ANNOUNCEMENT OF 1999 INTERIM RESULTS SUMMARY OF RESULTS The Board of Directors of CITIC Bank International Limited (the "Bank") announces the unaudited consolidated results of the Bank and its subsidiaries (the "Group") for the six months ended 30 June 1999 together with the comparative figures for the corresponding period in previous year as follows:- Six months ended 30 June 1999 1998 Variance HK$'000 HK$'000 % ---------- ---------- -------- Interest Income 1,489,699 1,540,374 (3.29) Interest Expense (1,088,456) (1,085,508) 0.27 ---------- ---------- Net Interest Income 401,243 454,866 (11.79) Other Operating Income 123,336 121,757 1.30 ---------- ---------- Operating Income 524,579 576,623 (9.03) Operating Expenses (223,035) (216,043) 3.24 ---------- ---------- Operating Profit Before Provisions 301,544 360,580 (16.37) Provision On Held-to-maturity Securities And Investment Securities (24,859) 0 N/A Charge For Bad And Doubtful Debts (225,095) (139,688) 61.14 ---------- ---------- Operating Profit 51,590 220,892 (76.64) Net Profit/(Loss) On Disposal Of Tangible Fixed Assets And Investment Securities 761 (129) 689.92 ---------- ---------- Profit From Ordinary Activities Before Taxation 52,351 220,763 (76.29) Tax On Profit From Ordinary Activities (Note 2) - Hong Kong (444) (28,747) (98.46) - Overseas (310) (613) (49.43) ---------- ---------- Profit Attributable To Shareholders 51,597 191,403 (73.04) ========== ========== Earnings Per Share Basic (Note 3) 1.99 8.12? ========== ========== Diluted (Note 4) 1.99 8.11? ========== ========== Notes: (1) The Group adopted the new Statement of Standard Accounting Practice 2.124 "Accounting for Investments in Securities" commencing from 1 January 1999 which resulted in a change of accounting policy with respect of treasury bills, certificates of deposit, securities held for dealing purposes and investment securities. Debt securities intended to hold to maturity are accounted for as held-to-maturity securities. Other securities are accounted for using the benchmark treatment. The opening retained earnings for 1999 were not restated as the effect of the change of the accounting policy is not considered to be material. (2) The provision for Hong Kong profits tax is based on an estimate of the assessable profits for the six months ended 30 June 1999 at 16% (1998: 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. (3) The calculation of basic earnings per share for the six months ended 30 June 1999 is based on earnings of HK$51,597,000 (1998: HK$191,403,000) and on the weighted average of 2,592,547,794 (1998: 2,356,339,273) ordinary shares in issue during the period. (4) The calculation of diluted earnings per share for the six months ended 30 June 1999 is based on earnings of HK$51,597,000 (1998: HK$191,403,000) and on the weighted average of 2,593,127,623 (1998: 2,358,703,892) after adjusting for the effects of all dilutive potential ordinary shares. UNAUDITED SUPPLEMENTARY FINANCIAL INFORMATION (1) Advances and other accounts The Group ---------------------------------- As at As at 30 Jun 1999 31 Dec 1998 Variance HK$'000 HK$'000 % ----------- ----------- -------- Advances to customers 26,842,779 25,046,550 7.17 Advances to banks and other financial institutions 669,100 697,869 (4.12) Accrued interest and other accounts 1,444,559 1,391,610 3.80 Provisions for bad and doubtful debts - Specific (975,557) (735,608) 32.62 - General (272,857) (261,412) 4.38 ----------- ----------- 27,708,024 26,139,009 6.00 =========== =========== (2) Advances to customers - By industry sectors The Group ------------------------------------------------ As at As at 30 June 1999 31 December 1998 Variance HK$'000 % HK$'000 % % ---------- ------ ---------- ------ -------- Loans for use in Hong Kong Industrial, commercial and financial - property development 1,348,296 5.02 1,534,407 6.13 (12.13) - property investment 2,023,997 7.54 2,110,585 8.43 (4.10) - financial concerns 1,184,762 4.41 1,440,590 5.75 (17.76) - stockbrokers 49,635 0.19 26,297 0.10 88.75 - wholesale and retail trade 1,168,794 4.36 1,296,166 5.18 (9.83) - manufacturing 577,576 2.15 546,289 2.18 5.73 - transport and transport equipment 1,071,293 3.99 984,235 3.93 8.85 - others 5,361,195 19.97 5,418,176 21.63 (1.05) Individuals - loans for the purchase of flats in the Home Ownership Scheme and Private Sector Participation Scheme 29,444 0.11 34,693 0.14 (15.13) - loans for the purchase of other residential properties 8,220,916 30.63 6,048,762 24.15 35.91 - others 610,231 2.27 510,642 2.04 19.50 Trade finance 2,439,294 9.09 2,548,376 10.17 (4.28) Loans for use outside Hong Kong 2,757,346 10.27 2,547,332 10.17 8.24 ---------- ------ ---------- ------ TOTAL 26,842,779 