China Merchants Bank Co., Ltd.
2007 Results Announcement
March 2008
1
Forward-Looking Statement Disclaimer
This presentation and subsequent discussions may contain forward-looking statements
that involve risks and uncertainties. These statements are generally indicated by the
use of forward-looking terminology such as believe, expect, anticipate, estimate, plan,
project, target, may, will or may be expressed to be results of actions that may or are
expected to occur in the future. You should not place undue reliance on these forward-
looking statements, which reflect our belief only as of the date of this presentation.
These forward-looking statements are based on our own information and on information
from other sources we believe to be reliable. They relate to future events or our future
financial, business or other performance and are subject to a number of uncertainties
that may cause our actual results to differ materially.
2
Agenda
3 Summary
1 Highlights
2 Financial Analysis
3
2007 Snapshot
We achieved record results in 2007
Operating Environment Measures
Continued macroeconomic tightening
policy
Restricted loan growth
6 times interest rate hike in one year
Deposit reserve rate raised from 9% to
14.5%
Accelerated disintermediation
Rapid development of direct financing
Deposits converted into investments
Accelerated appreciation of RMB
Strategic change in business model
bearing fruit
Retail business
Non-interest income business
SME business
Further strengthened the management
of
– ALM
– Credit risk
– Liquidity risk
– FX risk
Breakthrough in business diversification
33.4% stake in China Merchants Fund
Setting up financial leasing company
NY branch approved
NIM expansion due to interest rate
hikes
Strong equity market
Non-interest income business
Inter-bank business
Opportunities
challenges
4
(RMB mn)
Selected Balance Sheet data 2007 2006 % Growth
Total loans 673,167 565,702 19.0%
Investments securities 244,123 178,885 36.5%
Total assets 1,310,552 934,102 40.3%
Customer deposits 943,534 773,757 21.9%
Shareholders' equity 67,984 55,160 23.2%
Selected P&L data 2007 2006 % Growth
Net interest income 33,902 21,509 57.6%
Non-interest income(adjusted) 7,184 3,357 114.0%
Operating income(adjusted) 41,086 24,866 65.2%
Pre-provision operating profit 24,348 13,775 76.8%
Pre-tax profit 21,043 10,084 108.7%
Net profit 15,243 6,794 124.4%
Financial Highlights
Strong financial results with net profit of RMB15.2 billion, an increase of 124.4%
compared to 2006
Notes: adjusted by gain from investment in an associate
5
Key ratios 2007 2006 Change(percentage point)
Return on average equities 24.8% 16.7% 8.0%
Return on average assets 1.36% 0.81% 0.54%
Net interest margin 3.11% 2.72% 0.39%
Net fee income as % of operating income (adjusted) 15.7% 10.1% 5.6%
Non-interest income ratio (adjusted) 17.5% 13.5% 4.0%
Cost to income ratio (excluding business tax) 34.9% 38.3% 3.3%
Credit cost 0.49% 0.68% 0.20%
Non performing loan ratio 1.54% 2.12% 0.58%
Special mentioned loan ratio 2.13% 2.03% 0.11%
Coverage ratio 180.4% 135.6% 44.8%
Loan to deposit ratio 71.3% 73.1% 1.8%
Capital adequacy ratio 10.7% 11.4% 0.7%
