2017 capital adequacy ratio report

70 Pages·2017·0.8 MB·English

AGRICULTURAL BANK OF CHINA LIMITED
中 國 農 業 銀 行 股 份 有 限 公 司
(ajointstock company incorporated inthePeople’s Republicof Chinawith limitedliability)
(Stock Code: 1288)
2017 CAPITAL ADEQUACY RATIO REPORT
Contents
1Overview......................................................................................................................................1
1.1Profile................................................................................................................................1
1.2Capital Adequacy Ratio....................................................................................................1
1.3DisclosureStatement........................................................................................................3
2RiskManagement Framework.....................................................................................................5
2.1Firm-wide RiskManagement...........................................................................................5
2.2RiskAppetite....................................................................................................................6
2.3Structureand Organization ofRiskManagement.............................................................6
2.4RiskManagement Policies and Systems..........................................................................8
2.5RiskManagement Tools and IT Systems.........................................................................9
3Information onComposition ofCapital.....................................................................................12
3.1Scopefor Calculating CapitalAdequacy Ratio..............................................................12
3.2Regulatory Capital Shortfall ofInvestees.......................................................................14
3.3RestrictionsonIntra-group Capital Transfers.................................................................14
3.4Contrast between Regulatory Consolidationand Financial Statement...........................14
3.5Composition ofCapital...................................................................................................16
3.6Main Features of EligibleCapital Instruments...............................................................22
3.7Threshold Deductions Limit and Limit of Excess Loan Loss Provisions......................32
3.8Changes in Paid-in Capital.............................................................................................34
3.9Significant CapitalInvestments......................................................................................34
4CreditRisk.................................................................................................................................35
4.1CreditRisk Management................................................................................................35
4.2CreditRisk Exposure......................................................................................................36
4.3Internal Ratings-Based Approach...................................................................................38
4.4CreditRisk Exposure Uncovered under Internal Ratings-Based....................................41
4.5CreditRisk Mitigation....................................................................................................43
4.6Loans and Advances to Customers.................................................................................45
5Market Risk................................................................................................................................52
5.1Market RiskManagement...............................................................................................52
5.2Market RiskExposure....................................................................................................52
6Operational Risk........................................................................................................................54
6.1Operational Risk Management.......................................................................................54
6.2Operational Risk Exposure.............................................................................................54
7OtherRisks................................................................................................................................55
7.1SecuritizationRisk..........................................................................................................55
7.2Counterparty Credit Risk................................................................................................59
7.3EquityRisk ofBanking Book.........................................................................................59
7.4InterestRate RiskofBanking Book...............................................................................61
7.5Liquidity Risk.................................................................................................................61
8Internal CapitalAdequacy Assessment.....................................................................................64
8.1Internal CapitalAdequacy Assessment Methods and Process.......................................64
8.2Capital Planningand CapitalAdequacy RatioManagement Plan..................................64
9Remuneration.............................................................................................................................65
9.1Nominationand Remuneration Committee oftheBoard of Directors............................65
9.2Remuneration Policy........................................................................................................65
10Outlook....................................................................................................................................67
1 Overview
1.1 Profile
The predecessor of the Bank was Agricultural Cooperative Bank established in 1951. Since the late
1970s, the Bank has evolved from a state-owned specialized bank to a wholly state-owned commercial
bank and subsequently a state-controlled commercial bank. The Bank was restructured into a joint stock
limited liability company in January 2009. In July 2010, the Bank was listed on the Shanghai Stock
Exchange and the Hong Kong Stock Exchange.
As one of the major integrated financial service providers in China, the Bank is committed to building
an international first-class commercial banking group with featured operations, efficient and convenient
services, diversified functions, as well as demonstrated value-creation capability. Capitalizing on its
comprehensive business portfolio, extensive distribution network and advanced IT platform, the Bank
provides a diverse portfolio of corporate and retail banking products and services for a broad range of
customers, and conducts treasury operations and asset management. Our business scope also includes,
among other things, investment banking, fund management, financial leasing and life insurance. At the
end of 2017, the Bank had total assets of RMB 21,053,382 million, loans and advances to customers of
RMB 10,720,611 million and deposits from customers of RMB 16,194,279 million. Our capital
adequacy ratio was 13.74%. TheBank achieved a net profit ofRMB 193,133million in 2017.
