ANNOUNCEMENT OF 2001 INTERIM RESULTS
SUMMARY OF RESULTS
The Board of Directors of CITIC Bank International Limited (the "Bank") is pleased to announce the unaudited consolidated results of the Bank and its subsidiaries (the "Group") for the six months ended 30 June 2001 together with the comparative figures restated for the corresponding period in the previous year as follows:-
CONSOLIDATED PROFIT AND LOSS ACCOUNT
The Group
------------------------------------
Six months ended 30 June
2001 2000
Unaudited Unaudited Variance
----------- ----------- ---------
HK$'000 HK$'000 %
Interest Income 1,850,175 1,768,311 4.63
Interest Expense (1,268,773) (1,226,303) 3.46
----------- -----------
Net Interest Income 581,402 542,008 7.27
........... ...........
Fees And Commission Income 177,512 141,314 25.62
Fees And Commission Expense (10,714) (8,440) 26.94
Other Revenue 6,476 8,216 (21.18)
Other Operating Income 92,050 60,131 53.08
----------- -----------
Non-interest Income 265,324 201,221 31.86
........... ...........
Total Operating Income 846,726 743,229 13.93
Operating Expenses (335,920) (275,216) 22.06
----------- -----------
Operating Profit Before Provisions 510,806 468,013 9.14
Charge For Bad And Doubtful Debts (142,552) (197,612) (27.86)
----------- -----------
Operating Profit 368,254 270,401 36.19
Net Profit On Disposal Of Tangible Fixed Assets 4,999 1,416
(Provision)/ Write Back On Held-To-Maturity Securities
And Investment Securities (11,178) 1,046
----------- -----------
Profit From Ordinary Activities Before Taxation 362,075 272,863 32.69
Tax On Profit From Ordinary Activities (Note 3)
- Hong Kong (32,458) (10,320)
- Overseas (748) 389
----------- -----------
Profit After Taxation Before Minority Interest 328,869 262,932 25.08
Minority Interest (22,358) (31,750) (29.58)
----------- -----------
Profit Attributable To Shareholders 306,511 231,182 32.58
=========== ===========
Interim Dividends 3 cents (2000: 2 cents) Per Share 77,859 51,889
=========== ===========
Earnings Per Share
Basic (Note 4) 11.81
8.91
=========== ===========
Diluted (Note 5) 11.80 8.91
=========== ===========
CONSOLIDATED BALANCE SHEET
The Group
-----------------------
As at As at
30 June 30 June
2001 2000
Unaudited Audited
---------- ----------
HK$'000 HK$'000
Assets
Cash and short-term funds 7,402,873 7,704,523
Placements with banks and other financial
institutions maturing between one and
twelve months 156,006 3,112,324
Trade bills less provisions 294,924 288,058
Certificates of deposit 3,594,850 4,258,256
Other investments in securities 1,654,149 1,086,128
Advances to customers and
other accounts less provisions 33,928,134 33,721,683
Held-to-maturity securities
and investment securities 11,031,322 5,463,881
Investments in associates 120,499 120,539
Tangible fixed assets 884,602 902,437
---------- ----------
Total assets 59,067,359 56,657,829
========== ==========
Liabilities
Deposits and balances of banks
and other financial institutions 1,366,394 418,862
Current, fixed, savings and
other deposits of customers 46,948,724 46,624,666
Certificates of deposit issued 2,891,901 1,653,582
Issued debt securities 357,987 398,197
Other accounts and provisions 1,276,739 1,536,976
---------- ----------
Total liabilities 52,841,745 50,632,283
.......... ..........
Capital resources
Share capital 2,595,311 2,594,861
Reserves 3,425,579 3,248,319
---------- ----------
Shareholders' funds 6,020,890 5,843,180
Minority interests 204,724 182,366
---------- ----------
Total capital resources 6,225,614 6,025,546
.......... ..........
Total liabilities and capital resources 59,067,359 56,657,829
========== ==========
Notes:
(1) The financial information in this interim results announcement is unaudited and does not constitute statutory accounts.
