Copyright The Asian Banker All rights reserved 1/104 Copyright The Asian Banker All rights reserved China International Banking Convention 2011 How the Asian Banker evaluates the competition in China’s banking industry today 26 th May 2011 Beijing

Copyright The Asian Banker All rights reserved 2/104 Copyright The Asian Banker All rights reserved The Retail Banking Working Group is keeping track of retail banking trends

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How we assess the financial services industry in China Retail Banking Product Awards - Best Wealth Management Product - Best Internet Banking - Best Branch Banking - Best Mobile Phone Banking Application - Best City Bank Branch - Best Provincial Town Bank Branch - Best Mortgage Product - Best Credit Card Product - Best Bancassurance Product - Best SME Product - Best Deposit Product Technology and Infrastructure Awards - Best Banking Technology - Best Core Banking Implementation - Best Risk & Analytics Project - Best Data Center Initiative - Best E-Banking Project - Best HR Systems Implementation - Best Call Center Project - Best Banking Security System Risk Management Award Scope of Financial Institutions National Banks, Joint Stock Banks, City Commercial Banks, Rural Banks, Foreign Banks (overall 96 banks) Evaluation Criteria Rational and transparent evaluation process based on balanced scorecards Retail Banking Product Awards Taking stock of innovative products and process improvements Technology/Infrastructure/Risk Awards Implementations that make an impact on the business International Panel of Referees Supervises and verifies the comprehensive 2 months evaluation exercise of The Asian Banker Research team

Copyright The Asian Banker All rights reserved 5/104 Copyright The Asian Banker All rights reserved Number of customers for the largest banks (million, 2010) China’s largest bank has more customers than entire financial industries in Asia Pacific

Copyright The Asian Banker All rights reserved 6/104 Copyright The Asian Banker All rights reserved Total Banking Assets of the Financial System ($ trillion, 2010) China’s financial industry dwarfs other countries by its asset size

Copyright The Asian Banker All rights reserved Number of Branches Number of Branches in Asia Pacific (Ex China and India)Number of Branches in China and India) China has twice as many branches as India

Copyright The Asian Banker All rights reserved The evaluation of China’ s retail financial services is based on 10 dimensions Value of Franchise  Core Deposits  Market Share/Change in Core Deposits  3 rd party providers Financial Performance  Operating Profit (%, $)  Retail Return on Assets (%)  AUM (%, $) SustainabilityStrategy  Clearly Conceptualized Strategy  Excellence Submission  Depth of Reporting (AR)  Portion of Recurrent Income (%)  NIM (bps)  Portion of Fee Income (%)  Cost to Income Ratio (%) Risk Management  Gross NPL (%)  Net Credit Loss ($)  Classification of Delinquencies  Risk Reporting Structure Process & Technology  Time to Market  Customer Cycle Times  Straight through Processing  Centralisation of Branch Processes  Automation Levels of Assets/Liabilities Mgmt DistributionPeople’s Skill  Portion of Senior Executives with more than 13 years of Experience in the Bank (Retail, IT)  Attrition Rates (Sales, IT)  Budget for Training (% of operational Cost)  Proportion of Self Service Transaction to Total  Branch - Fee Income/Core Deposits  Uptime of ATM (monthly)  Proportion of Active Bill Payment Users (e/banking) Sales Management  Average Cross Sell (Mass)  Average Cross Sell (Affluent)  Market Share Mortgages  Market Share Credit Cards Ethical Banking  Published Ethical Service Document  Depth of Social Corporate Responsibility Scorecard for Best Retail Bank

Copyright The Asian Banker All rights reserved 9/104 Copyright The Asian Banker All rights reserved Ranking Strategy Value of Franchise Financial Performance Sustain ability SalesRisk Process Technology Efficiency Penetration Efficiency Distribution Channels People Skills Ethical Banking Total Scores ICBC na4 2BOC CMB CCB ABC SPDB BoB BoS CITIC BoCom Average Score Top Average Score Chinese banks GAP Areas managed well Source: Asian Banker Research Ranking of Chinese Retail Banks 2011 Large scale Chinese banks balance their revenues by diversifying their competencies Highest GAP to Top 10

Copyright The Asian Banker All rights reserved The Evaluation Criteria for Internet Banking are based on 6 key dimensions Financial Performance  Revenue generated  Revenue per registered customer  Revenue structure  Fee income  Fee income per customer  Fully loaded cost per transaction  Cost of an internet banking transaction to branch transaction Transactional Strength  Value and volume of transaction (annually)  % contribution to total value and volume of retail transactions  YoY growth of users  Number of transactional services deployed SalesStrength of Usage  Number of registered users  Active users (one transaction within < 3 months)  Active bill payment customers  Number of billing institutions  Financial tools  Participation rate of real time online support  Customer interface  Usability  Number of product s offered online  Average product holding for internet banking users compared to non internet banking users  Internal revenue sharing model Operations and Technology  Straight through processing of product applications and account opening  Level of consolidated view of all customer holdings  Analytics and segmentation  CRM connectivity Security Scorecard Internet Banking  Security standards and systems  Security features deployed  Authentication model and processes  Alert features  Fraud incidences

