair value through profit or loss is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition. Amendments to IFRS 4 These amendments provide two alternative measures to address the different effective dates of IFRS 9 and the forthcoming insurance contracts standard. These measures include a temporary option for companies whose activities are predominantly connected with insurance to defer the effective date of IFRS 9 until the earlier of the effective date of the forthcoming insurance contracts standard and the annual reporting periods beginning on or after 1 January 2021, as well as an approach that allows an entity to remove from profit or loss the effects of certain accounting mismatches that may occur before the forthcoming insurance contracts standard is applied. Amendments to IAS 40 These amendments specify that an entity shall transfer a property to, or from, investment property when, and only when, there is a change in use of a property supported by evidence that a change in use has occurred. They also clarify that the list of circumstances set out in IAS 40 is non-exhaustive list of examples of evidence that a change in use has occurred instead of an exhaustive list. The examples have been expanded to include assets under construction and development and not only transfers of completed properties. Amendments to IFRS 2 These amendments clarify the measurement basis for cash-settled share-based payments and the accounting for modification from cash-settled awards to equity-settled awards. It also introduces an exception to the principles in IFRS 2 that requires an award to be treated as if it is wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority. The amendment clarifies the measurement basis for cash-settled share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in IFRS 2 that will require an award to be treated as if it is wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority.

281

282

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) IFRS 16 IFRS 16 Leases’ addresses the definition of a lease, recognition and measurement of leases and establishes principles for reporting useful information to users of financial statements about the leasing activities of both lessees and lessors. A key change arising from IFRS 16 is that most operating leases will be accounted for on balance sheet for lessees. The standard replaces IAS 17 Leases', and related interpretations. Amendments to IFRS 10 and IAS 28 The amendments address an inconsistency between IFRS 10 and IAS 28 in the sale and contribution of assets between an investor and its associate or joint venture. A full gain or loss is recognised when a transaction involves a business. A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if those assets are in a subsidiary. The Group is assessing the impact of IFRS 9, 15 and 16. Besides, other standards, amendments and explanations that have not yet effective are not expected to affect the Group's operating results, consolidated income or financial position.

2.2 Business Combinations The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognized and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the income statement. Acquisition-related costs are expensed as incurred. The transaction costs incurred for the issuance of equity or debt securities in connection with the business combination are included in part of the initial recognition cost of these securities.

2.3 Consolidation The scope of consolidation is determined based on control, including the financial statements of the Bank and all its subsidiaries. A subsidiary is an entity (including a structured entity) over which the Group has control. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. A structured entity is an entity that has been designed so that voting rights or similar rights are not the dominant

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

factor in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual or relative arrangements.   The Group determines whether it is an agent or a principle in relation to those structured entities in which the Group acts as an asset manager. If an asset manager is an agent, it acts primarily on behalf of others (other investors in the structured entity) and so do not control the structured entity. Otherwise, it may be a principle if it acts primarily for itself, and therefore controls the structured entity. Where necessary, amounts reported by subsidiaries have been adjusted to conform to the policies adopted by the Group. Intra-group balances, transactions and unrealised profits on transactions between group companies are eliminated. The Group’s non-controlling interests, including subsidiaries’ equity, net profit for the year and comprehensive income that are not attributable to the Bank’s shareholders, are separately presented in the respective sections of the consolidated financial statements. With respect to a subsidiary acquired through business combination not under common control, the operating results and cash flows of the subsidiary shall be consolidated into the Group’s financial statements from the date the Group obtains control of the subsidiary and deconsolidated from the Group’s financial statements when the Group loses the control of the subsidiary. While preparing the consolidated financial statements, the Group should adjust the subsidiary’s financial statements by using the fair values of the identifiable assets, liabilities and contingent liabilities recognized on the acquisition date.

2.4 Foreign currency translation The functional currency of the Group’s operations in Mainland China is Renminbi (RMB). The functional currency of the Group’s operations oversea depends on the primary economic environment in which the entity operates. The presentation currency of the Group is RMB. Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. At the financial reporting date, monetary items denominated in foreign currencies are translated to RMB using the exchange rates ruling at that date. Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of security. Translation differences related to changes in amortised cost are recognized in profit or loss, and other changes in carrying amount are recognized in other reserves of equity. At the financial reporting date, non-monetary assets and liabilities that are measured at historical cost in foreign currencies are translated using the exchange rates at the date of transaction. Non-monetary assets and liabilities that are measured at fair value in foreign currencies are translated using the exchange rates at the date the fair value is determined. Translation differences on non-monetary financial assets classified as available-for-sale are recognized in other reserves in equity. Translation differences on non-monetary financial assets and liabilities held at fair value through profit or loss are recognized in the profit or loss. The results and financial positions of the Group entities that have a functional currency difference from the presentation currency are translated into the presentation currency as follows: (i)asset and liability items are translated at the closing rate at the date of the statement of financial position;

283

284

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(ii)income and expenses for each statement presenting profit or loss and other comprehensive income (i.e. including comparatives) shall be translated at exchange rates at the dates of the transactions, and the resulting translation differences are recorded in other comprehensive income.

2.5 Cash and cash equivalents Cash and cash equivalents are cash on hand, deposits that can be readily drawn on demand, and short-term highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Cash and cash equivalents include cash, excess reserves with central bank, due from and placements with other banks and financial institutions within original maturities no more than three months.

2.6 Precious metals Precious metals held by the Group are gold traded in financial market. They are initially recognized at acquisition cost and subsequently measured at fair value at the financial reporting date. Gain or loss arising from fair value remeasurement is recognized in profit or loss.

2.7 Financial instruments Financial instruments - Recognition and derecognition The Group recognizes a financial asset or a financial liability at the time the Group becomes a party to the contractual obligation of financial instruments. Financial assets are derecognized when: (i)the contractual rights to receive cash flows from the financial asset have expired. (ii)the contractual rights to receive cash flows from the financial asset have been transferred, and the Group has transferred nearly all the risks and rewards of ownership of the financial asset to the transferee. (iii)the Group transfers the financial asset to another party, but maintains the contractual rights to receive cash flows from the financial asset and undertaken the obligations to pay the cash flow it received to the final recipient, and meets the three conditions at the same time (the requirement of “pass-through”), and transferred nearly all the risks and rewards of ownership of the financial asset to the transferee. the Group is not obliged to make any payment to the final recipient until it receives the cash flow which is equivalent to the financial asset. For any short-term payment made by the enterprise on behalf of others, if the enterprise has the right to recover the full amount of the payment and charge interests according to the market bank loan interest rate of the same period, the conditions shall be deemed to have been satisfied. in accordance with the contractual stipulations, the Group can't sell the financial asset or use it as a guaranty, but it may use it as an guarantee for paying the cash flow to the final recipient. the Group is obliged to pay the cash flow it receives to the final recipient in a timely manner. The Group has no right to make a re-investment with the cash flow, but in accordance with the contractual stipulations, it may make investment with cash or cash equivalent by using the cash flow it receives during the interval of between 2 consecutive payments. If the Group makes a reinvestment in accordance with the contractual stipulations, it shall pay the proceeds by investment to the final recipient in accordance with the contractual stipulations.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

(iv)the financial asset has been transferred ( the contractual right to receive the cash flow of the financial asset has been transferred or meet the requirement of “pass-through”) . Though the Group has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, it has not retained control of the asset. On derecognition of a financial asset, the difference between the carrying amount and the considerations received together with the accumulated change of fair value recorded in equity through other reserves is recognized in profit or loss. If the obligation relating to a financial liability has been partially or fully discharged, the financial liability is derecognized partially or in full. If the existing financial liability is replaced by the same creditor with another financial liability that is with substantially different terms, or if the terms of the existing liability are substantially revised, such replacement or revision is accounted for as derecognition of the original liability and recognition of a new liability, and the difference is recognized in profit or loss. Regular way transactions of financial assets are recognized and derecognized, using trade date accounting. A regular way of purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. Trade date is the date on which the Group commits to purchase or sell the asset. Classification and measurement of financial assets Financial assets are, on initial recognition, classified into the following categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Group determines the classification of the financial assets on initial recognition. Financial assets are recognized at fair value on initial recognition. For financial assets at fair value through profit or loss, relevant transaction costs are directly charged to the profit or loss. Transaction costs relating to financial assets in other categories are included in the initial recognized amount.

Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated at fair value through profit or loss upon initial recognition. A financial asset held for trading is the financial asset that satisfies one of the following conditions: 1) the financial asset is acquired for the purpose of selling in the near term; 2) the financial asset is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the Group has a recent actual pattern of short-term profittaking; or 3) It is a derivative, except for a derivative that is designated as effective hedging instrument, or a financial guarantee contract, or a derivative linked to investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. These financial assets are subsequently measured at fair value. Changes of fair value are recognized in profit or loss. Interest accrued during the assets holding period, dividend received and gains or loss arising from disposal are recognized in profit and loss.

Held-to-maturity investments Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group has both the positive intention and the ability to hold to maturity. Held-to-maturity investments shall be measured at amortized cost using the effective interest rate method. Except for specific situations such as disposal of insignificant amount of held-to-maturity investments at a date sufficiently close to maturity date, if the Group fails to hold such investments through their maturities or reclassifies a portion of held-

285

286

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

to-maturity investments into available-for-sale prior to their maturities, the Group shall reclassify all held-to-maturity investments into available-for-sale category measured at fair value. The Group is further prohibited to reclassify these financial assets as held-to-maturity during the current financial year or the two preceding financial years.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. When the Group provides funds or services directly to customers without the intention to sell the receivables, the Group classifies such financial assets as loans and receivables. Subsequently, such financial assets are measured at amortized cost using effective interest method.

Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as (a) financial assets at fair value through profit or loss, (b) loans and receivables or (c) heldto-maturity investments. Available-for-sale financial assets are measured at fair value. For available-for-sale debt instruments, premium or discount is amortized using effective interest method and recognized as interest income or expense. A gain or loss arising from changes in fair value of an available-for-sale financial asset is recognized in a separate component of equity, except for impairment losses and foreign exchange gains and losses resulting from monetary financial assets, until the financial asset is derecognized or is determined to be impaired. At this time, the cumulative gain or loss previously recognized in equity shall be reclassified to profit or loss. Dividends and interests relating to an available-for-sale financial asset are recognized in profit or loss. Classification and measurement of financial liabilities Financial liabilities of the Group are, upon initial recognition, classified into financial liabilities at fair value through profit or loss and other financial liabilities. The Group determines the classification of the financial liabilities on initial recognition. For financial liabilities at fair value through profit or loss, relevant transaction costs are directly recognized in profit or loss, and transaction costs relating to other financial liabilities are included in the initially recognized amount.

Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated at fair value through profit or loss upon initial recognition. A financial liability held for trading is the financial liability that satisfies one of the following conditions: 1) the financial liability is acquired for the purpose of selling or repurchasing in the near term; 2) the financial liability is a part of a portfolio of identifiable financial instruments that are collectively managed, and there is objective evidence indicating that the Group has a recent actual pattern of short-term profit-taking; or 3) it is a derivative, except for a derivative that is designated as effective hedging instrument, or a financial guarantee contract, or a derivative linked to investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured. These financial liabilities are subsequently measured at fair value. All realized and unrealized gains or losses on these financial liabilities are recognized in profit or loss.

Other financial liabilities Other financial liabilities are subsequently measured at amortized cost using effective interest method on the financial reporting date.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Equity instruments An instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met. (a)The instrument includes no contractual obligation: (i)to deliver cash or another financial asset to another entity; or (ii)to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer. (b)If the instrument will or may be settled in the issuer's own equity instruments, it is: (i)a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or (ii)a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. Hedge accounting Within the Group, only overseas branch of the Bank adopts hedge accounting. The Group documents, at inception, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at inception and throughout the life of the hedge whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values of hedged items. Currently overseas branch only uses fair value hedge. Changes in fair value of hedging instruments that are designated and qualified as fair value hedges are recorded in profit or loss, together with the changes in fair value of the hedged item attributable to the hedged risk. The net result is recorded as net trading profit or loss in the profit or loss as ineffective portion. If the hedge relationship no longer satisfies the criteria for hedge accounting, the unamortised carrying value adjustments to the carrying amount of a hedged item that is measured at amortised cost is amortised to profit or loss using the effective interest method over the period to maturity. Fair value of financial instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique. For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices. This includes listed equity securities and quoted debt instruments on major exchanges. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. If the above criteria are not met, the market is regarded as being inactive. Indications that a market is inactive are when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few recent transactions.

287

288

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

For financial instruments not traded in active markets, fair value is determined using appropriate valuation techniques. Valuation techniques include the use of recent transaction prices, discounted cash flow analysis, option pricing models and others commonly used techniques by market participants. These valuation techniques include the use of observable and/or unobservable inputs. Impairment of financial assets The Group assesses at each financial reporting date whether there is any objective evidence that a financial asset or a group of financial assets excluding those fair valued through profit or loss is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or a group of assets is impaired includes observable data that comes to the attention of the Group about the following loss events: significant financial difficulties of the issuer or obligor; a breach of contract, such as a default or delinquency in interest or principal payments; the Group granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty, a concession that the lender would not otherwise consider; it becoming probable that the borrower will enter into bankruptcy or other financial reorganization; the disappearance of an active market for that financial asset because of financial difficulties; observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group, including: 1) adverse changes in the payment status of borrowers in the group; 2) national or local economic conditions that correlate with defaults on the assets in the group; any significant change with an adverse effect that has taken place in the technological, market, economic or legal environment in which the issuer operates and indicates that the cost of investments in equity instruments may not be recovered; a significant or prolonged decline in the fair value of an equity instrument; or other objective evidence indicating impairment of the financial asset.

Financial assets carried at amortized cost When there is an objective evidence that a financial asset is impaired, the carrying amount of the financial asset shall be reduced to the present value of the estimated future cash flows (excluding future credit losses that have not been incurred). The amount of reduction is recognized as an impairment loss in the profit or loss. Present value of estimated future cash flows is discounted at the financial asset’s original effective interest rate (the effective interest rate determined by calculation upon initial recognition) taking into consideration the value of any related collateral. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. If there is objective evidence of impairment, the impairment loss is recognized in the comprehensive income statement. The Group performs a collective assessment for all other financial assets that are not individually significant or for which impairment has not yet been identified through individually assessment by including the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and impairment losses are or continue to be recognized are not included in a collective assessment of impairment. When a financial asset is uncollectible, it is written off against the related allowance for impairment after all the necessary procedures have been completed. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized. The previously recognized impairment loss is reversed. The amount of the reversal is recognized in profit or loss. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.

Available-for-sale financial assets A significant or prolonged decline in the fair value of an equity instrument is an objective indicator of impairment of available-for-sale equity instrument. The Group separately checks all available-for-sale equity investments at reporting date. If a decline in the fair value of an equity instrument is below its initial cost by 50% or more, or fair value is below cost for one year or longer at reporting date, it indicates that such an equity instrument is impaired; If such a decline in fair value is below its initial cost by 20% or more but not up to 50% at reporting date, the Group takes other factors such as price volatility into consideration to judge whether the equity instrument is impaired, The Group calculate the initial cost of available-for-sale equity instrument using weighted average method. If available-for-sale financial asset is impaired, the cumulative loss from declines in fair value that had been recognized directly in other reserves of equity is reclassified from equity to the profit or loss. The amount of the cumulative loss that is transferred out and recognized in the profit or loss equals to the difference between its initial cost (net of any principal repayment and amortization) and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be related objectively to an event occurring after the impairment loss was recognized in profit or loss, the previously recognized impairment loss shall be reversed with the amount of the reversal recognized in profit or loss. Any subsequent increase in the fair value of such assets is recognized in other reserves. Offsetting financial instruments Financial assets and financial liabilities are presented separately in the statement of financial position by the Group, and they shall not be offset against each other; financial assets and financial liabilities should be presented at their net amount when both of the below criteria are met: (i) The Group has the legal right to offset the recognized amount, and the legal right is enforceable; (ii) The Group has the intention to settle on a net basis or realize the asset and settle the liability simultaneously.

289

290

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

2.8 Assets purchased under resale agreements (“Reverse repos”) and assets sold under repurchase agreements (“Repos”) Reverse repo refers to the agreement under which the Group purchases an asset with an obligation to resell it to the same counterparty at a pre-determined price on a specified date. Reverse repo are recorded at the actual amount paid and presented in “assets purchased under resale agreements” on the statement of financial position, while assets bought are not recognized. Repo refers to the agreement under which the Group sells an asset with an obligation to repurchase it from the same counterparty at a pre-determined price on a specified date. Repos are recorded at the actual amounts received and presented in “assets sold under repurchase agreements” on the statement of financial condition, while assets sold are not derecognized. Interest earned from resale agreement and interest paid under repurchase agreement is recorded as interest income or interest expense respectively using effective interest method.

2.9 Derivative financial instruments and embedded derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at fair value. Gains or losses arising from changes in fair value on derivatives are reported in profit or loss. An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract with the effect that some of the cash flows of the combined instrument vary in a way similar to a standalone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a nonfinancial variable that the variable is not specific to a party to the contract. An embedded derivative shall be separated from the host contract and accounted for as a derivative under this Standard if, and only if: (i) The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; (ii) A separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and (iii) The hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in profit or loss (i.e. a derivative that is embedded in a financial asset or financial liability at fair value through profit or loss is not separated).

2.10 Investments in associates and joint ventures Associates are all entities over which the Group has significant influence but no control. Significant influence is the power to participate in the financial and operating policy decision process but does not control or jointly control those policy decisions. Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Investments in associates and joint ventures are initially recognized at cost and are accounted for using the equity method of accounting. The Group’s “Investments in associates and joint ventures” includes goodwill. Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interests in the associates and joint ventures; unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of associates and joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. The Group assesses at each financial reporting date whether there is objective evidence that investments in associates and joint ventures are impaired. Impairment losses are recognized for the amounts by which the investments in associates and joint ventures’ carrying amounts exceed its recoverable amounts. The recoverable amounts are the higher of investments in associates and joint ventures’ fair value less costs to sell and value in use.

2.11 Investments in subsidiaries Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Bank on the basis of dividend received and receivable.

2.12 Property and equipment 2.12.1 Recognition and initial measurement Property and equipment mainly comprise buildings, motor vehicles, mainframe computers, computer equipment, electrical equipment, office equipment, aircraft equipment, software and leasehold improvement, etc. Property and equipment shall be recognized only when the economic benefits associated with the asset will likely flow into the Group and the cost of the asset can be measured reliably. Subsequent expenditure incurred for property and equipment that meet the recognition criteria shall be included in the cost of the asset, and carrying amount of the component of the asset that is replaced shall be derecognized. Otherwise, such expenditure shall be recognized in profit or loss. Property and equipment are initially measured at cost, comprising purchase price, relevant taxes and any directly attributable expenditure for bringing the asset to working condition for its intended use, such as delivery and handling costs, installation costs and other surcharge.

2.12.2 Depreciation methods of property and equipment Depreciation is calculated on the straight-line method to write down the cost of such assets to their residual values over their estimated useful lives. For the impaired property and equipment, the annual depreciation amount should be calculated on the basis of carrying amount less impairment and estimated remaining useful life. The estimated useful lives, estimated residual values and annual depreciation rates are as follows:

291

292

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) Category

Useful life

Estimated residual value

Buildings

Annual depreciation rate

30 years

3-5%

3.17-3.23%

Motor Vehicles

5 years

3-5%

19.00-19.40%

Mainframe computers

5 years

3-5%

19.00-19.40%

Computer equipment

3-5 years

3-5%

19.00-32.33%

Electronic equipment

5 years

3-5%

19.00-19.40%

Office equipment

5 years

3-5%

19.00-19.40%

Software

5 years

0%

20%

5 years

0%

20%

20 years

5%

4.75%

Leasehold improvement Aircraft equipment

The Group’s Aircraft equipment is purchased to conduct operating lease activities. Estimated useful lives, residual values, and depreciation method are reviewed and adjusted if appropriate at the end of each year by the Group. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.16).

2.13 Constructions in progress Construction in progress is stated at cost. Cost comprises cost of construction, installation and other direct costs. Items classified as construction in progress are transferred to property and equipment when such assets are ready for their intended use and the depreciation charge commences from the following month after such assets are transferred to property and equipment. When the recoverable amount is lower than its carrying amount, it shall be written down immediately to the recoverable amount (Note 2.16).

2.14 Intangible assets The Group’s intangible assets mainly include goodwill, brand, franchise right and contractual customer relationships etc., Brand, franchise right and contractual customer relationships acquired in a business combination are measured with fair value. Goodwill is recognized at the excess of the cost of a business combination involving enterprises not under common control over the interest in the fair value of the acquirees’ identifiable net assets acquired in the business combination as at the acquisition date. Goodwill arises on acquisition shall be subject to an impairment test annually or more frequently, and whenever events or changes indicate a potential impairment. For the purpose of impairment testing, goodwill is allocated to each of the cash-generating units (“CGUs”), or groups of CGUs, that are expected to benefit from the synergies of the combination. Impairment is recognized if the impairment testing indicates the recoverable amount of the CGU containing the goodwill is lower than the carrying amount. The amount of the impairment loss shall be firstly offset by the carrying amount of the goodwill allocated to the CGU, and then offset by the carrying amount of other assets other than goodwill in the CGU or groups of CGUs by their proportion of the carrying amount. Any Goodwill impairment recognized can not be subsequently reversed in future periods. Brand and franchise right are intangible assets with no expected useful lives, which are not subject to amortisation but require impairment test annually.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

Customer contract relationship is amortised on the straight-line basis over the maximum beneficial life upon the acquisition date. The Group reviews the useful life and amortisation method of a finite useful life intangible assets at the end of each year and adjusts it if necessary. Intangible assets with indefinite useful life are not subject to amortisation and are tested annually for impairment. When the recoverable amount is lower than its carrying amount, book value should be reduced to the recoverable amount (Note 2.16).