The financial information included in this interim results announcement relating to the financial year ended 31 December 2000 does not constitute the Bank's statutory accounts for that financial year but is derived from those accounts. Statutory accounts for the year ended 31 December 2000 are available from the Bank's registered office. The auditors have expressed an unqualified opinion on those accounts in their report dated 12 February 2001.
(2) The same accounting policies, except for the recognition of proposed dividends, adopted in the 2000 annual accounts have been applied in the preparation of this interim results announcement.
Following the adoption of the revised Statement of Standard Accounting Practice 9 "Events After the Balance Sheet Date" issued by the Hong Kong Society of Accountants in January 2001, dividends proposed, approved or declared after the balance sheet date are no longer recognised as part of liabilities of the Group, but treated as part of its shareholders' funds. The accounting policy has been applied retrospectively in accordance with the revised Statement of Standard Accounting Practice 2 "Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies" issued by the Hong Kong Society of Accountants. As a result, liabilities as of 30 June 2001 and 31 December 2000 have been reduced by HK$78 million and HK$130 million respectively. Prior period adjustments on the opening balances of retained earnings of the Group were put through accordingly.
(3) The provision for Hong Kong profits tax is based on an estimate of the assessable profits for the six months ended 30 June 2001 at 16% (2000: 16%). Taxation for overseas branches and subsidiaries is charged at the appropriate current rates of taxation ruling in the countries in which they operate.
No provision for deferred tax is made as there are no material timing differences which would result in a liability payable or an asset receivable in the foreseeable future.
(4) The calculation of basic earnings per share for the six months ended 30 June 2001 is based on profit attributable to shareholders of HK$306,511,000 (2000: HK$231,182,000) and on the weighted average of 2,594,873,875 (2000: 2,594,461,444) ordinary shares in issue during the period.
(5) The calculation of diluted earnings per share for the six months ended 30 June 2001 is based on profit attributable to shareholders of HK$306,511,000 (2000: HK$231,182,000) and on the weighted average of 2,598,123,114 (2000: 2,594,898,076) ordinary shares in issue during the period after adjusting for the effects of all dilutive potential ordinary shares.
UNAUDITED SUPPLEMENTARY FINANCIAL INFORMATION
(1) Summary of financial position
The Group
---------------------------------------------------------
As at As at As at
30 Jun 2001 30 Jun 2000 Variance 31 Dec 2000 Variance
------------ ------------- --------- ----------- --------
HK$'000 HK$'000 % HK$'000 %
Loans and Advances 33,114,992 30,978,169 6.90 32,798,146 0.97
Loans Loss Provision 925,989 1,141,276 (18.86) 854,247 8.40
Total Assets 59,067,359 49,626,274 19.02 56,657,829 4.25
Total Interest Earning Assets 56,099,341 47,225,096 18.79 53,932,408 4.02
Total Deposits 50,198,612 41,860,740 19.92 48,676,445 3.13
Shareholders' Funds 6,020,890 5,593,182 7.65 5,843,180 3.04
Financial ratios
----------------
Capital Adequacy - Unadjusted* 15.12% 18.09% 17.10%
Capital Adequacy - Adjusted** 14.69% 18.08% 16.70%
Average Liquidity* 52.21% 37.60% 42.08%
Loans to Deposits 65.97% 74.00% 67.38%
Loans to Total Assets 56.06% 62.42% 57.89%
General Provision Coverage 1.11% 1.08% 1.10%
Property Lending 47.72% 46.78% 48.28%
Cost to Income 39.67% 37.03% 40.51%
Return on Assets 1.14% 1.07% 1.11%
Return on Shareholders' Funds 10.33% 8.42% 9.48%
| * The capital adequacy ratio and the average liquidity ratio are computed on the consolidated
basis covering the Bank and certain of its financial subsidiaries as required by the Hong Kong
Monetary Authority (the "HKMA") for its regulatory purposes, and are in accordance with the Third
Schedule and the Fourth Schedule to the Hong Kong Banking Ordinance respectively.