100.00 25,046,550 100.00 7.17 ========== ====== ========== ====== (3) Loans on which interest is placed in suspense The Group ------------------------------------------------------------- Specifc Pledge provision amount for in respect of Total amount loans on loans on of loans on which which Amount of which interest interest interest interest is placed is placed in is placed in placed in in suspense suspense suspense suspense HK$'000 %* HK$'000 HK$'000 HK$'000 ---------- ----- ----------- ------------- -------- As at 30 June 1999 2,171,237 7.85 821,171 756,457 210,501 As at 31 December 1998 2,118,669 8.18 657,514 679,389 108,979 * Based on total loans and advances There were no advances to banks and other financial institutions on which interest is being placed in suspense or on which interest accrual has ceased as at 30 June 1999 and 31 December 1998, nor were there any specific provisions made for them on these two days. (4) Overdue loans and advances The Group ---------------------------------------------------------------- As at 30 June 1999 ---------------------------------------------------------------- Amount of Amount of collateral specific held in provisions Overdue gross respect of Amount Amount made against advances to overdue of of overdue customers (net of advances to secured unsecured advances suspended interest) customers balance balance to customers HK$'000 %* HK$'000 HK$'000 HK$'000 HK$'000 --------- ----- --------- -------- --------- -------- Three to six months overdue 189,942 0.69 161,654 86,523 103,419 17,948 Six months to one year overdue 808,575 2.92 401,331 314,099 494,476 348,552 Over one year overdue 928,637 3.36 625,846 473,642 454,995 305,503 --------- ----- --------- -------- --------- -------- TOTAL 1,927,154 6.97 1,188,831 874,264 1,052,890 672,003 ========= ===== ========= ======== ========= ======== The Group ---------------------------------------------------------------- As at 31 December 1998 ---------------------------------------------------------------- Amount of Amount of collateral specific held in provisions Overdue gross respect of Amount Amount made against advances to overdue of of overdue customers (net of advances to secured unsecured advances suspended interest) customers balance balance to customers HK$'000 %* HK$'000 HK$'000 HK$'000 HK$'000 --------- ----- --------- -------- --------- -------- Three to six months overdue 521,645 2.01 395,185 221,500 300,190 63,411 Six months to one year overdue 709,420 2.74 333,272 277,958 431,417 260,518 Over one year overdue 555,359 2.14 310,079 201,651 353,708 257,156 --------- ----- --------- -------- --------- -------- TOTAL 1,786,424 6.89 1,038,536 701,109 1,085,315 581,085 ========= ===== ========= ======== ========= ======== * Based on total loans and advances There were no advances to banks and other financial institutions which were overdue for over 3 months as at 30 June 1999 and 31 December 1998. (5) Rescheduled loans The Group ---------------------------------------- As at As at 30 June 1999 31 December 1998 HK$'000 %* HK$'000 %* ---------- ----- -------- ----- Rescheduled loans 1,346,472 4.87 776,994 3.00 * Based on total loans and advances There were no advances to banks and other financial institutions which were rescheduled as at 30 June 1999 and 31 December 1998. (6) The amount of advances to customers and advances to banks and other financial institutions which are: The Group ------------------- As at 30 June 1999 HK$'000 ------------------- Overdue for more than 3 months and on which interest is still being accrued 500,923 Overdue for 3 months or less and on which interest is being placed in suspense or on which interest accrual has ceased 18,009 (7) Summary of financial position As at As at As at 30 Jun 1999 30 Jun 1998 Variance 31 Dec 1998 Variance HK$'000 HK$'000 % HK$'000 % ----------- ----------- -------- ----------- -------- Loans and Advances 27,646,431 20,850,186 32.60 25,904,650 6.72 Loans Loss Provision 1,248,414 804,172 55.24 1,023,680 21.95 Total Assets 45,577,148 38,362,351 18.81 44,110,038 3.33 Total Interest Earning Assets 43,977,916 37,002,922 18.85 42,384,993 3.76 Total Deposits 38,569,065 31,081,746 24.09 37,246,325 3.55 Shareholders? Funds 5,328,492 4,741,768 12.37 5,276,421 0.99 Financial ratios Capital Adequacy 20.14% 22.30% 20.57% Average Liquidity 44.57% 50.07% 50.69% Loans to Deposits 71.68% 67.08% 69.55% Loans to Total Assets 60.66% 54.35% 58.73% General Provision Coverage 1.02% 1.03% 1.04% Property Lending 44.90% 29.94% 40.15% Cost to Income 42.52% 37.47% 41.35% Return on Assets 0.23% 1.05% 0.26% Return on Shareholders' Funds 1.95% 8.24% 2.10% (8) Off-balance sheet exposures (a) Contingent liabilities and