2.15 Foreclosed assets Foreclosed assets included in ‘Other assets’ are initially recognized at fair value plus related costs when they are obtained as the compensation for the loan principal and interest and subsequently measured at the lower of their carrying amount and recoverable amount. When there are indicators that the recoverable amount is lower than carrying amount, the carrying amount is written down immediately to its recoverable amount, through profit or loss.

2.16 Impairment of long term assets Property and equipment, construction in progress, intangible assets with finite useful lives, and long-term equity investments in subsidiaries, joint ventures and associates are tested for impairment if there is any indication that the assets may be impaired at the reporting date. If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Provision for asset impairment is determined and recognized on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. Cash-generating unit is the smallest identifiable group of assets that generates cash inflows independently of the cash flows from other assets or groups of assets.

2.17 Bonds issued Bonds issued are initially measured at fair value less transaction cost, and subsequently measured at amortised cost, using the effective interest method.

2.18 Provisions Except for provision arising from business combination, provisions are recognized by the Group when obligations related to contingent matters meet all the following conditions: (i) The Group has present legal or constructive obligations as a result of past events; (ii) It is probable that an outflow of resources from the Group will be required to settle the obligation; and (iii) The amount has been reliably estimated. The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

293

294

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

2.19 Fiduciary activities The Group acts as an agent to safeguard assets for customers in accordance with agreements. The Group receives fees in return for its services provided under the custody agreements and does not have any interest in the economic risks and rewards related to assets under custody. Therefore, assets under custody are not recognized in the Group's consolidated statement of financial position. The Group conducts entrusted lending arrangements for its customers. Under the terms of entrusted loan arrangements, the Group grants loans to borrowers, as an intermediary, according to the instruction of its customers who are the lenders providing the entrusted loans. The Group is responsible for the arrangement and collection of the entrusted loans and receives a commission for the services rendered. As the Group does not assume the economic risks and rewards of the entrusted loans and the funding for the corresponding entrusted funds, they are not recognized as assets and liabilities of the Group.

2.20 Financial guarantee contract Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Financial guarantees are initially recognized at fair value on the date the guarantee was given. Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the initial measurement less amortisation calculated and the best estimate of the expenditure required to settle any financial obligation arising at the financial reporting date. Any increase in the liability relating to guarantees is taken to profit or loss. These estimates are determined based on experience of similar transactions, historical losses and by the judgement of management.

2.21 Revenue and expense recognition 2.21.1 Interest income and interest expense Interest income and expense for all interest-bearing financial instruments, except derivatives, are recognized within “Interest income” and “Interest expense” in profit or loss using the effective interest method. Interest income and expense for derivatives is recognized in “Net trading gains” in profit or loss. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all amounts paid or received by the Group that are an integral part of the effective interest rate, including transaction costs and all other premiums or discounts. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

2.21.2 Fee and commission income The Group earns fee and commission income from a diverse range of services it provides to its customers. For those services that are provided over a period of time, fee and commission income are accrued over that period. For other services, fee and commission income are recognized when the transactions are completed.

2.22 Employee benefits Employee benefits are all forms of benefits provided by the Group in exchange for service rendered by employees. Employee benefits are recognized in the period in which services are rendered. The Group has participated in various defined contribution social security schemes set up by government agency including pension and medical insurance, housing fund and other social security plans. According to the relevant regulations and contracts, insurance and housing fund shall be paid to the social security agencies or insurance company based on certain percentages of the gross salary subject to a ceiling. The Group’s contributions to these plans are charged to profit or loss. Other than the social security schemes described above, the Group has no further material benefit obligations to its employees.

2.23 Income tax Income tax comprises current and deferred tax. Income taxes are recognized as an expense or income and include in profit or loss, except to the extent that the tax arises from a business combination or if it relates to a transaction or event which is recognized directly in equity. Current income tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the financial reporting date, and any adjustment to tax payable in respect of previous years. The Group recognises current income tax asset or liability as expected tax returns or payables on the taxable income for the year and in respect of previous periods. Deferred income tax is provided in full, and recognized using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the financial reporting date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.   Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which deductible temporary differences can be utilized except the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit/ (tax loss). For deductible temporary differences associated with investment in subsidiaries, associates and joint ventures, a deferred tax asset is recognized to the extent that, and only to the extent that, it is probable that the temporary difference will reverse in the foreseeable future; and taxable profit will be available against which the temporary difference can be utilized. Deferred tax liabilities shall be recognized for all taxable temporary differences, except to the extent that the deferred tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction

295

296

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

which is not a business combination, and at the time of the transaction, affects neither accounting profit nor taxable profit/(tax loss). Deferred income tax liabilities on taxable temporary differences arising from investment in subsidiaries, associates and joint ventures are recognized, except where the timing of the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. The tax effects of income tax losses available for carrying forward are recognized as an asset when it is probable that future taxable profits will be available against which these losses can be utilized. Deferred tax assets and liabilities are offset when: • The deferred taxes are related to the same taxable entity within the Group and the same taxation authority; and • The taxable entity within the Group has a legally enforceable right to offset current tax assets against current tax liabilities.

2.24 Operating leases and finance leases A finance lease is a lease that transfers in substance all the risks and rewards incident to ownership of an asset. An operating lease is a lease other than a finance lease. • As a lessee under operating leases Lease payments under an operating lease are recognized in profit or loss by a lessee on a straight-line basis over the lease term. Initial direct cost is also charged to profit or loss. Contingent rents are recorded into profit or loss of the period in which they actually arise. • As a lessor under finance leases At the lease commencement date, the present value of the minimum lease payment receivable from the lessee, unguaranteed residual value and initial direct costs is recognized as a receivable. The difference between the receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognized over the term of the lease using an interest rate which reflects a constant rate of return, as interest income in the comprehensive income statement. Contingent rents are recorded into profit or loss of the period in which they actually arise. The differences between the finance lease receivables less the unearned finance income are presented in “other assets”. When making the judgment of derecognition or impairment measurement, finance lease receivables are considered as loans and receivables. • As a lessor under operating lease When the Group is the lessor in an operating lease, the assets subject to the operating lease continue to be recognized as the Group’s property and equipment. Rental income from operating leases is recognized as Other Operating Income in the consolidated income statement on a straight-line basis over the term of the related lease. Large amount initial direct cost is capitalized as incurred, and is recorded into profit or loss of the period over the term of the related lease with the same recognition basis as rental income; other small amount initial direct cost is charged to profit or loss of the period as incurred. Contingent rents are recorded into profit or loss of the period in which they actually arise.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

2.25 Segment reporting The Group identifies operating segment on the basis of internal organization structure, management requirement and internal report system, and forms the segment report and discloses the segment information based on operating segment. Operating segment represents the segment satisfying the following conditions at the same time: (i) the segment produces income and expense in daily activities; (ii) the Group’s management regularly evaluates the performance of the segment, and decides to allocate resources to the segment and to assess its performance; and (iii) the Group can obtain financial position, operation performance, cash flow and other relevant accounting information of the segment. Two or more operating segments with similar economic characteristics are combined into an operating segment, provided that certain conditions are met.

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The Group makes regular assessments on accounting judgments and estimates based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Areas susceptible to significant changes in estimates and judgments, which affect the carrying value of assets and liabilities of next accounting period, are set out below. It is possible that actual results may be materially different from the estimates and judgments referred below.

3.1 Impairment losses on loans and advances The Group reviews its loan portfolios to assess impairment regularly besides individual impairment loss assessment on identified non-performing loans. In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgments as to whether there is any observable evidence indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers (e.g. payment delinquency or default), or national or local economic conditions that correlate with defaults on assets. Management makes estimation based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The management regularly reviews the methods and assumptions adopted to forecast the future cash flows to reduce the difference between the estimated loss and actual loss.

3.2 Fair value of financial instruments The Group uses valuation techniques to estimate the fair value of financial instruments that are not quoted in an active market. These valuation techniques include the use of observable inputs and data with consistent characteristics of assets or liabilities in the transaction of related assets or liabilities. To the extent practical market observable inputs and data, such as interest rate yield curves, foreign currency rates, commodity price and implied option volatilities, are prioritized to use when estimating fair value through a valuation technique. Where market observable inputs are not available, they are estimated using unobservable inputs and data, such as the Group makes the assumption on the credit risk, volatilities and credit of the Group and the counterparty. Changes in assumptions about these factors could affect the estimated fair value of financial instruments.

297

298

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

3.3 Income taxes , value added taxes and business taxes Significant estimates are required in determining the provision for income tax, value added tax and business tax. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognizes liabilities for anticipated tax issues arising from new tax regulations or other uncertain tax arrangements based on estimates of whether additional taxes will be due. The deductibility of certain items is subject to tax authority’s final approval. Where the final tax outcome of these matters is different from the amounts that were initially estimated, such differences will affect the current income taxes and business taxes and/or deferred tax provisions in the period in which such determination is made.

3.4 Held-to-maturity investments The Group classifies certain non-derivative financial assets with fixed or determinable payments and fixed maturity date that the Group has both the positive intention and the ability to hold to maturity as held-to-maturity. The classification of held-to-maturity investment requires significant judgment.

3.5 Consolidation of structured entities Management applies its judgment to determine whether the Group is acting as an agent or a principle in relation to the structured entities in which the Group acts as an asset manager. In assessing whether the Group is acting as an agent, the Group considers factors such as scope of the asset manager’s decision-making authority, rights held by other parties, remuneration to which it is entitled, and exposure to viability of returns by other arrangements (such as direct investments). For further disclosure in respect of unconsolidated structured entities in which the Group has an interest or provides finance funds, see Note 5.44.

3.6 Goodwill impairment Goodwill impairment reviews are undertaken annually or more frequently, and it’s also needed if events or changes indicate a potential impairment. For the purpose of impairment testing, Goodwill acquired in a business combination is allocated to each of the CGU, or groups of CGUs. The Group forecasts future cash flow of the CGU and CGUs, and applies appropriate discount rate for the calculation of the present value of future cash flow.