** The adjusted capital adequacy ratio which takes into account market risks as at the balance sheet date is computed in accordance with the Guideline "Maintenance of Adequate Capital Against Market Risks" issued by the HKMA and on the same consolidated basis as for unadjusted capital adequacy ratio. |
(2) Advances and other accounts
The Group
----------------------------------
As at As at
30 June 31 December
2001 2000 Variance
---------- ----------- ---------
HK$'000 HK$'000 %
Advances to customers 32,800,215 31,925,836 2.74
Advances to banks and
other financial institutions 19,853 580,987 (96.58)
Accrued interest and other accounts 2,034,055 2,065,842 (1.54)
Provisions for bad and doubtful debts
- Specific (563,692) (499,955) 12.75
- General (362,297) (351,027) 3.21
---------- -----------
33,928,134 33,721,683 0.61
========== ===========
(3) Reserves
The Group
----------------------------------
As at
As at 31 December
30 June 2000
2001 Restated Variance
---------- ------------ --------
HK$'000 HK$'000 %
Share premium 1,426,034 1,425,542 0.03
General reserve 100,000 100,000 0.00
Property revaluation reserve 11,945 11,945 0.00
Capital reserve 37,500 37,500 0.00
Exchange revaluation reserve 322 322 0.00
Retained profits (a) 1,849,778 1,673,010 10.57
---------- -----------
Total 3,425,579 3,248,319 5.46
========== ===========
Proposed dividends not provided for 77,859 129,743 (39.99)
========== ===========
(a) Retained profits as previously reported 1,543,267
Prior year adjustment: Proposed dividends 129,743
-----------
As restated 1,673,010
===========
(4) Advances to customers - By industry sectors
The Group
-------------------------------------------
As at As at
30 June 31 December
2001 2000 Variance
---------------- ----------------- --------
HK$'000 % HK$'000 % %
Loans for use in Hong Kong
Industrial, commercial and financial
- property development 547,729 1.67 635,940 1.99 (13.87)
- property investment 3,427,425 10.45 3,004,415 9.41 14.08
- financial concerns 2,213,683 6.75 1,970,085 6.17 12.36
- stockbrokers 88,850 0.27 384 0.00
- wholesale and retail trade 2,128,936 6.49 2,367,404 7.42 (10.07)
- manufacturing 2,573,651 7.85 1,957,305 6.13 31.49
- transport and transport equipment 2,584,952 7.88 1,482,624 4.64 74.35
- others 2,526,549 7.70 3,677,965 11.52 (31.31)
Individuals
- loans for the purchase of flats under
the Home Ownership Scheme and
Private Sector Participation Scheme 17,776 0.06 20,724 0.06 (14.23)
- loans for the purchase of
other residential properties 11,048,228 33.68 11,099,557 34.77 (0.46)
- others 1,252,701 3.82 966,775 3.03 29.58
Trade finance 2,228,302 6.79 2,400,267 7.52 (7.16)
Loans for use outside Hong Kong 2,161,433 6.59 2,342,391 7.34 (7.73)
---------- ------ ---------- ------
TOTAL 32,800,215 100.00 31,925,836 100.00 2.74
========== ====== ========== ======
(5) Loans on which interest is placed in suspense
The Group
--------------------------------------------------------------
Pledge Specifc
Total amount amount for provision
of loan loans on in respect of
on which which loans on Amount of
interest interest which interest interest
is placed is placed in is placed in placed in
in suspense suspense suspense suspense
------------------- ------------ -------------- -----------
HK$'000 %* HK$'000 HK$'000 HK$'000
As at 30 June 2001 1,802,558 5.50 1,025,386 554,955 269,145
As at 31 December 2000 1,517,266 4.75 860,073 442,003 223,414
* Based on total advances to customers
There were no advances to banks and other financial institutions on which interest is being placed in suspense or on which interest accrual has ceased as at 30 June 2001 and 31 December 2000, nor were there any specific provisions made for them on these two days.
