Industrial and Commercial Bank of China Limited (Stock Code: SH: 601398; HK: 1398) announced its 2011 results on March 29. In accordance with the International Financial Reporting Standards, net profit at ICBC in 2011 rose 25.6 percent from a year earlier to RMB 208.4 billion. Earnings per share and net assets per share were RMB 0.60 and RMB 2.74 respectively, up RMB 0.12 and RMB 0.39 over 2010's. Board of Directors suggested paying a dividend of RMB 2.03 each 10 shares (tax inclusive). At the end of 2011, ICBC's capital adequacy ratio and core capital adequacy ratio stood at 13.17% and 10.07% respectively.

In 2011, ICBC maintained a principle of coordinated financial and economic growth while focusing on improvement of the credit management. The Bank has played an active role to promote economic restructuring and industry upgrade by keeping a reasonable pace on the availability of credit to target recipients. In 2011, total outstanding RMB loans in all domestic branches surged RMB 811.7 billion, or 13.1%, from end of 2010. ICBC eased its lending policy and extended more loans in 2011. Loans disbursed by all domestic branches in the year rose RMB 477 billion over previous year despite total outstanding RMB loans recorded an increase of RMB 86.4 billion less than previous year. In 2011, ICBC's NIM (Net Interest Margin) stayed at a reasonable 2.61%.

Three points highlighted the lending practices of ICBC in 2011: I. More loans to micro and small enterprises (MSEs). ICBC's outstanding MSE loans (including small business loans and personal business loans) rose RMB 302.8 billion from the beginning of 2011 to RMB 959.3 billion at the end of the year, accounting for 37.3% of all new RMB loans in the same period. The 46.1% increase in loans was 3.5 times the average growth of all ICBC RMB loans. In 2011, ICBC loans to micro and small enterprises made up 12.3% of total loans, up 2.6 percentage points from end of 2010's 9.7%. Average interest rate of ICBC loans to small business in 2011 was 7.12%, or 0.56 percentage points higher than the benchmark rate of 1-year loan. II. In gearing up the support to industry upgrade and restructuring, ICBC shifts its loan mix to strategic emerging industries, advanced manufacturing companies, modern service and cultural sector. ICBC loans to the financing vehicles of local government decreased RMB 247.6 billion over end-June, 2011, while outstanding loans to property development dropped RMB 7.3 billion over end of 2010. In extending long-tenure project loans, more than 95% new project loans were provided to major projects under construction or ongoing projects. III. More personal consumer loans and card loans were released to directly support personal consumer spending. 39.5% growth of personal consumer loans represented an increase of RMB 105.8 billion from the beginning of 2011, while card loans rose RMB 86.2 billion since January, 2011, or 94.2%.

While following a policy of reasonable lending to support real economy, ICBC searches for safer play to its asset quality by taking all steps to strengthen its risk management and risk resistance capability. At the end of 2011, ratio of ICBC non-performing loan (NPL) was 0.94%, down 0.14 percentage points when compared to end of 2010's. The balance and ratio of ICBC NPL were "both going down" for the twelfth successive year. NPL provision coverage rate soared 38.72 percentage points over the end of 2010 to reach an impressive 266.92%. Quality of credit assets remains good in view of the loans to financing vehicles of local government and property loans which are a major concern in the market. At the end of 2011, high cash flow coverage ratio was marked by over 97% full-coverage and base-coverage loans adding together to financing vehicles of local government. In lending to property development, ICBC enforced strict control on the non-performing amount and non-performing rate. Non-performing rate of property loans and personal housing loans were 0.82% and 0.35% respectively.

Six factors contributed to the good performance of ICBC in 2011 despite the complex business conditions.

I. The steadfast progress of real economy creates a favorable market environment for banks. "Financial sector goes with a Prosperous Society". When it comes to economy, banks and companies "rise and fall together". 2011 marked a good beginning of China's "Twelfth Five-Year". In 2011, China's GDP rose 9.2% over previous year by comparable price. Data from National Bureau of Statistics of China showed that in 2011, industrial companies of national scale registered a 25.4% year-on-year rise in profit. Profit growth of state-owned enterprises, collective enterprises, joint-stock enterprises, foreign companies and private business were 15.0%, 34.0%, 31.2%, 10.6% and 46.0% respectively, showing the growth trajectory. In 2011, ICBC's growth in net profit was on par with the average profit growth in industrial companies of national scale, a reflection of good national economy through financial sector.

II. The growth of business performance was driven by the gathering pace in all businesses. In conventional banking area, ICBC maintained a robust growth in deposit. ICBC's outstanding customer deposit increased RMB 1.12 trillion from end of 2010 to RMB 12.26 trillion at the end of 2011. This was the fourth year in succession that ICBC registered over RMB 1 trillion of new deposits from customers and secured its first place in the global ranking. In emerging industry sector, net assets under ICBC custody rose 22.8% from the beginning of the year to RMB 3.5 trillion, ranking No.1 in China. In terms of bond underwriting, ICBC remained the house to beat by underwriting 110+ debt instruments - short term bonds, mid-term notes and super & short-term commercial paper, to a total of over RMB 290 billion. Number of cash management customers went up 30% from end of 2010 to 660,000, where 2232 customers used ICBC global cash management service. Cross-border RMB settlements in the whole year reached nearly RMB 700 billion, nearly quintupled over previous year. ICBC clearing network covers 55 countries/regions. Over 70 million credit cards have been issued. About 7 million new credit cards issued in 2011 represented a 11.0% jump from the beginning of the year. In 2011, total amount which has been spent or withdrawn using ICBC credit cards rose 53.0% year-on-year to RMB 976.5 billion. ICBC holds on to the top spot in terms of card issuance volume, cardholder expenditure volume and overdraft volume. The Bank is the largest pension fund management organization in the country offering management services to 9.9 million pension fund personal accounts and having RMB 184.6 billion of pension fund under custody. 162,000 tons of precious metal traded in the year was 6.7 times the trading volume in 2010. Number of private banking customers grew 23.2% from end of 2010 to 22,000. Asset under ICBC management rose 22.6% from the beginning of the year to a tune of RMB 434.5 billion.