Effective tax rate 27.6% 32.6% 5.1%
Number of branches 579 504 −
Financial Highlights
Expanding net interest margin, rapidly growing fee income, improving asset
quality and declining cost to income ratio
Notes: adjusted by gain from investment in an associate
6
Agenda
3 Summary
1 Highlights
2 Financial Analysis
7
(RMB mn except for EPS) 2007 2006 Growth %
Net interest income 33,902 21,509 57.6%
Net fee and commissions 6,439 2,514 156.1%
Non-interest income 7,184 3,357 114.0%
Operating income 41,086 24,866 65.2%
Operating expense (16,738) (11,091) 50.9%
Pre-provision operating profit 24,348 13,775 76.8%
Provisions (3,305) (3,691) (10.5%)
Pre-tax profit 21,043 10,084 108.7%
Income tax (5,800) (3,290) 76.3%
Net profit 15,243 6,794 124.4%
EPS (fully diluted) 1.04 0.53 96.2%
Summary of Income Statement
8
(RMB mn) 2007 2006 Growth %
Total loans 673,167 565,702 19.0%
Provisions for impairment loans (18,750) (16,282) 15.2%
Investments securities 244,123 178,885 36.5%
Placement with other banks 239,564 104,410 129.4%
Total assets 1,310,552 934,102 40.3%
Interbank deposits 265,123 76,603 246.1%
Convertable bonds 13 22 (40.9%)
Subordinated debts 3,500 3,500 −
Other debts 9,992 9,987 0.1%
Total liabilities 1,242,568 878,942 41.4%
Shareholders' equity 67,984 55,160 23.2%
Balance sheet growth driven by inter-bank placement
Summary of Balance Sheet
9
Strong Growth in Net Interest Income
Net interest income Net interest margin
Rapid growth in net interest income with widening net interest margin
21,509
33,902
0
8,000
16,000
24,000
32,000
40,000
2006 2007
(RM
B m
n)
2.72%
3.11%
0.0%
0.7%
1.4%
2.1%
2.8%
3.5%
2006 2007
10
Significant Increase in Asset Yields
Average interest-earning assets Average yield
42.6%37.5%
10.7%
12.9% 13.3%
11.3% 15.7%
18.2% 17.8%
20.1%
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2006 2007
(RM
B m
n)
Corporate loans Retail loans
Discounted bills Investment securities
Other interest earning assets
791,176
1,089,612
4.30%
3.34%
3.85%
1.59%
6.17%
5.60%6.04%
5.89%
2.93%3.15%
2.88%
1.57%
4.73%
4.30%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2006 2007
Corporate loansRetail loansDiscounted billsInvestmentsInterbank loansBalace with central bankTotal interest earning assets
11
Cost of liabilities
Average interest-bearing liabilities Average cost
Actively managing liabilities to control cost
Source:
1 Debts included certificate of deposits, convertible bonds, financial bonds and
subordinate debts
89.6% 78.9%
8.4%
19.6%
2.0%
1.4%
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2006 2007
(RM
B m
n)
Deposits Interbank deposits and placements Debts
775,435
1,001,327
2.03%
3.13%
1.77%
1.50%1.68%
2.38%
3.10%
1.61%
0.0%
0.7%
1.4%
2.1%
2.8%
3.5%
2006 2007
DepositsInterbank deposits and placements
DebtsTotal interest bearing liabilities
12
Others
14.6%
Real estates
9.7%
Wholesale and
retail
13.1%
Transportation
17.0%
Manufactoring
29.8%Commercial
services
6.7%
Utilities
9.2%
Steady Loan Growth
Loan growth
Corporate loans breakdown(2007)
Retail loans breakdown(2007)
Asset allocation
Source: Others include construction, mining, education, IT and software and
other industries