(6) Overdue loans and advances
The Group
--------------------------------------------------------------
As at 30 June 2001
--------------------------------------------------------------
Overdue Amount of Amount of
gross collateral specific
advances held in provisions
to customers respect of Amount Amount made against
(net of overdue of of overdue
suspended advances to secured unsecured advances
interest) customers balance balance to customers
----------------- ----------- --------- --------- ------------
HK$'000 %* HK$'000 HK$'000 HK$'000 HK$'000
Three to six months overdue 349,971 1.07 508,076 286,308 63,662 20,181
Six months to one year
overdue 599,812 1.83 438,490 343,732 256,080 52,593
Over one year overdue 1,187,977 3.62 725,959 634,655 553,322 395,502
--------- ----- ----------- --------- --------- ------------
TOTAL 2,137,760 6.52 1,672,525 1,264,695 873,064 468,276
========= ===== =========== ========= ========= ============
The Group
--------------------------------------------------------------
As at 31 December 2000
--------------------------------------------------------------
Overdue Amount of Amount of
gross collateral specific
advances held in provisions
to customers respect of Amount Amount made against
(net of overdue of of overdue
suspended advances to secured unsecured advances
interest) customers balance balance to customers
----------------- ----------- --------- --------- ------------
HK$'000 %* HK$'000 HK$'000 HK$'000 HK$'000
Three to six months overdue 301,442 0.94 327,792 268,061 33,381 9,196
Six months to one year
overdue 232,717 0.73 364,339 177,243 55,474 33,260
Over one year overdue 1,119,883 3.51 642,211 556,677 563,206 365,576
--------- ----- ----------- --------- --------- ------------
TOTAL 1,654,042 5.18 1,334,342 1,001,981 652,061 408,032
========= ===== =========== ========= ========= ============
* Based on total advances to customers
There were no advances to banks and other financial institutions which were overdue for over 3 months as at 30 June 2001 and 31 December 2000.
(7) Reconciliation
The Group
-----------------------
As at As at
30 June 30 June
2001 2000
---------- ----------
HK$'000 HK$'000
Advances to customers overdue
for more than 3 months 2,137,760 1,654,042
Less: Amount overdue for more than 3 months
and on which interest is
still being accrued (494,445) (250,418)
Add: Amount overdue for 3 months
or less and on which interest is being
placed in suspense or on
which interest accrual has ceased 40,174 4,926
Add: Rescheduled advances on which interest
is being placed in suspense or on
which interest accrual has ceased 101,343 91,469
Add: Amount not overdue and on which interest
is being placed in suspense or on
which interest accrual has ceased 17,726 17,247
---------- ----------
Advances to customers on which interest is
being placed in suspense or on which
interest accrual has ceased 1,802,558 1,517,266
========== ==========
(8) Rescheduled loans
The Group
------------------------------------------------
As at 30 June 2001 As at 31 December 2000
------------------ ----------------------
HK$'000 %* HK$'000 %*
Rescheduled loans 154,912 0.47 238,068 0.75
* Based on total advances to customers
There were no advances to banks and other financial institutions which were rescheduled as at 30 June 2001 and 31 December 2000.
(9) Off-balance sheet exposures
(a) Contingent liabilities and commitments
The following is a summary of the contractual amounts of each significant class of contingent liabilities and commitments:
The Group
---------------------------
As at As at
30 June 31 December
2001 2000
---------- -----------
HK$'000 HK$'000
Direct credit substitutes 872,186 609,289
Transaction-related contingencies 54,832 63,060
Trade-related contingencies 817,871 820,910
Other commitments:
with an original maturity of under 1 year
or which are unconditionally cancellable 6,675,318 7,403,679
with an original maturity of 1 year and over 395,121 387,652
---------- ----------
8,815,328 9,284,590
========== ==========
The above amounts include the guarantees for credit facilities granted by third parties to certain subsidiaries amounting to HK$40 million as at 30 June 2001 (31 December 2000: HK$40 million).
(b) Derivatives
Derivatives refer to financial contracts whose value depends on the value of one or more underlying assets or indices.