The Bank had a total of 23,661 domestic branch outlets at the end of 2017, including the Head Office,
the Business Department of the Head Office, three specialized business units managed by the Head
Office, three Training Institutes, 37 tier-1 branches (including 5 branches directly managed by the Head
Office), 378 tier-2 branches (including business departments of branches in provinces), 3,485 tier-1
sub-branches (including business departments in municipalities, business departments of branches
directly managed by the Head Office and business departments of tier-2 branches), 19,701 branch
outlets, and 52 other establishments. Our overseas branch outlets consisted of 13 overseas branches and
4 overseas representative offices. The Bank had 15 major subsidiaries, including 10 domestic
subsidiaries and 5overseas subsidiaries.
The Financial Stability Board has included the Bank into the list of Global Systemically Important
Banks for four consecutive years since 2014. In 2017, the Bank ranked No. 38 in Fortune’s Global 500,
and ranked No. 6 in The Banker’s “Top 1000 World Banks” list in terms of tier 1 capital. The Bank’s
issuer credit ratings assigned by Standard & Poor’s were A/A-1, and the long-/short-term issuer default
ratings assigned byFitch Ratings were A/F1.
1.2 Capital Adequacy Ratio
In 2014, the China Banking Regulatory Commission (hereinafter referred to as the “CBRC”) approved
the Bank’s use of foundation Internal Ratings-Based (IRB) approach for non-retail exposures, IRB
approach for retail exposures and standardized approach for operational risk on bank and group levels.
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As a result, the Bank became the first batch of domestic banks implementing advanced approaches for
capital management. In January 2017, the CBRC officially approved our applications to implement the
Internal Models Approach (IMA) for market risks, unify the major benchmarks of non-retail rating
among domestic and overseas branches, and abolish the regulatory restriction which provides that retail
risk weighted assets shall not be less than those calculated using the weighted approach. In accordance
with the Capital Rules for Commercial Banks (Provisional) (Decree of CBRC [2012] No. 1), CBRC
determined the parallel implementation period for a commercial bank approved to adopt the advanced
approaches of capital management. During the parallel implementation period, the banks shall calculate
its capital adequacy ratios under both advanced approaches and other approaches, and shall comply
with thecapital floor requirements.
At the end of 2017, the Bank adopted the foundation IRB approach for non-retail exposures and IRB
approach for retail exposures to measure credit risk-weighted assets, weighting approach for credit
risk-weighted assets uncovered by IRB approach, the Internal Models Approach (IMA) for market
risk-weighted assets, standardized measurement approach to measure market risk-weighted assets
uncovered by IMA，and standardized measurement approach to measure operational risk-weighted
assets. Unless otherwise specified, such information as regulatory capital, risk exposure, capital
requirement and risk-weighted assets contained herein were made byregulatory consolidation.
The table below sets out the net capital, risk-weighted assets and capital adequacy ratios calculated by
theBank pursuant to theCapital Rules forCommercial Banks (Provisional).
InmillionsofRMB,exceptforpercentages
Table1.2A: CapitalAdequacy Ratio
31December 2017 31December 2016
Item
TheGroup TheBank TheGroup TheBank
CET1capital, net 1,339,953 1,319,628 1,231,030 1,221,815
Additional Tier1capital, net 79,906 79,899 79,904 79,899
Tier1capital, net 1,419,859 1,399,527 1,310,934 1,301,714
Tier2capital, net 312,087 310,747 235,566 236,568
Total capital ,net 1,731,946 1,710,274 1,546,500 1,538,282
Risk-weighted assets 12,605,577 12,435,568 11,856,530 11,749,661
Credit risk-weighted assets 11,569,211 11,412,929 10,805,524 10,698,032
Portioncovered byIRB 7,943,112 7,943,112 8,104,766 8,104,766
Portionuncovered byIRB 3,626,099 3,469,817 2,700,758 2,593,266
Market risk-weighted assets 123,924 115,895 133,907 139,098
Portioncovered byIMA 111,741 111,741 - -
Portionuncovered byIMA 12,183 4,154 133,907 139,098
Operational risk-weighted assets 912,442 906,744 917,099 912,531
Additional risk-weighted assets
due to the requirement of the - - - -
capital floor
CET1capital adequacy ratio 10.63% 10.61% 10.38% 10.40%
Tier1capital adequacy ratio 11.26% 11.25% 11.06% 11.08%
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Capital adequacy ratio 13.74% 13.75% 13.04% 13.09%
The table below sets out the consolidated and unconsolidated capital adequacy ratios calculated in
accordance with the Rules on Capital Adequacy of Commercial Banks (Decree of CBRC [2007] No.11)
issued bytheCBRC during thetransitional period.