III. Reform and innovation on key areas and critical steps give impetus to the growth. Innovation on service channels is demonstrated by over 70% of ICBC transactions running through electronic banking. ICBC with 254 million online banking users is the first bank in China to register over 100 million personal internet banking customers, to 118 million. After all the conscious efforts in innovation and product launch, electronic banking is now the first choice of ICBC customers for banking needs, providing more convenient and faster financial services to the public. Electronic banking is paperless, with low consumption, highly efficient, a good alternative to counter services in reducing the operating cost of a bank and beneficial to energy savings and environmental protection. In term of product innovation, by end-2011 ICBC had 3,243 products, a surge of 15.8% over end of last year's. Today, ICBC is the most prolific bank in China's financial market providing the highest number and most complete range of products. Just in 2011, ICBC rolled out in succession an array of new products. That included Easy Time credit cards which link with the salary of cardholders who can use the card directly for payments at benchmark interest rate, regular investment of precious metals via accounts and two-way trading, and ICBC Mobile Banking. The new innovative services contributed towards client focus and were warmly received by the market. The range of innovative products launched in former years is now paying off. From 2006 to 2011, ICBC was moving forward at an annual compound growth rate of 155.39%, while annual compound growth rate of revenue from electronic banking business, asset custody business and international banking business were respectively 71.15%, 77.07% and 46.28%. Years of innovation and growth have brought remarkable value to the customers and new profitability growth points to ICBC as well.

IV. Continuous enhancement in asset quality drives profitability growth. From 2006 until end of 2011, ICBC's outstanding bad loans dropped from RMB 137.7 billion to RMB 73 billion, while non-performing rate slid from 3.79% to 0.94%. The direct benefit was the significant drop in credit cost ratio (ratio of impairment to loan amount), from 0.83% in 2006 to 2011's 0.41%. Percentage of provision for impairment of assets in profit before provision went down from 30.88% in 2006 to 2011's 10.34%, a slid of 20.54 percentage points. Commercial banks in China cannot post profit growth in recent years if there is no improvement in asset quality. To ICBC, bad loan rate rising one percentage point means outstanding bad loan jumping from RMB 73 billion to RMB 150 billion, according to the total outstanding loans of RMB 7.79 trillion at the end of 2011. This means for every increase of RMB 100 million in bad loan, the provision for impairment also increases RMB 100 million based on a ratio of 1:1. In other words, the increase in bad loans adds RMB 77 billion loss in provision for impairment. The provision for bad loan is counted as profit/loss of current period, implying a drop of RMB 77 billion in pre-tax profit. In estimating the credit cost, credit cost ratio remains at 2006's 0.83% if there is no improvement in risk management, which means a drop of RMB 33 billion in pre-tax profit.

V. Effective operating cost control assures profitability growth. ICBC's cost/income ratio is going down since 2006. In 2006, the cost/income ratio was 36.32% and dropped to 29.91% in 2011, representing a slid of 6.41 percentage points which was far below the average level of over 50% in international banks. If there was no rigid control on the operating cost, ICBC's cost/income ratio would surge to 50% from 30%. This implies that ICBC's operating cost will increase about RMB 94 billion in a year provided no change in business revenue, pre-tax profit will also edge down RMB 94 billion.

VI. ICBC spread earnings from different sources through globalization and integrated operation. At the end of 2011, ICBC had a global network comprising 239 overseas subsidiaries in 33 countries/regions spreading over five continents of Asia, Africa, Europe, America and Australia. Total assets of overseas subsidiaries surged from USD 52.2 billion in end-2009 to USD 124.7 billion at the end of 2011. Profit before tax jumped from 2009's USD 900 million to USD 1.4 billion in 2011. Overseas subsidiaries except new branches in the year all registered profit. Meanwhile, ICBC plays equal emphasis on an integrated business strategy to look outside its borders through diverse operation. Non-banking branch companies of ICBC witness fast growth with continuous improvement in operation and efficiency. At the end of 2011, fund assets under the management of ICBC Credit Suisse rose to around RMB 69 billion, holding on its market leadership as China's largest fund company operated by a bank. ICBC Leasing was the No.1 leasing company in China offering services in aircraft leasing, vessel leasing and large equipment leasing. ICBC International consolidates its leading market position by leveraging its full investment banking license in Hong Kong to participate in the IPO of Prada and Ferragamo, which are large IPO projects of significant influence in the world.

Besides, in a bid to streamline the fee management and protect the lawful interest of the consumers, ICBC starts a program to overhaul its existing fee schedule and service items, under the principle of " list management, unified pricing, open and transparent". The new ICBC Service Fee Schedule (2012) will be announced and in force on April 1.