The following is a summary of the notional amounts of each significant type of derivative entered into by:
The Group
------------------------------------------------------------------
30 June 2001 31 December 2000
------------------------------- -------------------------------
Trading Hedging Total Trading Hedging Total
------- ---------- ---------- ------- ---------- ----------
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Exchange rate contracts
Forwards 361,427 623,688 985,115 320,801 559,576 880,377
Swaps 0 69,088,097 69,088,097 0 42,189,304 42,189,304
Interest rate contracts
Swaps 0 3,014,818 3,014,818 0 510,918 510,918
Forward rate agreement 0 100,000 100,000 0 0 0
Equity contracts
Options 0 41,348 41,348 0 7,904 7,904
------- ---------- ---------- ------- ---------- ----------
361,427 72,867,951 73,229,378 320,801 43,267,702 43,588,503
======= ========== ========== ======= ========== ==========
(c) The replacement costs and credit risk weighted amounts of the above off-balance sheet exposures are as follows. These amounts do not take into account the effects of bilateral netting arrangements.
The Group
---------------------------------------------------
30 June 2001 31 December 2000
------------------------ ------------------------
Credit risk Credit risk
Replacement weighted Replacement weighted
cost amount cost amount
----------- ----------- ----------- -----------
HK$'000 HK$'000 HK$'000 HK$'000
Contingent liabilities and commitments N/A 891,344 N/A 830,773
Exchange rate contracts 41,823 148,820 123,912 115,474
Interest rate contracts 189,749 44,766 24,805 5,799
Equity contracts 3,931 2,003 0 0
----------- ----------- ----------- -----------
235,503 1,086,933 148,717 952,046
=========== =========== =========== ===========
(10) Segmental information
(a) By geographical area
The Group
----------------------------------------------------------
For the six months ended
----------------------------------------------------------
30 June 2001 30 June 2000 30 June 2001 30 June 2000
------------ ------------ ------------ ------------
Operating Operating
*Profit *Profit Income Income
------------ ------------ ------------ ------------
HK$'000 HK$'000 HK$'000 HK$'000
Hong Kong 926,748 259,312 1,395,642 714,459
Mainland China (368) 0 2 0
United States of America 15,703 13,551 36,246 33,106
Less: Intra-group items (580,008) 0 (585,164) (4,336)
------------ ------------ ------------ ------------
362,075 272,863 846,726 743,229
============ ============ ============ ============
The Group
------------------------------------------------------------------------
As at 30 June 2001 As at 31 December 2000
----------------------------------- -----------------------------------
Total Total Contingent Total Total Contingent
assets liabilities liabilities assets liabilities liabilities
---------- ----------- ----------- ---------- ----------- -----------
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Hong Kong 60,438,985 53,735,696 8,217,410 59,726,664 53,218,941 8,807,979
Mainland China 1,267 4,120 0 1,129 3,573 0
United States of America 3,124,665 2,919,720 637,918 3,555,128 3,365,180 579,014
Less: Intra-group items (4,497,558) (3,817,791) (40,000) (6,625,092) (5,955,411) (102,403)
---------- ----------- ----------- ---------- ----------- -----------
59,067,359 52,841,745 8,815,328 56,657,829 50,632,283 9,284,590
========== =========== =========== ========== =========== ===========
The above geographical analysis has been classified by the location of the principal operations of the subsidiaries or, in the case of the Bank itself, of the location of the branches responsible for reporting the results or booking the assets.
The Group
----------------------------------------------------------------------
As at 30 June 2001 As at 31 December 2000
---------------------------------- ----------------------------------
Non- Non-
Advances to Overdue performing Advances to Overdue performing
customers loan loan customers loan loan
----------- --------- ---------- ----------- --------- ----------
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Hong Kong 24,147,025 1,206,664 813,097 23,012,873 698,788 534,644
Mainland China 7,146,581 918,110 951,725 7,324,803 950,407 957,552
United States of America 1,330,267 12,986 37,736 1,395,649 4,847 25,070
Others 176,342 0 0 192,511 0 0
----------- --------- ---------- ----------- --------- ----------
32,800,215 2,137,760 1,802,558 31,925,836 1,654,042 1,517,266
=========== ========= ========== =========== ========= ==========
The above geographical analysis has been classified by the location of the counterparties.