Table1.2B:CapitalAdequacy Ratio
31December 2017 31December 2016
Item TheGroup TheBank TheGroup TheBank
Corecapital adequacy ratio 10.00% 10.00% 10.32% 10.34%
Capital adequacy ratio 12.74% 12.71% 13.13% 13.15%
1.3 Disclosure Statement
Since 2013, the Bank has been disclosing to investors and thepublic the Capital Adequacy Ratio Report
through public channels in accordance with the requirements of the Capital Rules for Commercial
Banks (Provisional) issued by the CBRC. With a view to regulating this process the Bank formulated
the Administrative Measures on Information Disclosure of Capital Adequacy Ratio, which was
considered and approved bytheBoard ofDirectors.
The information disclosure of capital adequacy ratio of the Bank can be classified into provisional
disclosure and regular disclosure. Where changes arise from the common stocks and other capital
instruments of the Bank, a provisional disclosure will be made in a timely manner. The Bank makes
regular quarterly, interim and annual disclosures. The quarterly and interim disclosures are included in
the reports of the listed company at the same period, while the annual disclosure is presented as a
separate report. Investors and the public can visit the Investor Relations at the Bank’s official Website
(http://www.abchina.com)to inquiretheBank's disclosures.
This report was prepared pursuant to the regulatory requirements including the Capital Rules for
Commercial Banks (Provisional) (Decree of CBRC [2012] No. 1)and the Notice of the China Banking
Regulatory Commission on Issuing the Supporting Policy Documents for the Capital Regulation of
Commercial Banks (CBRC [2013] No.33) issued by the CBRC. On 26 March 2018, the Board of
Directors of the Bank considered and approved this report in the fifth meeting of 2018. On 26 March
2018, the Board of Supervisors of the Bank reviewed and approved this report in the first meeting of
2018.
It should be noted that this report is formulated in accordance with the regulatory requirements of the
CBRC, while the annual report of the listed company is formulated in accordance with the PRC
accounting standards and the International Financial Reporting Standards. As such, certain disclosure in
thisreport is not directly comparableto theBank’s annual report ofthelisted company.
The report contains forward-looking statements on the Bank’s financial positions, operation results and
risk profile. These statements are made on basis of existing plans, estimates and forecast. The Bank
believes that the expectations made in these forward-looking statements are reasonable. However, the
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Bank considers that the actual operation condition is related to the future external events, internal
finance, progress of business development, risk occurrence conditions or other performance, therefore,
investors shall not heavily rely onthesestatements.
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2 Risk Management Framework
2.1 Firm-wide Risk Management
Firm-wide risk management refers to the timely identification, measurement, monitoring, reporting and
control of risks in all aspects of business operations, processes and staff through the integration of
elements of risk management including risk appetite, policies, organizations, tools and models, IT
systems and risk culture, so as to ensure effective risk management in decision making, implementation
andsupervision.
In 2017, in response to the complicated and ever-changing domestic and international circumstance of
risk management and control, the Bank kept pushing forward the establishment of firm-wide risk
management system. Under the general requirement of emphasizing the importance of preventing and
controlling risks and fighting against the risks, the bank stuck to the risk bottom line by keeping the
principal line of preventing new risks and reducing existing risks. The Bank optimized the
responsibility and duty of risk management departments, perfected the risk management accountability
and performance assessment mechanism fulfilled the daily management of risks in a solid manner,
strengthened the efforts to mitigate risk in key areas, maintained improvement in asset quality. The
Bank continuously enhanced the market risk management in bond investment, asset management and
financial services with banks and other financial institutions, and deepened case prevention and control
and operational risk management. The Bank further enhanced the risk assessment system at both
horizontal and vertical levels, with standards for risk assessment and evaluation improved. Thus the
effectiveness ofrisk management oftheBank was further improved.
In January 2017, the CBRC officially approved our applications to implement the Internal Models
Approach (IMA) for market risks, unify the major benchmarks of non-retail rating among domestic and
overseas branches, and abolish the regulatory restriction which provides that retail risk weighted assets
shall not be less than those calculated using the weighted approach, so the implementation and
application of the advanced approach of capital management were furtherly reinforced. In 2017, we
continued to advance the unification and management of the non-retail Internal Rating Systems (IRS)
among domestic and overseas branches, and optimized the non-retail customer rating system. We
carried out early warning and identification of fraud risks in respect of retail loans based on big data.