commitments The following is a summary of the contractual amounts of each significant class of contingent liabilities and commitments: The Group ------------------------------ As at As at 30 June 1999 31 December 1998 HK$'000 HK$'000 ------------ ------------- Direct credit substitutes 351,155 253,892 Trade-related contingencies 557,429 678,546 Other commitments: with an original maturity of under 1 year or which are unconditionally cancellable 7,466,856 5,958,535 with an original maturity of 1 year and over 143,641 47,249 ------------ ------------- 8,519,081 6,938,222 ============ ============= The above amounts include the following guarantees: (i) continuing guarantees to a wholly owned subsidiary, Ka Wah International Merchant Finance Limited ("KWIMF"), to secure the collectibility of principal and related interest in respect of loans granted by KWIMF to third parties. As at 30 June 1999, the balances due from these companies amounted to HK$467 million (31 December 1998: HK$621 million). (ii) guarantees for credit facilities granted by third parties to certain subsidiaries amounting to HK$43 million as at 30 June 1999 (31 December 1998: HK$43 million). (b) Derivatives Derivatives refer to financial contracts whose value depends on the value of one or more underlying assets or indices. The following is a summary of the notional amounts of each significant type of derivative entered into by: The Group ------------------------------------------------------------------- As at 30 June 1999 As at 31 December 1998 ------------------------------- --------------------------------- Trading Hedging Total Trading Hedging Total HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 ------- ---------- ---------- -------- ---------- ---------- Exchange rate contracts Forwards 10,953 291,619 302,572 55,744 207,465 263,209 Swaps 238,250 22,988,727 23,226,977 2,147,937 22,489,114 22,637,051 Interest rate contracts Swaps 0 465,837 465,837 0 464,752 464,752 ------- ---------- ---------- -------- ---------- ---------- 249,203 23,746,183 23,995,386 203,681 23,161,331 23,365,012 ======= ========== ========== ======== ========== ========== STATEMENT OF COMPLIANCE In preparing the disclosure for the first half of 1999, the Bank has fully complied with the recommendations made by the Hong Kong Monetary Authority on 25 June 1999. OPERATING ENVIRONMENT In the aftermath of the financial crisis that began in 1997, Hong Kong still finds its economy in a difficult adjustment stage, with problems including negative economic growth, contraction in trade volume, uncertainty over interest rates movement, subdued demand for corporate loans, increasing levels of problem loans and intensifying competition in the banking sector. Despite the testing operating environment, the Bank has continued to adopt a prudent but progressive business development strategy which has brought about encouraging growth. At the same time the Bank has embarked on a programme of reform and adjustments and strengthened the control and recovery of problem loans, with intent of setting up a solid ground for long-term business expansion. FINANCIAL REVIEW The Bank's financial strength remained robust. As at 30 June 1999, total assets were recorded at HK$45.57 billion, an increase of 18.8% compared with the corresponding figure in 1998. Total loans and advances reached HK$27.64 billion, reflecting an increase of 32.6% over 1998. Total deposits amounted to HK$38.56 billion, an increase of 24.1% over last year. All major financial indicators were managed at stable levels. The Bank continued to maintain a strong liquidity position, with the average liquidity ratio for the first half of 1999 standing at 44.6%. The loan to deposit ratio and the capital adequacy ratio were put at 71.7% and 20.1% respectively. The interim operating profit before provisions amounted to HK$301 million, representing a 16% decrease compared with the corresponding period in 1998. The Bank's charge for bad and doubtful debts amounted to HK$220 million, an increase of 61% over the same period last year. Profit attributable to shareholders for the six months ended 30 June 1999 was HK$51 million, a decline of 73% compared with the same period last year. BUSINESS REVIEW Problem loans remained an issue to be dealt with by the entire banking sector. As a result, the amount of the Bank's interest in suspense increased by HK$100 million in the first half of 1999. Leaving this factor aside, the Bank's interest income in the first six months of 1999 was approximately at the same level as that recorded in the corresponding period of 1998. The Bank has adopted a conservative provisioning policy which has resulted in a rise in provision for the