(b) By class of business
The Group
-------------------------------------------------
Six months ended As at
------------------- ---------------------------
30 June 30 June 30 June 31 December
2001 2000 2001 2000
* Profit * Profit Total assets Total assets
-------- -------- ------------ ------------
HK$'000 HK$'000 HK$'000 HK$'000
Commercial Banking 860,097 186,726 61,390,072 59,215,686
Investment Banking 62,914 28,516 1,767,725 3,697,446
Securities Business 13,180 2,273 286,548 117,363
Other Business 5,892 55,348 120,572 252,426
Less: Intra-group items (580,008) 0 (4,497,558) (6,625,092)
-------- -------- ------------ ------------
362,075 272,863 59,067,359 56,657,829
======== ======== ============ ============
* Profit from ordinary activities before taxation
(11) Capital base after deductions
The Group
--------------------------
As at As at
30 June 31 December
2001 2000
--------- -----------
HK$'000 HK$'000
Core capital
Paid up ordinary share capital 2,595,311 2,594,861
Reserves 3,231,563 3,015,839
Minority interests 90,422 78,710
--------- -----------
Total core capital 5,917,296 5,689,410
......... ...........
Eligible supplementary capital
Reserves on revaluation of land and interests in land 11,945 11,945
General provisions for doubtful debts 362,297 354,271
--------- -----------
Total eligible supplementary capital 374,242 366,216
......... ...........
--------- -----------
Total capital base before deductions 6,291,538 6,055,626
Deductions from total capital base (268,224) (264,018)
--------- -----------
Total capital base after deductions 6,023,314 5,791,608
========= ===========
(12) Foreign currency exposures
The information concerning the foreign currency exposures of the Bank and its subsidiaries arising from trading, non-trading and structural positions are disclosed as follows. The net options position reported are calculated in accordance with the methods set out in the return "Foreign Currency Position" (MA(BS)6) submitted to the HKMA.
The Group
---------------------------------------------------------------------------
As at 30 June 2001 As at 31 December 2000
------------------------------------- -----------------------------------
Equivalent in
HK$'000 US dollars Renminbi Total US dollars Renminbi Total
------------ -------- ------------ ----------- -------- -----------
Spot assets 40,313,604 336,492 40,650,096 25,898,004 184,954 26,082,958
Spot liabilities (42,601,449) (44,676) (42,646,125) (22,033,592) (27,386) (22,060,978)
Forward purchases 127,749,282 0 127,749,282 25,200,257 0 25,200,257
Forward sales (124,715,464) 0 (124,715,464) (28,730,228) 0 (28,730,228)
------------ -------- ------------ ----------- -------- -----------
Net long position 745,973 291,816 1,037,789 334,441 157,568 492,009
============ ======== ============ =========== ======== ===========
STATEMENT OF COMPLIANCE
None of the Directors of the Bank is aware of information which would reasonable indicate that the Bank was not in compliance with the Code of Best Practice, as adopted by the Bank, at any time during the six months ended 30 June 2001.
This interim results announcement has fully complied with the Guideline "Recommendations on Interim Financial Disclosure by Authorised Institutions incorporated in Hong Kong" issued by the Hong Kong Monetary Authority on 13 June 2001.
INTERIM DIVIDEND
The Directors are pleased to declare an interim dividend of HK$0.03 (2000: HK$0.02) per share. The interim dividend will be paid on Wednesday, 12 September 2001 to all shareholders whose names are on the Register of Members of the Bank on Monday, 10 September 2001.
CLOSURE OF REGISTER OF MEMBERS
The Register of Members of the Bank will be closed from Thursday, 6 September 2001 to Monday, 10 September 2001, both days inclusive, during which period no transfer of shares will be registered. In order to qualify for the interim dividend, all transfers of shares accompanied by the relevant share certificates and transfer forms must be lodged for registration with the Bank's Share Registrars, Central Registration Hong Kong Limited, at Shops 1712 - 1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong not later than 4:00 p.m. on Wednesday, 5 September 2001.
