——Based on comparisons of Bank of China and Chongqing Rural Commer-cial Bank

Analysis on Size Effect to Commercial Banks

Operation

VS

Asset structure of BOC

Items 2012 2011 2010 　 Assets Amount Amount Amount avg

Loans, net 6,710,040 6,203,138 5,537,765 6150314.33

Investment securities 2,210,524 2,000,759 2,055,324 2088869

Balances with central banks 1,934,297 1,919,651 1,573,922 1809290

Due from banks andother fi nancial institutions 1,150,398 1,147,497 800,620 1032838.33

Other assets 675,356 558,744 492,234 575444.667

Total 12,680,615 11,829,789 10,459,865 11656756.3

Asset structure of CRC

　 avg % of Total

Loans and advances to customers, gross 146682.93 41.55

Allowances for impairment on loans and advances to customers -5499.37 -1.58

Loans and advances to customers, net 141183.57 39.97

Investment securities 70422.63 19.97

Investments in associates 33.33 0.01

Cash and balances with the central bank 48982.83 13.78

Deposits with banks and other financial institutions 13642.77 4.06

Placements with banks and other financial institutions 14403.2 3.63

Financial assets held under resale agreements 43739.97 12.4

Financial assets held for trading 1552.47 0.39

Financial assets designated as at fair value through profit or loss 13064.07 3.59

Goodwill 440.1 0.13

Other assets 7264.47 2.07

Total assets 384396.9 100

141183. 57 39. 80%

70422. 63 19. 85%33. 33

0. 01%

48982. 83 13. 81%

13642. 77 3. 85%

14403. 20 4. 06%

43739. 97 12. 33%

1552. 47 0. 44%

13064. 07 3. 68% 440. 10

0. 12%7264. 47 2. 05%

The Structure of AssetsLoans and advances to customers,net

I nvestment securi t i es(

I nvestments i n associ ates

Cash and bal ances wi th the centralbank

Deposi ts wi th banks and otherfi nanci al i nsti tuti ons

Pl acements wi th banks and otherfi nanci al i nsti tuti ons

Fi nanci al assets hel d under resal eagreements

Fi nanci al assets hel d f or tradi ng

Fi nanci al assets desi gnated as atfai r val ue through profi t or l oss

Goodwi l l

Other assets(3)

Total assets

55.5% 39.8%>

18.85% 19.85%≈investment securities

In conclusion, the net loans occupy a large proportion of asserts in banks of big size, however, the banks of small banks focus on diversifying assets not only the loans.

Liabilities structureLiabilities avg

Due to customers 8,575,164

Due to banks andother financial institutions and due to central banks 1,764,828

Other borrowed funds 193,730

Other liabilities 358,091

Total 10,891,813

　 Average % of Total

Due to customers 248738.3 76.39

nondeposit borrowing 29400.87 8.44

repurchase agreements 37053.9 11.52

Debt securities issued 2300 0.72

Other liabilities 9679.4 2.94

Total liabilities 327172.47 100

BOC

CRC

8, 575, 16478. 73%

1, 764, 82816. 20%

193, 7301. 78%

358, 0913. 29%

The Structureof Liabilities(BOC)

Due to customers

Due to banks andother fi nanci ali nsti tut i ons and due tocentral banksOther borrowed funds

Other l i abi l i t i es

76.39 %

8.44 %11.52 %

0.72 % 2.94 %

Due to customers

nondeposit borrowing

repurchase agreements

Debt securities issued

Other liabilities

We must realize that the rate of repurchase agreement is lower than the rate of due to banks in the same period, so the small bank can fiance with low cost.

In conclusion, Customer deposits are the main source of the liabilities of banks no matter big banks or small banks. However, the small banks make good use of repurchase agreements to satisfy the liquidity of short term fund.