3.7 De-recognition of financial assets The Group’s transfer of financial assets include transfer of loans and advances to customers, securitization and financial assets sold under repurchase agreements. When assess whether the transfer of financial asset meet the de-recognition requirement of financial asset, it is required to assess whether the Group has transferred the right to receive cash flows of financial asset, or has transferred the contractual rights to receive cash flows from the financial asset to another party which meet the requirement of “pass-through”, whether nearly all the risks and rewards of ownership of the financial asset have been transferred out and whether its control over the transferred financial asset has been given up.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

4 SCOPE OF CONSOLIDATED FINANCIAL STATEMENTS 4.1 Major subsidiaries of the Bank Place of incorporation

Percentage of equity interest%

Percentage of Noncontrolling interest%

Investment cost

SPD Bank Financial Leasing Co., Ltd.

Shanghai

61.02%

38.98%

1,800

Shanghai Trust. (Note a)

Shanghai

97.33%

2.67%

19,494 410

Name of major subsidiaries

SPDB International Holding ,Ltd.

Hong Kong

100.00%

-

Mianzhu SPD Rural Bank Co., Ltd.

Sichuan

55.00%

45.00%

28

Liyang SPD Rural Bank Co., Ltd.

Jiangsu

51.00%

49.00%

118

Gongyi SPD Rural Bank Co., Ltd.

Henan

51.00%

49.00%

80

Shanghai

51.00%

49.00%

113

Hunan

51.00%

49.00%

81

Chongqing Banan SPDRural Bank Co., Ltd.

Chongqing

51.00%

49.00%

25

Zouping SPD Rural Bank Co., Ltd.

Shandong

51.00%

49.00%

89

Zezhou SPD Rural Bank Co., Ltd.

Shanxi

51.00%

49.00%

111

Dalian Ganjingzi SPD Rural Bank Co., Ltd.

Liaoning

51.00%

49.00%

25

Hancheng SPD Rural Bank Co., Ltd.

Fengxian SPD Rural Bank Co., Ltd. Zixing SPD Rural Bank Co., Ltd.

Shaanxi

51.00%

49.00%

25

Jiangyin SPD Rural Bank Co., Ltd.

Jiangsu

51.00%

49.00%

51

Pingyang SPD Rural Bank Co., Ltd.

Zhejiang

51.00%

49.00%

51

Xinchang SPD Rural Bank Co., Ltd.

Zhejiang

51.00%

49.00%

51

Yuanjiang SPD Rural Bank Co., Ltd.

Hunan

51.00%

49.00%

25

Chaling SPD Rural Bank Co., Ltd.

Hunan

51.00%

49.00%

25

Linchuan SPD Rural Bank Co., Ltd.

Jiangxi

51.00%

49.00%

51

Linwu SPD Rura Bank Co., Ltd.

Hunan

51.00%

49.00%

25

Hengnan SPD Rural Bank Co., Ltd.

Hunan

51.00%

49.00%

25

Heilongjiang

51.00%

49.00%

51

Haerbin Hulan SPD Rural Bank Co., Ltd. Gongzhuling SPD Rural Bank Co., Ltd.

Jilin

51.00%

49.00%

25

Yuzhong SPD Rural Bank Co., Ltd.

Gansu

51.00%

49.00%

25

Yunnan Fumin Rural Bank Co., Ltd.

Yunnan

51.00%

49.00%

25

Ningbo Haishu Rural Bank Co., Ltd.

Zhejiang

51.00%

49.00%

51

Urumchi Midong SPD Rural Bank Co., Ltd.

Xinjiang

51.00%

49.00%

51

Tianjin

49.00%

51.00%

49

Tianjin Baodi SPD Rural Bank Co., Ltd. (Note b)

All subsidiaries are unlisted and consolidated in the Bank’s financial statements. (a) On March 2016, the Bank issued ordinary shares to acquire 97.33% equity of Shanghai Trust. The difference between fair value of the Bank’s issued shares and net assets of Shanghai Trust attributable to parent company on acquisition date, amounting to RMB 6,981 million, is recognised as goodwill. (b) In accordance with Articles of association of Baodi Tianjin SPD Rural Bank Co., Ltd., resolutions on the company’s operating and development strategy, operating plan and investment scheme are required to be approved

299

300

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

by more than 50% directors and the Bank has 4 of 7 seats in the Board of Directors. Although the Bank only has 49% voting rights in Baodi Tianjin SPD Rural Bank Col, Ltd., the Bank is able to control it through the Board of Directors. As a result, it is a consolidated subsidiary of the Bank. All subsidiaries are unlisted and consolidated in the Bank’s financial statements. None of these subsidiaries is restricted to transfer funds to the Bank. After individual assessment, the Group concluded that no subsidiary has non-controlling interest that is material to the Group. Therefore, the Group does not require the disclosure of such financial information.

5 NOTES TO THE FINANCIAL STATEMENTS 5.1 Net interest income Group

Bank

Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

Balance with central bank

7,422

7,554

7,384

7,511

Due from banks and other financial institutions

2,688

2,373

2,547

2,200

Placements with banks and other financial institutions

5,527

3,892

5,545

3,892

Financial assets purchased under resale agreements

1,012

6,866

1,012

6,866

- Corporate loans

79,751

94,157

78,983

93,393

- Retail loans

36,918

31,169

36,426

30,678

2,562

2,947

2,548

2,916

21,165

19,348

21,165

19,348

54,956

57,278

54,649

57,278

2,368

2,104

-

-

445

566

445

566

Interest income

Loans and advances to customers

- Discounted and rediscounted bills Bonds investment and deposit certificates issued by other financial institutions Investment classified as loans and receivables other than bonds investment and deposit certificates issued by other financial institutions Finance lease activities receivables Others Sub-total Including: interest income accrued on impaired financial assets

214,814

228,254

210,704

224,648

1,166

914

1,166

914

(2,142)

(1,489)

(2,128)

(1,464)

(34,335)

(36,464)

(33,321)

(35,511)

Interest expense Due to central bank Due to and placements from banks and other financial institutions Financial assets sold under repurchase agreements

(1,898)

(1,516)

(1,879)

(1,487)

Deposits from customers

(47,666)

(65,012)

(47,210)

(64,550)

Bonds issued

(19,499)

(10,140)

(19,499)

(10,140)

(1,154)

(624)

(1,154)

(624)

(106,694)

(115,245)

(105,191)

(113,776)

108,120

113,009

105,513

110,872

Others Sub-total Net interest income

2016 Annual Report

301

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.2 Net fee and commission income Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

Wealth management fees

12,872

8,489

12,872

8,489

Fees from bank cards

12,670

6,683

12,668

6,681

Custodian fees

6,022

3,123

3,539

3,123

Fees from investment banking activities

3,713

3,227

3,609

3,133

Credit commitment fees

2,261

2,899

2,252

2,889

Agency commissions

1,938

1,519

1,936

1,518

Fee and commission income

863

979

863

978

2,897

2,394

2,464

2,111

Sub-total

43,236

29,313

40,203

28,922

Fee and commission expense

(2,544)

(1,515)

(2,559)

(1,474)

Net fee and commission income

40,692

27,798

37,644

27,448

Settlement and clearing fees Others

5.3 Net trading income Group

Bank

Year ended 31 December Derivative financial instruments Financial assets designated at fair value through profit or loss Trading securities

Year ended 31 December

2016

2015

2016

2015

262

3,696

262

3,696

1,166

254

1,399

254

509

263

446

263

Fair Value changes of hedged bonds

(201)

7

(201)

7

Precious metals

2,110

(2,033)

2,110

(2,033)

353

-

353

-

Fund investments Others Total

-

58

-

58

4,199

2,245

4,369

2,245

5.4 Net gains arising from financial investments Group

Bank

Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

Available-for-sale financial assets

3,117

978

2,967

978

Investment securities loans and receivables

1,217

-

1,217

-

Total

4,334

978

4,184

978

302

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.5 Employee benefit expenses Group

Bank

Year ended 31 December Wages and salaries, bonuses, allowances and subsidies Welfare fund Social insurance

Year ended 31 December

2016

2015

2016

2015

16,851

14,763

16,018

14,506

560

491

531

480

2,623

2,457

2,553

2,435

Housing fund

970

890

948

881

Labor union fund and staff education fund

406

477

391

472

21,410

19,078

20,441

18,774

Total

5.6 Operating expenses Group

Bank

Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

Advertising expenses

3,102

2,241

3,080

2,221

Rental expenses

2,780

2,531

2,672

2,483

Electronic equipment operating 782

705

768

694

General and administrative expenses

456

530

445

521

Cash carrier expenses

352

283

344

276

Transportation expenses

348

137

73

131

Property management expenses

303

277

303

277

5,544

5,013

4,966

4,890

13,667

11,717

12,651

11,493

and maintenance expenses

Others Total

5.7 Business tax and surcharges Group

Bank

Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

2,917

7,978

2,876

7,888

762

558

735

548

Education fee and levy

360

297

347

292

Others

405

143

390

142

4,444

8,976

4,348

8,870

Business tax Urban maintenance and construction tax

Total

2016 Annual Report

303

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.8 Impairment losses on assets Group

Bank

Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

46,845

37,070

46,581

36,806

1,209

955

1,209

955

Interest receivable

384

157

384

157

Finance lease receivables

336

321

-

-

Other receivables

264

271

260

271

48

-

48

-

Loans and advances to customers Investments classified as loans and receivables

Investment securities-held-to-maturity Foreclosed assets Total

18

21

18

21

49,104

38,795

48,500

38,210

5.9 Income tax expense Group

Bank

Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

Current income tax expense

21,876

21,093

20,998

20,657

Deferred income tax expense

(5,579)

(5,213)

(5,423)

(5,121)

Total

16,297

15,880

15,575

15,536

Reconciliations between the Group’s theoretical income tax expense using the statutory tax rate and actual amount are as follows: Group

Bank

Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

Profit before income tax

69,975

66,877

67,272

65,663

Tax calculated atapplicable tax rate

17,483

16,719

16,818

16,416

513

249

398

215

(1,713)

(1,379)

(1,650)

(1,372)

14

291

9

277

16,297

15,880

15,575

15,536

Tax effect of expenses that are not deductible for tax purpose Tax effect arising from income not subject to tax Adjustments on income tax for prior years which affect current profit or loss Income tax expense

304

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.10 Other comprehensive income Group

Bank

Year ended 31 December

Year ended 31 December

2016

2015

2016

2015

Transfer to other comprehensive income in current year, after tax

(3,117)

4,313

(3,206)

4,313

Transfer to profit or loss in current year, after tax

(2,507)

143

(2,394)

143

(5,624)

4,456

(5,600)

4,456

Items that may be subsequently reclassified to profit or loss 1. Changes in fair value of available-for-sale financial assets

Sub-total

2. Share of other comprehensive income of associates and joint ventures, after tax 18

(37)

18

(37)

127

35

69

27

(5,479)

4,454

(5,513)

4,446

Changes in other comprehensive income in associates and joint ventures 3. Exchange differences from the translation of foreign operations Total