MANAGEMENT DISCUSSION AND ANALYSIS
1. Operating Environment and Performance
Hong Kong banking industry still operated in a challenging and difficult environment in the first half of 2001. The industry was pressurized by problems including sluggish loan demand across-the-board, high unemployment rate, declining loan yield as a result of severe industry competition, and the prime rate undergoing five reductions during the first half. Despite the testing operating environment, the Bank succeeded in registering a respective growth of 0.97%, 3.13% and 4.25% in total loans, total deposits and total assets in the first half as compared to the year-end of 2000. At 30 June 2001, total loans, total deposits and total assets amounted to HK$33.1 billion, HK$50.2 billion and HK$59.1 billion respectively.
The slow down of loan growth was also attributed to the Bank's conscious efforts in improving its asset quality, in exercising stringent credit scrutiny over newly booked loans and in maintaining interest margins at a reasonable level.
The Bank adopted various strategies to cope with the difficult operating environment, such as active restructuring of its loan portfolio, continuous launch of new products and services, stringent control on funding cost and realignment of loans and deposits. As a result, the Bank succeeded in maintaining a growth in its net interest income in the first half of 2001 of 7.27% to HK$581 million. Net interest margin was at 2.14% in the first half, a fall of 29 and 23 basis points from 2.43% in 2000 and 2.37% in the first half of 2000 respectively.
At the same time, the Bank actively developed non-interest income avenues, focusing on wealth management services including the sale and distribution of unit trust and insurance, bills processing and fees generated from new loan facilities. As a result, net fees and commission income surged by 25.53% during the period. Besides providing a stable source of funding, the Bank successfully capitalized on interest rate trends through various investments. Hence, other operating income reached HK$92 million, an increase of 53.08% over the HK$60 million recorded in the corresponding period of last year. Non-interest income rose by 31.86% to HK$265 million during the period. The satisfactory growth in interest income and non-interest income lifted the Bank's 2001 first half's operating income to HK$846 million, a rise of HK$103 million or 13.93%, when versus the HK$743 million for the first half of 2000.
In the first half of 2001, the Bank's operating expenses increased by HK$61 million, or 22.06%, from HK$275 million last year to HK$336 million, largely due to the HK$47 million increase in staff costs. At the end of June 2001, the total number of employees stood at 1,058, representing a net growth in headcounts of 98 from 30 June 2000. The recruitment of new staff, mostly middle and top management, IT specialists and frontline marketing executives, was necessary for the Bank's business development. During the period, operating profit before provision amounted to HK$510 million, an increase of 9.14% over last year's corresponding period of HK$468 million.
The Bank's problem loans issue was basically under control. In the first half of 2001, loan loss provision fell 27.86% to HK$142 million. Operating profit reached HK$368 million, an increase of 36.19% as compared to the same period of last year. Net profit was HK$307 million, representing an increase of HK$76 million, or 32.58%, over the HK$231 million in the corresponding period of 2000.
2. Financial Position and Subordinated Notes Issuance
The Bank's financial position remained stable in the first half of 2001, with an average liquidity ratio of 52.21%. At 30 June 2001, the Bank's loans to deposits ratio and unadjusted capital adequacy ratio were at 65.97% and 15.12% respectively. In July 2001, the Bank successfully issued US$300 million 10-year, non-call 5-year, subordinated debt notes at a coupon of 7.625%. This subordinated debt issuance enables the Bank to better manage its capital more effectively and reduce its overall cost of capital. The funds raised will provide the Bank with the funding for organic growth and possible acquisitions.
3. Problem Loans Recovery
The Bank resolved a total of HK$350 million of problem loans in the first half of 2001. The classified exposure at 30 June 2001, including sub-standard, doubtful and loss categories, amounted to HK$2.32 billion, representing 7.08 % of total customer loans and a slight increase over 2000 year-end's 6.45%. Specific provision made against this classified exposure was HK$560 million, with collateral amounting to HK$1.46 billion. This represents a coverage ratio of 87.40% and an uncovered exposure of HK$300 million.