Copyright The Asian Banker All rights reserved Most of the Top 10 players generate significant more revenue from this channel than their peers Evaluation Scorecard for Internet Banking (2011) CountryRankBank Financial Performance Transactiona l Strength Sales Strength of Usage Operations & Technology SecurityTotal Score Hong Kong1HSBC South Africa2Absa Bank Malaysia3Maybank Japan4Rakuten Bank Australia5Citibank UAE6Abu Dhabi Commercial Bank China7ICBC Taiwan8Taishin International Bank Korea9Citibank India10Citibank Saudi Arabia11Samba Hong Kong12Citibank Philippines13Bank of the Philippine Islands India14ICICI Bank Japan15HSBC

Copyright The Asian Banker All rights reserved Our technology scorecards are based on general and specific criteria General CriteriaAwards Specific Criteria (Core Banking) Strategy AlignmentROI & Cost Benefit Delivery of the overall articulated business valueProject Size vs Business Size Project ManagementMeeting Regulatory Compliance Project ExecutionArchitecture & Technology Vendor Strategy/Evaluation Contract Development Management Clear Project Management Guidelines Cost Management Meeting Quantifiable Targets Meeting Goals Risk Mitigation

Copyright The Asian Banker All rights reserved Foreign banks face an uphill battle in China BankAssets Pre-Tax Profit a NPL (%) ROA (%) HSBC256,960 (e) 1,456n/a0.42 (e) Standard Chartered Bank207,912 (e) (e) Bank of East Asia191,7601, (e) Bank of Tokyo-Mitsubishi UFJ 123,108 (e) 1,724 (e) n/a1.05 (e) DBS62, BNP Paribas45,182 (e) 253 (e) n/a0.45 (e) The Royal Bank of Scotland44,843 (e) 56 (e) n/a0.10 (e) OCBC Bank34,000 (e) 61 (e) (e) JP Morgan Chase25,562 (e) 259 (e) n/a0.81 (e) United Overseas Bank22, Rank BankAssets Pre-Tax Profit a NPL (%) ROA (%) 1 ICBC b 13,328,791164, CCB b 10,706,029173, BOC b 10,358,958140, ABC b 10,237,68334, China Development Bank c 4,951,76649,364 (e) (e) 6 Bank of Communications d 3,913,47349, China Merchants Bank d 2,379,33333, China CITIC Bank d 2,061,23328, Shanghai Pudong Development Bank c 2,009,000 (e ) 25,098 (e) (e) 10 China Minsheng Banking Corp d 1,806,14422, Top 10 Chinese and Foreign Players in China (Ranked by Assets at End 2010 – RMB million) (a) After NPL provisions. (e) Figures Estimated. ROA was calculated via net income over assets based on the financial figures provided by the banks unaudited figures published on their website. (#) Does not include banks with asset value that is unavailable (a) After NPL provisions. (e) Figures Estimated. ROA was calculated via net income over assets based on the financial figures provided by the banks unaudited figures published on their website. (#) Does not include banks with asset value that is unavailable.

Copyright The Asian Banker All rights reserved Chinese banks seek to leverage on a comprehensive product scope, brand and distribution channels  Data management and integration  Continuing internationalisation of Chinese banks and opening of Taiwanese market (interoperability issues)  The rise of foreign players in wealth management and private banking?  Aggressive cross selling and product bundling calling the regulator into action  Banks have to decide which platform and device to utilize in mobile banking  Agility is enabled both by technical solutions and institutional changes Key Emerging Themes in Retail Financial Services 2010/2011 Asia Pacific China  Institutionalisation of businesses (i.e. process standardisation and operational issues in wealth management and private banking)  Online and mobile phone banking  Growing regionalisation of domestic banks and integration of systems  Foreign banks are pushing the edge in innovation  Consumer protection as regulatory theme in Asia Pacific? (i.e. consumer finance)

Copyright The Asian Banker All rights reserved Conclusion  The Asian Banker Body of Knowledge will be organised 100% online  The Chinese financial industry differs relative to scale and merits is own approach  Finding suitable benchmarks and peers to compare with  Chinese banks seek to leverage on a comprehensive product scope, brand and distribution channels

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