We reinforced the application of IMA for market risk to improve data quality and increase monitoring
coverage of exposure limit system. We deepened the internal application of advanced approaches for
operational risk to improvethemeasurement ofcase and anti-money laundering risks.
In 2017, the Risk Management Committee under the Board of Directors of the Bank held 5 meetings
which discussed and considered various motions and reports, including the risk appetite statement,
administrative measures on consolidated risk management, comprehensive risk management report,
liquidity risk management report, analysis of implementation of advanced approaches of IRS Operation
and capital management and consumer interests protection report. In 2017, the Risk Management
Committee under the Bank’s senior management held 6 meetings which discussed and considered
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various motions and reports, including self-assessment report on the Bank’s comprehensive risk
management system, administrative measures on limit management of industry-specific exposures,
administrative measures on risk management on subsidiaries, administrative measures on risk
management of overseas branches and subsidiary banks, the working rules of the Risk Management
Committeeunder theseniormanagement and theIT risk assessment report at theBank’s level.
2.2 Risk Appetite
Risk appetite is a term that refers to the types and levels of risks acceptable to the Bank as determined
by the Board of Directors of the Bank, which depends on the expectations and constraints of the Bank’s
major stakeholders, external operating environment and the conditions of the Bank, in order to achieve
strategic targets and effective risk management. In 2017, the Risk Appetite Statement of the Bank was
revised by the Bank and was considered and approved for implementation. Based on comprehensive
consideration at the Group level, the revised Risk Appetite Statement covers all non-bank financial
subsidiaries and overseas branches and subsidiaries. In addition, new types of risk such as IT risk and
money laundering risk are included, quantitative risk measurement are refined, and the transmission
mechanism for risk appetite is improved, which help provide further guidelines for risk management
and operation management. Meanwhile, we further improved the management system of risk appetite
by monitoring the implementation of risk appetite measurement on a monthly basis. We conduct annual
review of the risk appetite measurement to improve the quantitative and qualitative risk measurement
andstatement.
The Bank adhered to the comprehensive policy relating to risk appetite which is: The Bank is devoted
to developing itself into a first-class global commercial banking group, maintaining its prudent risk
appetite, operating in compliance with laws and regulations and trying to keep balance between capital,
risks and revenue while taking into consideration of the security, profitability and liquidity. The Bank
opposed over-aggressive or over-conservative attitude in undertaking risks, received the moderate
returns through undertaking proper risks, and maintained an adequate reserve and capital adequacy. The
Bank will promote comprehensive development of its ability of risk management to meet the needs of
business development and innovation, which helps the Bank to achieve value through risk management
andultimately providesoundsupport for theBankto achieve its strategicgoals.
2.3 Structure and Organization of Risk Management
The Board of Directors of the Bank assumes the ultimate responsibility for risk management. The Risk
Management Committee, the Audit and Compliance Committee and the Risk Management Committee
of Institutions in the United States Regions under the Board of Directors perform the risk management
functions, review the key risk management issues and supervise and evaluate the establishment of risk
management system and therisk level of theBank.
The Board of Supervisors is the supervisory body of the Bank. It is primarily responsible for
supervising the Board of Directors and Senior Management in their performance and due diligence, and
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supervising financial activities, operating decision-making, risk management and internal control within
theBank.
Senior Management is the organizer and executor of risk management of the Bank. Under the senior
management oversight, the Bank has various risk management committees with different functions,
including Risk Management Committee, Credit Approval Committee, Asset and Liability Management
Committee and Asset Disposal Committee. Risk Management Committee is primarily responsible for
considering material risk management issues, studying and drafting risk management policies, systems
andtools, and analyzing and evaluating theoverall risk profileof theBank.
Based on the principles of "centralized management and control, matrix distribution, overall coverage,
all-staff participation", the Bank has established "Three Lines of Defense" for risk management
consisting of business operation departments (risk-taking departments), risk management departments,
and the Internal Audit Department. In 2017, the Bank continued to improve its risk management system
and enhancing the expertise of our risk management team by strengthening comprehensive risk
management and the management units that take charge of credit, market, operating and other key risks.
The Bank kept on developing a professional group of risk management, and strived to achieve
continuous improvement in the performance and competence of the bank-wide risk management staff
through jobrotation, special trainingprogramme, qualification verification and expertisetests.
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