Income structureItems avg

Net interest income 226,330

Non-interest income 97,334

Including: net fee andcommission income 63,023

Operating income 323,664

Operating expenses -141,082

Impairment losses on assets -17,245

Operating profit 165,337

Profit before income tax 166,056

Income tax expense -37,485

Profit for the year 128,572

Profi t attributable to equity holders ofthe Bank 122,709

　 averange

Net interest income 10366.33

Net fee and commission income 452.3

Net trading gain -3.27

Other operating income(losses), net 23.37

Operating income 10838.73

Operating expenses -4919.77

Impairment on assets -438.07

Net gain on disposal of available-for-sale financial assets 35.7

Net gain on disposal of debt securities classified as receivables 0.33

Profit before tax 5516.93

Income tax expense -1287.97

Net Profit 4228.97

BOC CRCChinese mainlandHong KongMacauTaiwan other countries.

128572 4228.9730.4

times

70%

30%

BOC

Net interest income Net non-interest income

96%

4%

CRC

The average net interest income amounts to RMB 226 330 million which accounts for 70% of the operating income of BOC. The average net interest income amounts to RMB 10366.33 million which accounts for 96% of the operating income of CRC.

the big banks make good use of big market to accelerate product innovation and further expand market , which continuously promote the diversification of income structure, perfect risk management and strictly control cost, leading to a continuous increase in the bank’ s profitability.

Loans structureDomestic RMB businesses AVG

Loans 　Corporate loans 2969336

Personal loans 1318393

Trade bills 122113

Total 4409842

Including: 　Medium and long term loans 3076081.333

Short term loans and others within 1 year 1333760.667

　 Average % of TotalCorporate loans 91791.17 62.68Short-term loans 14552.43 9.6Medium- and long-term loans 77238.73 53.08Retail loans 52079.1 35.46Residential mortgage and personal commercial property loans 30007.63 20.43

Personal business and re-employment loans 14819.23 10.01

Loans to farmers 2278.1 1.65Others 4974.13 3.37Discounted bills 2812.67 1.87

Loans and advances to customers, gross 146682.93 100

BOC CRC4409842 146682.93

30times

Since the big banks can satisfy the big demand of the borrower, so many corporations want to borrow money from them.

296933667. 33%

131839329. 90%

1221132. 77%

The Structure of Loans(BOC)[1]

Corporate l oans

Personal l oans

Trade bi l l s

62.68,%

35.46%

1.87%

Corporate loans(1)

Retail loans(2)

Discounted bills(3)

Corporations are the main targets of bank’ s loans no matter big banks or small banks. Medium and long term loans account for nearly 70% of BOC’ s loans and account for 84.68% of corporate loans of CRC’ s loans, which further explain that most of the loans are in the long term.

3076081. 33369. 75%

1333760. 66730. 25%

The Structure of Loans(BOC)[2]

Medi um and l ong terml oans

Short term l oans andothers wi thi n 1 year

Securities structureItems avg avg

Financial assets at fair value through profi t or loss 75,545 3.63%

Securities available for sale 632,152 30.22%

Securities held to maturity 1,098,861 52.59%

Securities classifi ed as loans and receivables 282,312 13.56%

Total 2,088,869 100.00%

　 Amount % of Total

Financial assets held for trading 1552.47 1.6Financial assets designated as at fair value through profit or loss 13064.07 14.98

Available-for-sale financial assets 2553.73 2.83Held-to-maturity investments 40906.37 48.86Debt securities classified as receivables 26962.53 31.73Total investments 85039.17 100

75, 5453. 62%

632, 15230. 26%

1, 098, 86152. 61%

282, 31213. 52%

The Structure of Securities(BOC)Fi nanci al assets atfai r val ue throughprofi t or l oss

Securi t i es avai l abl efor sal e

Securi t i es hel d tomaturi ty

Securi t i es cl assi fi edas l oans andrecei vabl es

1.60 %

14.98 % 2.83 %

48.86 %

31.73%

Financial assets held fortrading

Financial assets designatedas at fair value throughprofit or loss

Available-for-sale financialassets

Held-to-maturityinvestments

Debt securities classified asreceivables

securities available for sale

debt securities classified as receivables

prefer to satisfy the short-term liquidity and avoid bond devaluation loss.

prefer investing debt securities to earn continued income.