63.6% 66.2%
18.4% 7.8%
18.0% 26.0
0
200,000
400,000
600,000
800,000
2006 2007
(RM
B m
n)
Corporate loans Discounted bills Retail loans
565,702
673,167
Others
12.9%
Mortgages
74.9%
Credit cards
12.2%
49.4% 47.4%
11.1%4.0%
19.2%18.6%
20.3% 30.0%
0%
20%
40%
60%
80%
100%
2006 2007
Loans (corporate and retail) Discounted bills
Investment securities Others
13
Improving Asset Quality
Credit costs
NPL coverage ratioNPL balance and NPL ratio
Special mention loan balance and ratio
Both NPL balance and NPL ratio fell. NPL coverage ratio continued to increase
12,006
10,394
1.54%
2.12%
10,000
12,000
14,000
16,000
2006 2007
(RM
B m
n)
0.0%
0.6%
1.2%
1.8%
2.4%
NPL balance NPL ratio
135.6%
180.4%
100%
150%
200%
2006 2007
0.68%
0.49%
0.4%
0.6%
0.8%
2006 2007
11,45814,342
2.13%2.03%
0
8,000
16,000
24,000
32,000
2006 2007
(RM
B m
n)
0.0%
0.8%
1.6%
2.4%
Special mentioned loans balance Special mentioned loans ratio
14
55.7%56.9%
44.3%
43.1%
0
130,000
260,000
390,000
520,000
650,000
2006 2007
(RM
B m
n)
Demand Time
461,798
617,001
48.9% 58.4%
51.1%41.6%
0
70,000
140,000
210,000
280,000
350,000
2006 2007
(RM
B m
n)
Demand Time
311,959 326,533
Customer Deposits
Customer deposits Customer deposits composition (by customer type)
Retail deposits composition (by maturity term)Corporate deposits composition (by maturity term)
Customer deposits grew 21.9%. Deposit composition remained stable
52.9%57.4%
47.1%
42.6%
0
250,000
500,000
750,000
1,000,000
2006 2007
(RM
B m
n)
Demand Time
773,757
943,534
65.4%59.7%
34.6% 40.3%
0%
25%
50%
75%
100%
2006 2007
Corporate Retail
15
Strong Growth of Retail Banking
Detailed retail NPL ratios (To come)
Retail loan YoY growthRetail loans
Retail NPL balances and ratio
Significant growth in retail business
74.9%79.8%
12.2%
9.9%
12.9%
10.3%
26.0%
18.0%
0
100,000
200,000
300,000
400,000
2006 2007
(RM
B m
n)
0%
10%
20%
30%
Mortgage Credit cards Others as % of total loans
101,983
175,026
110.2%
61.1%71.6%
0%
40%
80%
120%
Credit cards Mortgage Total
554
809
0.46%
0.54%
0
600
1,200
1,800
2006 2007
(RM
B m
n)
0.0%
0.2%
0.4%
0.6%
Retail NPLs balance Retail NPL ratio
0.26%
0.40%
1.92%
1.53%
0.29%
0.74%
0.46%0.54%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2006 2007
Mortgage Credit cards Others Total
16
311,959
326,533
300,000
310,000
320,000
330,000
2006 2007
(RM
B m
n)
38.943.6
0
15
30
45
2006 2007
(Mill
ions)
Retail Deposits
Number of Sunflower customers
Retail deposits
Number of All-in-one cards issued
140
290
0
70
140
210
280
350
2006 2007
(000')
Deposit costs
1.53%
1.75%
1.47% 1.55%
0.0%
0.5%
1.0%
1.5%
2.0%
2006 2007
Corporate deposits Retail deposits
17
10.3
20.7
0
5
10
15
20
25
2006 2007
(Mill
ions)
66.4
131.3
0
50
100
150
2006 2007
(RM
B b
n)
Leading Credit Card Business
Credit card NPLs and coverage ratio
Credit card revolversNumber of credit cards issued
Credit card transaction volumes
Strong growth in credit card business
155
409
125.4%116.8%
0
250
500
750
1,000
2006 2007
(RM
B m
n)
0%
40%
80%
120%
160%
Credit cards NPLs ratio Credit cards NPLs coverage ratio
20% 22%
36% 37%
0%
10%
20%
30%
40%
2006 2007
% of customers with revolving balance
Interest bearing balance/outstanding receivables