5.11 Earnings per share Basic earnings per share (EPS) is calculated by dividing consolidated net profit for the year attributable to the holders of the Bank’s ordinary shares by the weighted average number of ordinary shares outstanding during the period. The conversion feature of preference shares is considered to fall within the category of contingently issuable ordinary shares. The triggering events of share conversion did not occur during the year of 2016. Therefore, the conversion feature of preference shares has no effect on the calculation of basic and diluted earnings per share. Year ended 31 December 2016

2015 (Restated)

Profit for the year attributable to equity holders of the Bank

53,099

50,604

Less: declared dividends attributable to preference shareholders of the Bank

(1,725)

(900)

Profit for the year attributable to the holders of the Bank’s ordinary shares

51,374

49,704

Weighted average number of outstanding ordinary shares (million)

21,368

20,519

2.404

2.422

Basic and diluted EPS (RMB)

On 28 November 2014 and 6 March 2015, the Bank issued non-cumulative preference shares with aggregated par value of RMB 30 billion. The bank declared cash dividends of RMB 1,725 million for preference share in this year. For the purpose of calculating EPS, dividends on non-cumulative preference shares declared in respect of the period have been deducted from the profit attributable to ordinary shareholders of the Bank. The Bank issued 999,510,332 domestic RMB ordinary shares and completed share registration in March 2016. Upon the issuance, ordinary shares of the Bank was increased from 18,653,471,415 shares to 19,652,981,747 shares. Pursuant to the resolution of 2015 Annual General Meeting on 28 April 2016, the Bank converted the capital surplus into ordinary share in the proportion of 1 share for every 10 shares held, which increased the total number of capital shares by 1,965,298,175. And the number of shares after conversion is 21,618,279,922 shares. The EPS of comparison period has been restated according to adjusted shares.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.12 Cash and balances with central bank Group

Cash Mandatory reserves with central bank Excess reserves with central bank

31 December 2015

31 December 2016

31 December 2015

7,221

7,159

7,101

7,032

440,445

406,210

438,097

404,134

68,950

67,039

67,845

65,743

614

749

580

735

517,230

481,157

513,623

477,644

Fiscal deposits with central bank Total

Bank

31 December 2016

The Group is required to place mandatory reserves with the PBOC, which are not allowed to be used in the Group’s daily operations. The reserve rate for deposits denominated in RMB is 15% at 31 December 2016 (31 December 2015: 15%). The reserve rate for deposits denominated in foreign currencies is 5% at 31 December 2016 (31 December 2015: 5%). The reserve rate for foreign exchange risk reserve is 20% at 31 December 2016 (31 December 2015: 20%).

5.13 Due from and placements with banks and other financial institutions Group

Bank

31 December 2016

31 December 2015

31 December 2016

31 December 2015

Due from domestic banks

180,656

73,905

173,210

70,853

Due from overseas banks

53,567

37,483

53,511

37,481

Placements with domestic banks

5,172

6,000

5,172

6,000

Placements with overseas banks

9,947

32,564

9,947

32,564

Placements with domestic other financial institutions

103,773

99,242

106,819

99,242

Total

353,115

249,194

348,659

246,140

305

306

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.14 Financial assets at fair value through profit or loss Group 31 December 2016

31 December 2015

Trading financial assets: Government bonds

530

-

3,275

1,257

-

400

31,506

8,635

Corporate bonds

6,905

32,957

Fund investments

6,777

8,025

48,993

51,274

Borrowings from non-bank financial institutions (Note 1)

8,019

8,154

Trust and asset management plans

4,408

-

111,382

-

Bonds issued by policy banks Bonds issued by financial institutions Deposit certificates issued by other financial institutions

Sub-total Financial assets designated at fair value through profit or loss:

Other debt instruments (Note 1, Note2) Other investments (Note 3)

4,401

4,318

Sub-total

128,210

12,472

Total

177,203

63,746

Trading securities

Bank 31 December 2016

31 December 2015

530

-

3,275

1,257

-

400

Trading financial assets: Government bonds Bonds issued by policy banks Bonds issued by financial institutions Deposit certificates issued by other financial institutions

31,506

8,635

Corporate bonds

6,472

32,957

Fund investments

6,000

8,025

47,783

51,274

8,019

8,154

Sub-total Financial assets designated at fair value through profit or loss Borrowings from non-bank financial institutions (Note 1) Other debt instruments (Note 1, Note 2)

111,382

-

4,237

4,318

Sub-total

123,638

12,472

Total

171,421

63,746

Other investments (Note 3)

Note 1: The amount of changes in fair value arising from the changes in the credit risk of debt instruments is insignificant. Note 2: Other debt instruments are financing products issued to corporates by the Bank. Note 3: Other investments mainly include the long-term employee benefits payable to Changjiang Pension Insurance Co., Ltd. for investment entrusted by the Group. As at 31 December 2016, the fair value of the investment amounts to RMB 4,373 million (31 December 2015: RMB 4,258 million).

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.15 Derivative financial instruments Group and Bank 31 December 2016 Notional amount

Fair value Assets

Liabilities

Derivative financial instruments not held for hedging: Currency swap contracts

952,453

13,130

(10,499)

Interest rate swap contracts

783,631

581

(875)

Option contracts

108,015

618

(871)

Precious metal derivative financial instruments

57,127

1,005

(336)

Foreign exchange forward contracts

46,729

423

(472)

6,109

275

-

15,082

164

(38)

Commodity contracts Derivative financial instruments held as hedging instruments at fair value: Interest rate swap Cross-currency interest rate swap

790

Total

37

-

16,233

(13,091)

Group and Bank 31 December 2015 Notional amount

Fair value Assets

Liabilities

Derivative financial instruments not held for hedging: Currency swap contracts

659,926

6,824

(5,498)

Interest rate swap contracts

632,405

296

(1,090)

Precious metal derivative financial instruments

43,197

2,812

(196)

Foreign exchange forward contracts

42,079

356

(194)

Option contracts

30,254

302

(283)

7,127

20

(58)

10,610

(7,319)

Derivative financial instruments held as hedging instruments at fair value: Interest rate swap Total

The notional amounts of certain types of financial instruments provide a basis for comparison with instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Group’s exposure to credit or price risks. The derivative instruments become favourable (assets) or unfavourable (liabilities) as a result of fluctuations in market interest rates or foreign exchange rates relative to their terms. The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly from time to time.

307

308

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.16 Financial assets purchased under resale agreements Group and Bank Bonds

31 December 2016

31 December 2015

2,864

4,980

137

-

-

105,238

3,001

110,218

Deposit certificates issued by other financial institutions Bills Total

5.17 Loans and advances to customers Group

Bank

31 December 2016

31 December 2015

31 December 2016

31 December 2015

1,707,344

1,564,247

1,696,336

1,552,924

Trade finance

23,970

31,887

23,970

31,887

Discounted bills

61,293

62,080

60,977

61,712

Mortgage loans

458,215

260,568

457,317

259,991

Loans to finance family business

157,538

144,469

151,252

138,443

Credit card and overdraft

267,119

111,055

267,119

111,055

87,327

71,212

86,281

70,530

2,762,806

2,245,518

2,743,252

2,226,542

Individual impairment allowances

(15,475)

(9,963)

(15,475)

(9,963)

Collective impairment allowances

(72,774)

(64,142)

(71,882)

(63,369)

Total impairment allowances

(88,249)

(74,105)

(87,357)

(73,332)

2,674,557

2,171,413

2,655,895

2,153,210

Corporates loans Commercial Loans

Retail loans

Others Gross loans and advances to customers

Loans and advances to customers, net

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.17.1 Loans and advances to customers analysed by approach of impairment assessment Impaired loans

Group

Non-impaired loans subject to collective Collective assessment assessment

Individual assessment

Sub-total

Total

As at 31 December 2016 Corporates loans Retail loans Allowance for impairment Loans and advances to customers, net

1,751,198

12,544

28,865

41,409

1,792,607

959,430

10,769

-

10,769

970,199

2,710,628

23,313

28,865

52,178

2,762,806

(57,764)

(15,010)

(15,475)

(30,485)

(88,249)

2,652,864

8,303

13,390

21,693

2,674,557

1,630,928

9,431

17,855

27,286

1,658,214

579,536

7,768

-

7,768

587,304

2,210,464

17,199

17,855

35,054

2,245,518

(53,016)

(11,126)

(9,963)

(21,089)

(74,105)

2,157,448

6,073

7,892

13,965

2,171,413

Individual assessment

Sub-total

Total

As at 31 December 2015 Corporates loans Retail loans Allowance for impairment Loans and advances to customers, net

Impairment loans

Bank

Non-impaired loans subject to collective Collective assessment assessment

As at 31 December 2016 Corporates loans Retail loans Allowance for impairment Loans and advances to customers, net

1,740,121

12,297

28,865

41,162

1,781,283

951,324

10,645

-

10,645

961,969

2,691,445

22,942

28,865

51,807

2,743,252

(57,078)

(14,804)

(15,475)

(30,279)

(87,357)

2,634,367

8,138

13,390

21,528

2,655,895

1,619,426

9,242

17,855

27,097

1,646,523

572,309

7,710

-

7,710

580,019

As at 31 December 2015 Corporates loans Retail loans Allowance for impairment Loans and advances to customers, net

2,191,735

16,952

17,855

34,807

2,226,542

(52,381)

(10,988)

(9,963)

(20,951)

(73,332)

2,139,354

5,964

7,892

13,856

2,153,210

309

310

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) 5.17.2 Loans and advances to customers analysed by industry Group

31 December 2016

31 December 2015

Amount

(%)

Amount

(%)

Manufacturing

337,188

12.21

350,252

15.61

Wholesale and retail

303,465

10.98

299,024

13.32

Real estate

244,285

8.84

236,579

10.54

Lease and commercial service

244,088

8.83

168,908

7.52

Construction

125,173

4.53

125,383

5.58

Transportation, warehouse and postal services

111,969

4.05

99,416

4.43

Water, environment and public facilities management

101,138

3.66

92,399

4.11

Mining

65,748

2.38

60,021

2.67

Energy and utilities

58,505

2.12

46,785

2.08

Agriculture, forestry, farming and fishery

21,590

0.78

19,924

0.89

Research and technology services

18,254

0.66

7,616

0.34

Information transmission, software and IT services

16,340

0.59

12,452

0.55

Public management, social security and social organization

15,421

0.56

15,073

0.67

Healthcare and social welfare

13,591

0.49

11,416

0.51

Education

10,191

0.37

11,204

0.50

Culture, sports and entertainment

10,024

0.36

7,717

0.34

Hotel and catering

9,999

0.36

11,858

0.53

Resident services, repairing and other services

9,882

0.36

11,787

0.52

Financial services

8,747

0.32

4,386

0.20

Corporate loans

Others

5,716

0.21

3,934

0.18

1,731,314

62.66

1,596,134

71.09

Discounted bank acceptances

33,514

1.21

48,043

2.14

Re-discount

20,543

0.75

8,785

0.39

7,236

0.26

5,252

0.23

Discounted commercial acceptances

Retail loans Total

61,293

2.22

62,080

2.76

970,199

35.12

587,304

26.15

2,762,806 100.00

2,245,518

100.00

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.17.2 Loans and advances to customers analysed by industry (Continued) Bank