period. In order to create a sound platform for business expansion, the Bank has continuously improved the quality of its loan portfolio and has taken proactive measures to recover problem loans. In the first half of 1999, the Bank made considerable progress in the recovery of problem loans through cash recovery, restructuring and realisation of collaterals. Approximately HK$1,007 million of problem loans were recovered. Significant progress has been made in raising the quality of the Bank's loan assets by diversifying in and focusing on the domestic market. The Consumer Banking Group has made substantial inroads into the local market, recording a strong growth of 46% in personal lending compared with the same period last year. Based on the same criteria announced last year end, exposure to the mainland has also been reduced from HK$8.3 billion at the end of last year to HK$7.9 billion, and as a percentage to the total loan portfolio, mainland related companies accounted for 32% at the end of 1998. This has now dropped to 28%. Owing to the reduction in the volume of Hong Kong and China-related trade finance business, the Bank has recorded a decrease in trade finance related fees from HK$21 million in the first half year of 1998 to HK$15 million for the same period in 1999. Operating costs merely increased by 3.2% over the same period in 1998. The Bank has continued recruitment of highly qualified professionals, investment in the technological infrastructure and the refurbishment of branches. At the same time, the Bank has exercised stringent cost control and focused on improving operational efficiency. OUTLOOK The Bank has made considerable progress in reform and adjustments which has resulted in encouraging business growth. Significant progress has been made in the recovery of problem loans and new corporate values have been established. The Bank will continue to adopt a vigorous yet prudent business approach. Emphasis will be placed on active expansion of the asset base, resolution of the problem loan issue, restructuring of the loan portfolio and enhancement of the overall management capability with the aim of creating a strong platform for profitable growth. The Bank will continue to implement stringent control over expenses through rationalisation of processes and system re-engineering aiming to enhance operational efficiency and to maintain operating costs at a relatively low level. INTERIM DIVIDEND The Board does not recommend any interim dividend (1998: Nil) for the period. PURCHASE, SALE OR REDEMPTION OF THE BANK'S LISTED SECURITIES The Bank has not redeemed any of its listed securities during this interim. Neither the Bank nor any of its subsidiaries has purchased or sold any of the Bank's listed securities during this interim. YEAR 2000 COMPLIANCE The Bank has established, in June 1997, a "High Level Steering Committee" and a "Millennium Bug Team" to ensure the Bank's computer systems and ancillary equipment would perform, function and manage data involving dates without being abnormally affected by dates transiting into the year 2000. In June 1998, the Bank had accomplished the assessment, modification and testing of the mainframe system followed by user acceptance test, simulation run and system conversion which were completed in September 1998. To ensure the mainframe system works properly during the millennium transition, further testing will be conducted within the fourth quarter of 1999. Questionnaires were sent in July 1998 to counterparties to inquire as to their Year 2000 preparedness. The Bank has also sent account officers to visit business customers to ensure that the Year 2000 counterparty assessment guidelines laid down by the Hong Kong Monetary Authority are followed. The budget for the Year 2000 compliance is HK$10,400,000, of which HK$1,400,000 will be charged in 1999. Up to the end of June 1999, related expenditure amounted to HK$900,000. The Bank has established a Business Resumption Plan, embedded with which is a Year 2000 Contingency Plan. The documentation and rehearsal of this Year 2000 Contingency Plan had been completed prior to 30 June 1999. Moreover, management had planned to conduct trial testing of the Contingency Plan in October 1999, in which all Bank personnels will be required to participate. The Bank has set up a "Year 2000 Customer Awareness Programme" and has prepared posters and leaflets, presenting to customers works done in tackling the problem. At the same time, a telephone hotline for public enquiry has been set up and the relevant information has been included in the Bank's web site for reference. By Order of the Board Cai Zhongzhi President and Chief Executive Officer Hong Kong, 6 August 1999