4. Major Initiatives for the Second Half of 2001
a. Revamp of Banking System
The Bank is in the process of revamping its banking system in order to provide an advanced and reliable operating platform for future business development. The first phase of the new system will be launched in September 2001. The Bank will ensure a smooth transition of the systems.
b. Further Improve and Expand Product Range
The Bank will launch a series of innovative products and services, including credit cards, in the second half of 2001. The further enhancement and expansion of product range will enable the Bank to provide its customers with a more comprehensive range of quality financial services.
c. Strengthen Co-operation with CITIC Group and Other Major Mainland Shareholders
The Bank will further strengthen the business co-operation with other financial members of the CITIC Group, including CITIC Industrial Bank and CITIC Securities, with a view to creating synergy. At the same time, the Bank will strengthen co-operation with other major mainland shareholders such as China Construction Bank and China Insurance Group.
5. Outlook
CITIC Bank International has been operating in Hong Kong for over 70 years. Over the past three years, the Bank adopted the strategy of progressive business development and innovative reforms. This has resulted in great improvement in various areas such as code and system, management quality and profitability. The Bank will continue to capitalize on its competitive advantages, namely its top management which has on average over twenty years of international banking experience. This has led to a continuous improvement in the Bank's management system and professionalism. Furthermore, leveraging on the reputation and background of its parent company, CITIC, as well as the group's presence and extensive network within the mainland, the Bank is well poised to actively participate in market competition.
Riding on this solid foundation, the Bank will continue to operate from its base in Hong Kong. With CITIC's support and the Bank's in-depth knowledge of the Hong Kong and mainland markets, the Bank is well positioned to capitalize on the vast opportunities that arise as a result of China's entry into the World Trade Organization. The Bank will position itself as the bridge for Hong Kong customers to develop businesses and manage their personal finances in the mainland; the window for mainland customers to explore worldwide opportunities; and the provider of a full range of financial services.
6. Interest Rate Deregulation
The Hong Kong banking industry completed its final stage of interest rate deregulation on 3 July 2001. The Bank currently has no plans to change its existing deposit rates structure. It will, however, consider launching tactical deposit campaigns, such as the recent 'high rate fixed deposit' campaign which offered a relatively high fixed deposit rate at 4% to secure funding sources at a reasonable cost. In the future, the Bank will closely monitor market liquidity, fluctuations in market deposit rates, as well as its own capital requirements to determine its deposit rates.
7. New Management Appointment and Change of Directors
On 6 July 2001, the Board of Directors appointed Mr. Chang Zhenming, a Director of the Bank, as President and Chief Executive Officer. The Board firmly believes that given the important positions held by Mr. Chang in CITIC and his nearly twenty years' extensive experience in the finance industry, his new appointment will definitely be beneficial to the further development of the Bank. At the same time, the Board appointed Mrs. Doreen Chan Hui Dor Lam and Mr. Kenneth Kong Siu Chee, both Directors of the Bank, as Alternate Chief Executive Officers.
During the first half of 2001, the Board of Directors appointed Mr. Kong Dan, Mr. Yang Chao, Mr. Chang Zhenming, Mr. Zhang En Zhao, Mrs. Doreen Chan Hui Dor Lam and Mr. Kenneth Kong Siu Chee as Directors of the Bank. Mr. Kong Dan was elected as the Chairman of the Bank on 12 January 2001 while Mr. Ju Weimin was appointed as Director of the Bank effective 12 July 2001. The Board of Directors deeply believes that the broad experience and extensive business connections of these newly appointed directors will be beneficial to the Bank's business development.
The former Directors, Mr. Wang Xianzhang, Mr. Hong Yuncheng, Mr. Zhang Mingqian, Mr. Brian Tang See King and Mr. Zhou Hanrong had tendered resignations to the Board during the first half of 2001. Mr. Cai Zhongzhi also tendered his resignation as Director of the Bank effective 6 July 2001. The Board would like to take this opportunity to express again its sincere gratitude to each Director for their contribution and guidance to the Bank during their tenure of service.
By Order of the Board
Chang Zhenming
President and Chief Executive Officer
Hong Kong, 3 August 2001