31 December 2016

31 December 2015

Amount

(%)

Amount

(%)

Manufacturing

331,040

12.07

344,246

15.46

Wholesale and retail

301,329

10.98

296,975

13.34

Real estate

244,264

8.90

236,552

10.62

Lease and commercial service

244,949

8.93

168,692

7.57

Construction

124,449

4.54

124,600

5.60

Transportation, warehouse and postal services

111,854

4.08

99,328

4.46

Water, environment and public facilities management

101,011

3.68

92,292

4.14 2.69

Corporate loans

Mining

65,582

2.39

59,861

Energy and utilities

58,046

2.12

46,396

2.08

Agriculture, forestry, farming and fishery

20,076

0.73

18,544

0.83

Research and technology services

18,238

0.67

7,616

0.34

Information transmission, software and IT services

16,284

0.59

12,416

0.56

Public management, social security and social organization

15,421

0.56

15,073

0.68

Healthcare and social welfare

13,535

0.49

11,373

0.51

Education

10,150

0.37

11,139

0.50

Culture, sports and entertainment

9,975

0.36

7,704

0.35

Hotel and catering

9,844

0.36

11,749

0.53

Resident services, repairing and other services

9,797

0.36

11,711

0.53

Financial services

8,747

0.32

4,610

0.21

Others

5,715

0.21

3,934

0.18

1,720,306

62.71

1,584,811

71.18

Discounted bank acceptances

33,226

1.21

47,675

2.14

Re-discount

20,543

0.75

8,785

0.39

7,208

0.26

5,252

0.24

Discounted commercial acceptances

Retail loans Total

60,977

2.22

61,712

2.77

961,969

35.07

580,019

26.05

2,743,252

100.00

2,226,542

100.00

311

312

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) 5.17.3 Loans and advances to customers analyzed by geography Group

31 December 2016

31 December 2015

Amount

(%)

Amount

(%)

Headquarter

331,611

12.00

165,417

7.37

Yangtze River Delta

764,740

27.69

684,878

30.50

255,951

9.26

189,971

8.46

Bohai Rim

374,460

13.55

306,002

13.63

Central China

384,345

13.91

326,562

14.54

Western China

413,968

14.98

351,284

15.64

North-east China

165,938

6.01

163,123

7.26

Pearl River Delta and West Side of Taiwan Strait

Overseas and subsidiaries

71,793

2.60

58,281

2.60

Total

2,762,806

100.00

2,245,518

100.00

Bank

31 December 2016

31 December 2015

Amount

(%)

Amount

(%)

Headquarter

331,611

12.09

165,417

7.43

Yangtze River Delta

764,740

27.87

684,878

30.75

255,951

9.33

189,971

8.53

Bohai Rim

375,165

13.68

306,002

13.74

Central China

384,345

14.01

326,562

14.67

Western China

413,968

15.09

351,284

15.78

North-east China

165,938

6.05

163,123

7.33

Pearl River Delta and West Side of Taiwan Strait

Overseas and subsidiaries Total

51,534

1.88

39,305

1.77

2,743,252

100.00

2,226,542

100.00

5.17.4 Loans and advances to customers analysed by collateral type Group

Bank

31 December 2016

31 December 2015

31 December 2016

31 December 2015

1,157,707

977,172

1,150,482

971,345

Guaranteed loans

682,061

631,413

671,370

620,755

Unsecured loans

744,151

470,744

744,229

470,236

Pledged loans

178,887

166,189

177,171

164,206

2,762,806

2,245,518

2,743,252

2,226,542

Collateralised loans

Gross loans and advances to customers

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.17.5 Overdue loans and advances to customers Group 31 December 2016 Past due up to 90

Past due 90 days

Past due 1 year to

days

to 1 year

3 years

Past due over

(including 90 days)

(including 1 year)

(including 3 years)

3 years

Total

5,648

14,974

7,806

1,325

29,753

Guaranteed loans

11,398

18,927

9,429

506

40,260

Unsecured loans

1,951

4,253

3,034

156

9,394

301

1,538

930

18

2,787

19,298

39,692

21,199

2,005

82,194

Past due up to 90

Past due 90 days

Past due 1 year to

days

to 1 year

3 years

Past due over

(including 90 days)

(including 1 year)

(including 3 years)

3 years

Total

Collateralised loans

5,806

11,655

6,944

542

24,947

Guaranteed loans

6,162

13,916

6,950

83

27,111

Unsecured loans

1,555

1,366

2,163

86

5,170

Collateralised loans

Pledged loans Total

31 December 2015

Pledged loans Total

294

1,008

654

1

1,957

13,817

27,945

16,711

712

59,185

31 December 2016

Bank

Collateralised loans

Past due up to 90 days (including 90 days)

Past due 90 days to 1 year (including 1 year)

Past due 1 year to 3 years (including 3 years)

Past due over 3 years

Total

5,566

14,862

7,657

1,323

29,408

Guaranteed loans

11,196

18,645

9,282

504

39,627

Unsecured loans

1,951

4,243

3,034

156

9,384

Pledged loans Total

301

1,538

921

18

2,778

19,014

39,288

20,894

2,001

81,197

31 December 2015 Past due up to 90 days (including 90 days)

Past due 90 days to 1 year (including 1 year)

Past due 1 year to 3 years (including 3 years)

Past due over 3 years

Total

Collateralised loans

5,767

11,515

6,934

521

24,737

Guaranteed loans

6,001

13,698

6,916

83

26,698

Unsecured loans

1,555

1,366

2,163

86

5,170

275

983

654

1

1,913

13,598

27,562

16,667

691

58,518

Pledged loans Total

313

314

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.17.6 Allowance for impairment of loans and advances to customers Group Year ended 31 December 2016 Individually assessed Balance at beginning of the year Charge for the year Write-off Transfer-out Recovery of loans and advances written off in previous years Unwind of discount on impairment allowance Exchange difference Balance at end of the year

Year ended 31 December 2015

Collectively assessed

Total

Individually assessed

Collectively assessed

Total

9,963

64,142

74,105

6,081

47,685

53,766

22,828

24,017

46,845

10,836

26,234

37,070

(2,936)

(12,354)

(15,290)

(4,078)

(5,966)

(10,044)

(14,265)

(3,684)

(17,949)

(2,588)

(3,844)

(6,432)

703

947

1,650

314

316

630

(818)

(348)

(1,166)

(602)

(312)

(914)

-

54

54

-

29

29

15,475

72,774

88,249

9,963

64,142

74,105

Bank Year ended 31 December 2016

Year ended 31 December 2015

Individually assessed

Collectively assessed

Total

Individually assessed

Collectively assessed

Total

9,963

63,369

73,332

6,081

47,114

53,195

Charge for the year

22,828

23,753

46,581

10,836

25,970

36,806

Write-off

(2,936)

(12,209)

(15,145)

(4,078)

(5,904)

(9,982)

(14,265)

(3,684)

(17,949)

(2,588)

(3,844)

(6,432)

703

947

1,650

314

316

630

(818)

(348)

(1,166)

(602)

(312)

(914)

Balance at beginning of the year

Transfer-out Recovery of loans and advances written off in previous years Unwind of discount on impairment allowance Exchange difference Balance at end of the year

-

54

54

-

29

29

15,475

71,882

87,357

9,963

63,369

73,332

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.18 Available-for-sale financial assets Group 31 December 2016

31 December 2015

Government bonds

37,182

58,148

Bonds issued by policy banks

29,675

63,416

Bonds issued by financial institutions

61,018

32,662

Deposit certificates issued by other financial institutions

76,940

22,579

Corporate bonds

47,956

50,955

Assets backed securities (“ABS”)

73,507

-

Trust and asset management plans

23,492

-

At fair value

2,896

1,926

Wealth management products managed by other banks

160,526

-

Fund investments

102,990

19,467

Equity investments

Others Total

4,281

5,693

620,463

254,846 Bank

31 December 2016

31 December 2015

Government bonds

37,182

58,148

Bonds issued by policy banks

29,675

63,416

Bonds issued by financial institutions

61,018

32,662

Deposit certificates issued by other financial institutions

76,940

22,579

Corporate bonds

45,555

50,955

ABS

73,507

-

Trust and asset management plans

21,116

-

2,118

1,596

Wealth management products managed by other banks

160,526

-

Fund investments

102,062

19,467

At fair value

Equity investments

Others Total

2,902

5,693

612,601

254,516

315

316

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.19 Investment securities - held-to-maturity Group and Bank 31 December 2016

31 December 2015

Government bonds

162,156

121,052

Bonds issued by policy banks

153,469

105,797

5,194

5,100

-

658

6,179

7,096

Bonds issued by financial institutions Deposit certificates issued by other financial institutions Corporate bonds Less:impairment allowance Total

(48)

-

326,950

239,703

5.20 Investment securities - loans and receivables Group 31 December 2016

Bank 31 December 2015

31 December 2016

31 December 2015

Bonds Government bonds

41,828

190

41,828

190

Bonds issued by financial institutions

14,219

16,707

14,219

16,707

Corporate bonds

22,039

25,940

22,039

25,940

4,798

9,459

4,798

9,459

ABS

82,884

52,296

82,884

52,296

821,881

1,112,886

816,891

1,112,886

Wealth management products managed by other banks 74,129

150,066

74,129

150,066

Trust and asset management plans (Note 1)

37,387

14,394

37,187

14,394

933,397

1,277,346

928,207

1,277,346

Individual assessed impairment allowances

(1,476)

(117)

(1,476)

(117)

Collectively assessed impairment allowances

(4,333)

(4,493)

(4,333)

(4,493)

Sub-total

(5,809)

(4,610)

(5,809)

(4,610)

1,010,472

1,325,032

1,005,282

1,325,032

Others(Note 2)

Loans and receivables, net

Note 1: Certain trust companies and security companies established these trust and asset management plans and are responsible for the management of these products. Investment decisions are also made by these trust companies or security companies. These products are ultimately invested in trust loans, bill assets and bonds. Note 2: These are the assets invested by certain principal-guaranteed wealth management products issued and managed by the Group. The ultimate investments of these wealth management products include bonds, trust loans, senior tranche of structured entities.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.21 Investments in associate and joint ventures Group

Bank

31 December 2016

31 December 2015

31 December 2016

31 December 2015

Investment in associate

218

Investment in joint ventures

731

974

-

974

625

731

625

Total

949

1,599

731

1,599

Amounts recorded in the statement of comprehensive income are analysed as follows: Group

Bank

Year ended 2016

31 December 2015

Year ended 2015

31 December 2015

—Share of profits

87

88

70

88

—Share of other comprehensive income

18

(37)

18

(37)

Investments in associates

—Exchange differences

-

3

-

3

105

54

88

54

—Share of profits

93

71

93

71

—Exchange differences

13

8

13

8

Sub-total

106

79

106

79

Total

211

133

194

133

Sub-total Investments in joint ventures

Major associates and joint ventures Name of the investees Joint venture-AXA SPDB Investment Managers Co., Ltd.