18
Continued Growth in Corporate Banking
Corporate loan yield
Corporate NPL balance and ratio
Corporate loan
Corporate NPL coverage ratio
Significant increase in corporate loan yield, asset quality further improved
359,883
445,865
200,000
300,000
400,000
500,000
2006 2007
(RM
B m
n)
5.60%6.17%
0.0%
1.6%
3.2%
4.8%
6.4%
2006 2007
11,4529,585
2.15%
3.18%
0
8,000
16,000
24,000
2006 2007
(RM
B m
n)
0.0%
0.7%
1.4%
2.1%
2.8%
3.5%
Corporate NPLs balance Corporate NPLs ratio
121.4%
169.4%
0%
50%
100%
150%
200%
2006 2007
19
778
2,978
0
1,000
2,000
3,000
2006 2007
(RM
B m
n)
3,357
7,184
0
2,000
4,000
6,000
8,000
2006 2007
(RM
B m
n)
2,988
7,258
0
2,000
4,000
6,000
8,000
2006 2007
(RM
B m
n)
Strong Growth in Fee Income Business
Non-interest income
Fee income breakdown and net fee
income as % of total income
Total fee income
Agency services fee
Agency revenue for mutual fund and asset management product distribution
drive the growth of fee income
Notes: adjusted by gain from investment in associate
9.6% 1.7%
26.1% 33.6% 26.0%
41.0%
20.3%
10.7%
8.9%
5.8%
9.4%
6.8% 10.1%
15.7%
0
2,500
5,000
7,500
10,000
2006 2007
(RM
B m
n)
0%
4%
8%
12%
16%
Trust service Bank cardAgency services Remittance and settlement
Credit commission and loan businesses Othersas % of operating income
20
Improving Operating Efficiency
Cost to income ratio (excluding business tax) Income and cost per staff
Income and cost per branchStaff expenses as a % operating income
Cost to income ratio fell steadily while operating income per staff and per branch
continued to increase
Notes: adjusted by gain from investment in associate
38.3%34.9%
0.0%
12.0%
24.0%
36.0%
48.0%
2006 2007
20.3% 19.7%
0.0%
7.0%
14.0%
21.0%
2006 2007
1,072
1,418
478578
0
400
800
1,200
1,600
2006 2007
(RM
B 0
00')
Operating income per employee Operating expenses per employee
49.3
71.0
22.028.9
0
20
40
60
80
2006 2007
(RM
B m
n)
Operating income per branch Operating expenses per branch
21
Profitability
ROAA ROAA (pre-provision operating profits)
Effective tax rate
Profitability continued to improve
ROAE
0.81%
1.36%
0.00%
0.40%
0.80%
1.20%
1.60%
2006 2007
16.7%
24.8%
0.0%
10.0%
20.0%
30.0%
2006 2007
32.6%
27.6%
0.0%
7.0%
14.0%
21.0%
28.0%
35.0%
2006 2007
1.65%
2.17%
0.0%
0.6%
1.2%
1.8%
2.4%
2006 2007
22
Capital Adequacy Ratios
Capital adequacy ratio Core capital adequacy ratio
Capital adequacy ratios remain stable
11.4%
10.7%
0%
4%
8%
12%
2006 2007
59.0%
53.5%
0%
20%
40%
60%
2006 2007
RWA as % of total assets
9.58%
9.02%
0.0%
2.5%
5.0%
7.5%
10.0%
2006 2007
23
议程
Financial Analysis
1 Highlights
2
3 Summary
24
0.81%
1.36%
2006 2007
RoAA
6,794
15,243
2006 2007
Net profits (RMB mn)
2007 performance highlight
Moderate loan growth Improved business mix
Reduced cost to income ratioEnhanced asset quality
Significant increase in profitability
Substantial bottom line growth
565,702
673,167
2006 2007
Total loans (RMB mn)
12,00610,394
1.54%
2.12%
2006 2007
NPLs balance NPLs ratio
Notes: adjusted by gain from investment in associate
13.5%
17.5%
2006 2007
Non-interest income ratio (adjusted)
38.3%
34.9%
2006 2007
Cost to income ratio (excl business tax)
25
Q&A