Deposits structureDue to customers avg　Corporate demand deposits 1844861

Corporate time deposits 1525715.667

Personal demand deposits 916909.6667

Personal time deposits 1851138

Other 330199

Total 6468823.333

　 Average % of TotalCorporate deposits 63917.17 25.85Demand deposits 53052.8 21.34Time deposits 10864.37 4.5Retail deposits 180589.7 72.41Demand deposits 51474.5 20.74Time deposits 129115.2 51.67Pledged deposits 4152.17 1.72Other deposits 79.27 0.03Total due to customers 248738.3 100

184486128. 52%

1525715. 66723. 59%

916909. 666714. 17%

185113828. 62%

3301995. 10%

The Stracture of Deposite(BOC)Corporate demand deposi ts

Corporate t i me deposi ts

Personal demand deposi ts

Personal ti me deposi ts

Other

25.85%

72.41%

1.72%0.03%

Corporate deposits(1)

Retail deposits(2)

Pledged deposits(3)

Other deposits(4)

Corporate deposits

Retail deposits

52.11%

72.41%

ROA

The Tendency of ROA

0. 6

0. 8

1

1. 2

1. 4

2008 2009 2010 2011 2012

ROA(BOC)ROA(CRC)

BOC

CRC

increase from 2008 to 2012

increase from 2009 to 2012 and is even beyond the data of BOA since 2011

The big banks’ ROA have a bigger promotion space, which can be promoted to develop more intermediary business and offer small loans. Certainly, it must be on the premise of low risk and sufficient liquidity.

ROE

The Tendency of ROE

1015202530

2008 2009 2010 2011 2012

ROE(BOC)ROE(CRC)

BOC

CRC

increase from 2008 to 2010 and little decrease from 2010 to 2012

decrease from 2008 to 2010 and increase from 2010 to 2012

Though the return for the stockholders increases, the risk

caused by liabilities decreased. So we can conclude that

banks all pay attention on EM but small banks prefer lower EM than big

banks to reduce the risk.

NIM

1. 522. 533. 544. 555. 566. 57

2008 2009 2010 2011 2012

The Tendency of NIM

NI M(CRC)NI M(BOC)

BOC

CRC

increase from 2009 to 2012

increase from 2009 to 2012

With the development of liberalization of the interest rate, the banks face more fierce competition, which will bring the new change to the NIM no matter big banks or small banks.

NPL

The Tendency of NPL(percentage)

0123456789

10

2008 2009 2010 2011 2012

NPL(BOC)NPL(CRC)

BOC

CRC

decreased from 2008 to 2012

decreased from 2008 to 2012

Big banks should pay more attention to the scale of the loans and diversify it’s borrowing objects instead of aiways depending on the ediverstiture of non-performing assets to solve the problem, which can’ t solve the nature of the problem.

Loan- to- deposit ratio

The Tendency of Loan-to-Deposite Ratio(percentage)

505356596265687174

2008 2009 2010 2011 2012

Loan- to-Deposi tRati o(%)(BOC)

Loan- to-Deposi tRati o(%)(CRC)

a synchronous change of BOC and CRC from 2008 to 2012.BOC

CRCa tendency of increased from 2008 to 2009, a tendency of decreased from 2009 to 2011 and a tendency of increased in 2012

We also can conclude that big banks pay more attention on profit, however, small banks put more attention on security.

Average data of all indicators

　 ROA(%) ROE(%) NIM(%) ES NPL(%) Loan-to-Deposit Ratio(%)

BOC 1.12 17.216 2.202 2.01 1.444 69.702

CRC 1.134 18.142 3.334 5.12 3.472 61.916

With the development of liberalization of the interest rate, the banks face more fierce competition. The big banks pay more attention to the non interest income. Certainly, the spread will decline as competition increases, forcing small banks to try to find other ways (such as generating fee income from new services ) to make up for an eroding spread.

Qin JiaWu Qi Zhang WanruZhang Yanan

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