Places of incorporation

Share holding percentage

Nature of business

Accounting Method

Shanghai, China

51%

Financial industry

Equity method

According to the Articles of Association of AXA SPDB Investment Managers Co., Ltd., resolutions on certain significant operate and finance decisions shall be approved by shareholders representing more than two thirds voting shares. These resolutions include the company’s strategic plan, investment plan, annual financial budget and financial statements and profit appropriations etc. Although the Group owns 51% voting shares of AXA SPDB Investment Management Co., Ltd., it has to exercise influences over the company jointly with another major shareholder. Name of the investees Joint venture-SPD Silicon Valley Bank Co., Ltd.

Places of incorporation

Share holding percentage

Nature of business

Accounting Method

Shanghai, China

50%

Financial industry

Equity method

317

318

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated) The Group’s associates and joint ventures are all unlisted companies. As at 31 December 2016, there is no restriction for capital transfer from the Group’s subsidiaries and joint ventures to the Bank. There are no contingent liabilities of the Group in these associates and joint ventures. The Bank is of the view that the above associates and joint ventures are not material to the Group in terms of their net profit and net assets and therefore no additional information disclosure is required.

5.22 Property and equipment 31 December 2015

Additions

Transfer from business combinations

Disposals

31 December 2016

Cost

30,686

4,823

581

(379)

35,711

Land and buildings

10,575

1,381

495

-

12,451

Group

Motor vehicles

475

28

3

(42)

464

Software

1,558

197

13

-

1,768

Electronic computers and other equipment

6,708

992

70

(330)

7,440

Aircraft equipment

5,942

1,800

-

-

7,742

Leasehold improvement

5,428

425

-

(7)

5,846

12,819

2,651

-

(351)

15,119

2,986

392

-

-

3,378 339

Accumulated depreciation Land and buildings Motor vehicles

327

49

-

(37)

Software

1,102

291

-

-

1,393

Electronic computers and other equipment

4,310

995

-

(313)

4,992

177

355

-

-

532

3,917

569

-

(1)

4,485

Aircraft equipment Leasehold improvement Net book value Land and buildings

17,867

20,592

7,589

9,073

Motor vehicles

148

125

Software

456

375

Electronic computers and other equipment

2,398

2,448

Aircraft equipment

5,765

7,210

Leasehold improvement

1,511

1,361

The depreciation expense recognized in profit or loss for the year ended 31 December 2016 is RMB 2,651 million (31 December 2015: RMB 2,090 million). As at 31 December 2016, the net book value of 7,210 million (31 December 2015: net book value of 5,765 million) of Flight equipment of Group‘s subsidiary SPDB Financial Leasing Co., Ltd has been leased. As at 31 December 2016, the Group’s land and buildings with cost of 942 million and net book value of 811 million (31 December 2015: the cost of 1,199 million, the net book value of 1,139 million) are already in use but the property registration are in progress.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.22 Property and equipment (Continued) Bank

31 December 2015

Additions

Disposals

31 December 2016

Cost

24,492

2,934

(360)

27,066

Land and buildings

10,573

1,359

-

11,932

450

26

(39)

437

Software

1,553

181

-

1,734

Electronic computers and other equipment

6,625

968

(314)

7,279

Motor vehicles

Leasehold improvement Accumulated depreciation Land and buildings

5,291

400

(7)

5,684

12,498

2,197

(333)

14,362

2,986

370

-

3,356

311

45

(35)

321

Software

1,101

282

-

1,383

Electronic computers and other equipment

4,264

960

(297)

4,927

3,836

540

(1)

Motor vehicles

Leasehold improvement Net book value Land and buildings Motor vehicles

4,375

11,994

12,704

7,587

8,576

139

116

452

351

Electronic computers and other equipment

2,361

2,352

Leasehold improvement

1,455

1,309

Software

The depreciation expense recognized in profit or loss for the year ended 31 December 2016 is RMB 2,197 million (31 December 2015: RMB 1,883 million).

5.23 Construction in progress Group

31 December 2015

Additions

Transfer out

31 December 2016

Buildings

1,484

172

(959)

697

Others

1,678

531

(157)

2,052

Total

3,162

703

(1,116)

2,749

Bank

31 December 2015

Additions

Transfer out

31 December 2016

Buildings

1,484

172

(959)

697

Others

1,678

514

(149)

2,043

Total

3,162

686

(1,108)

2,740

319

320

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.24 Intangible assets 31 December 2015

Additions

Transfer from business combinations

Disposals

31 December 2016

Cost

-

6,981

2,924

-

9,905

Goodwill(Note 1)

-

6,981

-

-

6,981

Contractual customer relationships

-

-

688

-

688

Brand and franchise right

-

-

2,236

-

2,236

Accumulated Amortization

-

401

-

-

401

Goodwill

-

-

-

-

-

Contractual customer relationships

-

401

-

-

401

Brand and franchise right

-

-

-

-

-

Net book value

-

9,504

Goodwill

-

6,981

Contractual customer relationships

-

287

Brand and franchise right

-

2,236

Group

The amortization expense recognized in profit or loss for the year ended 31 December 2016 is RMB 401million (31 December 2015: Nil). Note 1: On March 2016, the Bank issued ordinary shares of RMB 17,011 million to acquire 97.33% equity of Shanghai Trust. The difference between fair value of the Bank’s issued shares and net assets of Shanghai Trust attributable to parent company, RMB 10,030 million on acquisition date, amounting to RMB 6,981 million, is recognised as goodwill (Note: 5.43).

According to the Group’s impairment test result, the brand and franchise right are not impaired in 31 December, 2016. Goodwill impairment

Impairment allowances

31 December 2015

Additions

Disposals

31 December 2016

-

-

-

-

The goodwill allocated to the asset groups and groups of asset groups are summarised by operating segments as follows: 31 December 2016 Shanghai Trust

4,739

Subsidiaries of Shanghai Trust

2,242 6,981

The Group calculated the recoverable amount of CGU using cash flow projections based on the management’s five -year financial forecasts. The cash flows beyond the five-year period are calculated based on the following estimated growth rates.

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

The main assumptions applied in calculating discounted future cash flows are as follows:

Growth rate Discount rate

Shanghai Trust

Subsidiaries of Shanghai Trust

3%

3%

14.30%

14.40%—16.40%

The average growth rates used by the Group are consistent with the forecasts included in industry reports, and do not exceed the long-term average growth rates of each product. The management used pre-tax interest rates that are able to reflect specific risks relating to the relevant CGU and CGUs. The above assumptions are used to analyse the recovery amounts of the CGU and CGUs within the business segment.

5.25 Deferred income tax 5.25.1 The table below includes the deferred income tax assets and liabilities of the Group and the Bank after offsetting qualifying amounts. Group

Deferred income tax assets Deferred income tax liabilities

Bank

31 December

31 December

31 December

31 December

2016

2015

2016

2015

21,838

14,427

21,502

14,212

(717)

(7)

-

-

5.25.2 Deferred income tax assets/liabilities and related temporary differences, before offsetting qualifying amounts, are attributable to the following items: Group

31 December 2016

31 December 2015

Deductible/ (Taxable) temporary differences

Deferred income tax assets/ (liabilities)

92,618

23,155

67,660

16,915

32

8

39

10

Employee benefits payable

148

37

123

31

Fair value changes of available-for-sale financial assets recognized in other comprehensive income

142

36

-

-

Fair value changes of hedged available-for-sale financial assets recognized in profit or loss

213

53

12

3

Fair value changes of financial assets and liabilities at fair value through profit or loss

233

58

-

-

-

-

1,254

314

93,386

23,347

69,088

17,273

Impairment allowances for loans and other assets Amortization for long-term assets

Fair value changes of precious metals Deferred income tax assets before offsetting Group

Fair value changes of financial assets and liabilities at fair value through profit or loss Fair value changes of precious metals Fair value changes of available-for-sale financial assets

31 December 2016

Deferred Deductible/ (Taxable) income tax assets/ temporary differences (liabilities)

31 December 2015

Deductible/ (Taxable) temporary differences

Deferred income tax assets/ (liabilities)

(1,843)

(461)

(484)

(121)

(782)

(196)

-

-

(231)

(58)

(7,588)

(1,897)

Deferred Deductible/ (Taxable) income tax assets/ temporary differences (liabilities)

321

Deductible/ (Taxable) temporary differences

Deferred income tax assets/ (liabilities)

92,618

23,155

67,660

16,915

32

8

39

10

Employee benefits payable

148

37

123

31

Fair value changes of available-for-sale financial assets recognized in other comprehensive income

142

36

-

-

53

12

3

58

-

-

Impairment allowances for loans and other assets

322

Amortization for long-term assets 2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. Fair value changes of hedged available-for-sale financial 213 NOTES TO THE FINANCIAL STATEMENTS assets recognized in profit or loss FOR THE YEAR ENDED 31 DECEMBER 2016 Fair value changes of financial assets and liabilities (All amounts expressed in millions of RMB unless otherwise stated) 233 at fair value through profit or loss

Deferred Deductible/ (Taxable) income tax assets/ temporary differences (liabilities)

Fair value changesincome of precious 5.25.2 Deferred tax metals assets/liabilities and related temporary differences, qualifying - before offsetting 1,254 314 amounts, are attributable the following Deferred income tax assets to before offsetting items:(continued) 93,386

Group

23,347

31 December 2016

69,088

17,273

31 December 2015

Deductible/ (Taxable) temporary differences

Deferred income tax assets/ (liabilities)

(1,843)

(461)

(484)

(121)

Fair value changes of precious metals

(782)

(196)

-

-

Fair value changes of available-for-sale financial assets recognized in other comprehensive income

(231)

(58)

(7,588)

(1,897)

(3,142)

(786)

(3,291)

(823)

(33)

(8)

(19)

(5)

(2,852)

(713)

-

-

(16)

(4)

(28)

(7)

(8,899)

(2,226)

(11,410)

(2,853)

Fair value changes of financial assets and liabilities at fair value through profit or loss

Fair value changes of derivative financial instruments Depreciation Differences between fair value and carrying amount of identifiable net assets arising from business combinations of entities not under common control Others Deferred tax liabilities before offsetting

Deferred Deductible/ (Taxable) income tax assets/ temporary differences (liabilities)

As at 31 December 2016, the Group offset deferred income tax assets and liabilities of RMB 1,509 million (31 December 2015: RMB 2,846 million). Bank

31 December 2016

31 December 2015 Deferred Deductible/ (Taxable) income tax assets/ temporary differences (liabilities)

Deductible/ (Taxable) temporary differences

Deferred income tax assets/ (liabilities)

91,678

22,920

66,925

16,731

32

8

39

10

213

53

12

3

-

-

1,254

314

Deferred income tax assets before offsetting

91,923

22,981

68,230

17,058

Fair value changes of financial assets and liabilities at fair value through profit or loss

(1,843)

(461)

(484)

(121)

Fair value changes of precious metals

(782)

(196)

-

-

Fair value changes of available-for-sale financial assets recognized in other comprehensive income

(121)

(30)

(7,588)

(1,897)

(3,142)

(786)

(3,291)

(823)

(25)

(6)

(19)

(5)

(5,913)

(1,479)

(11,382)

(2,846)

Impairment allowances for loans and other assets Amortization for long-term assets Fair value changes of hedged available-for-sale financial assets recognized in profit or loss Fair value changes of precious metals

Fair value changes of derivative financial instruments Depreciation Deferred tax liabilities before offsetting

2016 Annual Report

323

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

As at 31 December 2016, the Bank offset deferred income tax assets and liabilities of RMB 1,479 million (31 December 2015: RMB 2,846 million).

5.25.3 The movement of the deferred income tax account is as follows: Group

Year ended 31 December 2016

Group Balance at beginning of the year

Year ended 31 December 2016 14,420

Balance of the year Credited at to beginning profit or loss (Note 5.9)

14,420 5,579

Credited loss (Note 5.9) Credited to to profit other or comprehensive income

5,579 1,875

Credited comprehensive Deferred to taxother assets transferred inincome from business combination

1,875 67 67 (3)

Deferred transferred in in from business combination Deferred tax tax assets liabilities transferred from business combination Deferred taxbetween liabilitiesfair transferred from business Differences value andincarrying amountcombination of identifiable net assets

(3) (817)

Differences value and carrying amount of identifiable net assets arising from between businessfair combinations not involving entities under common control

(817) 21,121

arising business not involving entities under common control Balancefrom at end of the combinations year Balance at end of the year Bank

21,121 Year ended 31 December 2016

Bank Balance at beginning of the year

Year ended 31 December 2016 14,212

Balance of the year Credited at to beginning profit or loss (Note 5.9)

14,212 5,423

Credited loss (Note 5.9) Credited to to profit other or comprehensive income

5,423 1,867

Credited to end otherofcomprehensive income Balance at the year

1,867 21,502

Balance at end of the year

21,502

5.26 Other assets Group 31 December 2016

Bank 31 December 2015

31 December 2016

40,988

31,395

Interest receivable

22,911

20,437

22,299

20,021

Settlement and clearing accounts

8,781

6,725

8,781

6,725

Margin deposits for precious metal trading

5,908

4,084

5,908

4,084

Other receivables (Note 2)

5,297

3,151

4,267

2,870

Prepayment for land use rights and constructions

5,003

5,475

5,003

5,475

Payments to Trust Protection Fund on behalf of investors 2,300

-

31 December 2015

Finance lease receivable (Note 1)

-

-

-

-

Foreclosed assets

924

818

921

815

Other long-term assets

396

267

349

230

Land use rights Total Note 1: Finance lease receivable

351

302

348

302

92,859

72,654

47,876

40,522

324

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.26 Other assets(Continued) Group

31 December 2016

31 December 2015

Within 1 year (including 1 year)

13,551

10,133

1 to 2 years (including 2 years)

10,194

8,336

2 to 3 years (including 3 years)

9,056

6,868

3 to 5 years (including 5 years)

10,438

8,292

Gross finance lease receivable analysed by maturity:

4,906

3,114

Gross amount of finance lease receivable

48,145

36,743

Unearned income

(5,820)

(4,347)

Net amount of finance lease receivable

42,325

32,396

Within 1 year (including 1 year)

11,375

8,460

1 to 5 years (including 5 years)

26,442

21,089

Over 5 years

Net amount of finance lease receivable analysed by maturity:

4,508

2,847

42,325

32,396

Impairment allowance

(1,337)

(1,001)

Net finance lease receivable

40,988

31,395

Over 5 years

Note 2: Other receivables are analyzed by aging as follows:

Group

Bank

31 December 2016

31 December 2015

31 December 2016

31 December 2015

5,133

3,354

4,126

3,073

1 to 2 years

344

222

335

222

2 to 3 years

635

442

623

442

1,072

826

1,066

826

Within 1 year

Over 3 years Less: Impairment allowance Net other receivables

7,184

4,844

6,150

4,563

(1,887)

(1,693)

(1,883)

(1,693)

5,297

3,151

4,267

2,870

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.27 Impairment allowances for assets 31 December 2015

Charge

Write-off

Transfer-out

Others

31 December 2016

74,105

46,845

(15,290)

(17,949)

538

88,249

Investments classified as loans and receivables

4,610

1,209

-

-

(10)

5,809

Other receivables

1,693

264

(70)

-

-

1,887

Foreclosed assets

595

18

-

-

-

613

1,001

336

-

-

-

1,337

523

384

-

-

-

907

81

-

-

-

6

87

-

48

-

-

-

48

Total

82,608

49,104

(15,360)

(17,949)

534

98,937

Bank

31 December 2015

Charge

Write-off

Transfer-out

Others

31 December 2016

Group Loans and advances to customers

Finance lease receivable Interest receivable Available-for-sale financial assets Investment securities- held –to -maturity

Loans and advances to customers

73,332

46,581

(15,145)

(17,949)

538

87,357

Investments classified as loans and receivables

4,610

1,209

-

-

(10)

5,809

Other receivables

1,693

260

(70)

-

-

1,883

Foreclosed assets

595

18

-

-

-

613

Interest receivable

523

384

-

-

-

907

81

-

-

-

6

87

-

48

-

-

-

48

80,834

48,500

(15,215)

(17,949)

534

96,704

Available-for-sale financial assets Investment securities-held-to-maturity Total

5.28 Due to and placements from banks and other financial institutions Group 31 December 2016

Bank 31 December 2015 31 December 2016 31 December 2015

Due to domestic banks

477,276

306,367

481,622

311,801

Due to other domestic financial institutions

808,390

670,275

809,220

670,476

Due to overseas banks

17,335

32,665

17,335

32,665

Due to other overseas financial institutions

38,962

33,641

38,962

33,641

Placements from domestic banks

59,952

94,415

22,750

66,598

Placements from overseas banks

35,680

4,174

35,680

3,377

Placements from other domestic financial institutions Total

1,500

1,000

1,500

1,000

1,439,095

1,142,537

1,407,069

1,119,558

325

326

2016 Annual Report

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.29 Financial liabilities at fair value through profit or loss Group

Bank

31 December 2016 Financial liabilities related to precious metals

24,301

210

24,301

210

5,004

-

-

-

221

-

221

-

29,526

210

24,522

210

Interest of other unitholders in consolidated structured entities (Note 1) Others Total

31 December 2015 31 December 2016 31 December 2015

Note 1: The Group designated interests attributable to other unitholders in consolidated structured entities as financial liabilities at fair value through profit or loss. As at 31 December 2016, no significant fair value changes have occurred due to changes in the Group's own credit risk.

5.30 Financial assets sold under repurchase agreements Group

Bank

31 December 2016

31 December 2015

31 December 2016

31 December 2015

Bonds

72,606

43,756

72,606

43,756

Bills

20,344

74,995

20,322

74,943

250

454

-

-

93,200

119,205

92,928

118,699

Finance lease receivables Total

5.31 Deposits from customers Group

Bank

31 December 2016

31 December 2015

31 December 2016

31 December 2015

1,213,075

956,336

1,204,059

948,317

163,074

129,912

160,670

127,839

1,042,125

1,144,900

1,036,914

1,138,843

-Retail

310,746

372,036

302,017

365,397

Pledged deposits

Current deposits -Corporate -Retail Time deposits -Corporate

235,879

319,832

233,825

317,037

Fiscal deposits

33,904

27,451

33,874

27,451

Other deposits

3,212

3,682

3,090

3,579

3,002,015

2,954,149

2,974,449

2,928,463

Total

2016 Annual Report

327

SHANGHAI PUDONG DEVELOPMENT BANK CO., LTD. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 (All amounts expressed in millions of RMB unless otherwise stated)

5.32 Bonds issued 31 December 2016

31 December 2015

Subordinated bond issued in 2011 (Note1)

18,400

18,400

Subordinated bond issued in 2012 (Note 2)

12,000

12,000

Other bond issued in 2012 (Note 3)

30,000

30,000

RMB bond issued in Hong Kong (Note 4)

1,000

1,000

Tier II capital bond issued in 2015 (Note5)

30,000

30,000

USD medium-term note (Note 6)

3,474

3,247

Green Financial Bond 01(Note 7)

20,000

-

Green Financial Bond 02(Note 8)

15,000

-

Green Financial Bond 03(Note 9)

15,000

-

144,874

94,647

(79)

(51)

Net book value of bonds issued

144,795

94,596

Deposit certificates issued

519,888

305,310

Total

664,683

399,906

Group and Bank Bonds issued

Sub-total Less: Unamortized issue cost

Note 1: The Bank issued subordinated bond in the amount of RMB 18.4 billion in the domestic inter-bank market on 11 October 2011 which have a term of 15 years through maturity, with a fixed annual coupon rate of 6.15%. The Bank is entitled to redeem entire portion of bond at face value on its tenth anniversary. Note 2: The Bank issued subordinated bond in the amount of RMB 12.0 billion in the domestic inter-bank market on 28 December 2012 which have a term of 15 years through maturity, with a fixed annual coupon rate of 5.20%. The Bank is entitled to redeem entire portion of bond at face value on its tenth anniversary. Note 3: The Bank issued financial bond in the amount of RMB 30 billion in the domestic inter-bank market on 28 February 2012 which have a term of 5 years, with a fixed annual coupon rate of 4.20%. Note 4: The Bank issued RMB bond in Hong Kong Exchanges and Clearing Limited in the amount of RMB 1 billion on 22 May 2014 which have a term of 3 years, with a fixed annual coupon rate of 4.08%. Note 5: The Bank issued Tier II capital instruments in the amount of RMB 30 billion in the domestic inter-bank market on 10 September 2015 which have a term of 10 years through maturity, with a fixed annual coupon rate of 4.5%. The Bank is entitled to redeem entire portion or part of the instruments at par value on its fifth anniversary under certain circumstances. Note 6: The Bank issued USD 500 million medium-term note in Hong Kong Exchange and Clearing Limited on 18 September 2015 which has a term of 3 years through maturity, with a fixed annual coupon rate of 2.5%. Note 7: The Bank issued “2016 First Green Financial Bond” in the amount of RMB 20 billion in the domestic inter-bank market on 27 January 2016 which has a term of 3 years through