AGRICULTURALBANKOFCHINALIMITED 中國農業銀行股份有限公司

AGRICULTURAL BANK OF CHINA LIMITED

中國農業銀行股份有限公司

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1288)

2017 CAPITAL ADEQUACY RATIO REPORT

Contents

1 Overview......................................................................................................................................1

1.1 Profile................................................................................................................................1

1.2 Capital Adequacy Ratio.................................................................................................... 1

1.3 Disclosure Statement........................................................................................................ 3

2 Risk Management Framework.....................................................................................................5

2.1 Firm-wide Risk Management........................................................................................... 5

2.2 Risk Appetite.................................................................................................................... 6

2.3 Structure and Organization of Risk Management.............................................................6

2.4 Risk Management Policies and Systems.......................................................................... 8

2.5 Risk Management Tools and IT Systems......................................................................... 9

3 Information on Composition of Capital.....................................................................................12

3.1 Scope for Calculating Capital Adequacy Ratio.............................................................. 12

3.2 Regulatory Capital Shortfall of Investees.......................................................................14

3.3 Restrictions on Intra-group Capital Transfers.................................................................14

3.4 Contrast between Regulatory Consolidation and Financial Statement...........................14

3.5 Composition of Capital...................................................................................................16

3.6 Main Features of Eligible Capital Instruments............................................................... 22

3.7 Threshold Deductions Limit and Limit of Excess Loan Loss Provisions...................... 32

3.8 Changes in Paid-in Capital............................................................................................. 34

3.9 Significant Capital Investments...................................................................................... 34

4 Credit Risk................................................................................................................................. 35

4.1 Credit Risk Management................................................................................................ 35

4.2 Credit Risk Exposure...................................................................................................... 36

4.3 Internal Ratings-Based Approach...................................................................................38

4.4 Credit Risk Exposure Uncovered under Internal Ratings-Based....................................41

4.5 Credit Risk Mitigation.................................................................................................... 43

4.6 Loans and Advances to Customers.................................................................................45

5 Market Risk................................................................................................................................52

5.1 Market Risk Management...............................................................................................52

5.2 Market Risk Exposure.................................................................................................... 52

6 Operational Risk........................................................................................................................ 54

6.1 Operational Risk Management....................................................................................... 54

6.2 Operational Risk Exposure............................................................................................. 54

7 Other Risks................................................................................................................................ 55

7.1 Securitization Risk..........................................................................................................55

7.2 Counterparty Credit Risk................................................................................................ 59

7.3 Equity Risk of Banking Book.........................................................................................59

7.4 Interest Rate Risk of Banking Book............................................................................... 61

7.5 Liquidity Risk................................................................................................................. 61

8 Internal Capital Adequacy Assessment..................................................................................... 64

8.1 Internal Capital Adequacy Assessment Methods and Process....................................... 64

8.2 Capital Planning and Capital Adequacy Ratio Management Plan..................................64

9 Remuneration.............................................................................................................................65

9.1Nomination and Remuneration Committee of the Board of Directors............................65

9.2Remuneration Policy........................................................................................................65

10 Outlook.................................................................................................................................... 67



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1 Overview

1.1 Profile

The predecessor of the Bank was Agricultural Cooperative Bank established in 1951. Since the late1970s, the Bank has evolved from a state-owned specialized bank to a wholly state-owned commercialbank and subsequently a state-controlled commercial bank. The Bank was restructured into a joint stocklimited liability company in January 2009. In July 2010, the Bank was listed on the Shanghai StockExchange and the Hong Kong Stock Exchange.

As one of the major integrated financial service providers in China, the Bank is committed to buildingan international first-class commercial banking group with featured operations, efficient and convenientservices, diversified functions, as well as demonstrated value-creation capability. Capitalizing on itscomprehensive business portfolio, extensive distribution network and advanced IT platform, the Bankprovides a diverse portfolio of corporate and retail banking products and services for a broad range ofcustomers, and conducts treasury operations and asset management. Our business scope also includes,among other things, investment banking, fund management, financial leasing and life insurance. At theend of 2017, the Bank had total assets of RMB 21,053,382 million, loans and advances to customers ofRMB 10,720,611 million and deposits from customers of RMB 16,194,279 million. Our capitaladequacy ratio was 13.74%. The Bank achieved a net profit of RMB 193,133 million in 2017.

The Bank had a total of 23,661 domestic branch outlets at the end of 2017, including the Head Office,the Business Department of the Head Office, three specialized business units managed by the HeadOffice, three Training Institutes, 37 tier-1 branches (including 5 branches directly managed by the HeadOffice), 378 tier-2 branches (including business departments of branches in provinces), 3,485 tier-1sub-branches (including business departments in municipalities, business departments of branchesdirectly managed by the Head Office and business departments of tier-2 branches), 19,701 branchoutlets, and 52 other establishments. Our overseas branch outlets consisted of 13 overseas branches and4 overseas representative offices. The Bank had 15 major subsidiaries, including 10 domesticsubsidiaries and 5 overseas subsidiaries.

The Financial Stability Board has included the Bank into the list of Global Systemically ImportantBanks for four consecutive years since 2014. In 2017, the Bank ranked No. 38 in Fortune’s Global 500,and ranked No. 6 in The Banker’s “Top 1000 World Banks” list in terms of tier 1 capital. The Bank’sissuer credit ratings assigned by Standard & Poor’s were A/A-1, and the long-/short-term issuer defaultratings assigned by Fitch Ratings were A/F1.

1.2 Capital Adequacy Ratio

In 2014, the China Banking Regulatory Commission (hereinafter referred to as the “CBRC”) approvedthe Bank’s use of foundation Internal Ratings-Based (IRB) approach for non-retail exposures, IRBapproach for retail exposures and standardized approach for operational risk on bank and group levels.



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As a result, the Bank became the first batch of domestic banks implementing advanced approaches forcapital management. In January 2017, the CBRC officially approved our applications to implement theInternal Models Approach (IMA) for market risks, unify the major benchmarks of non-retail ratingamong domestic and overseas branches, and abolish the regulatory restriction which provides that retailrisk weighted assets shall not be less than those calculated using the weighted approach. In accordancewith the Capital Rules for Commercial Banks (Provisional) (Decree of CBRC [2012] No. 1), CBRCdetermined the parallel implementation period for a commercial bank approved to adopt the advancedapproaches of capital management. During the parallel implementation period, the banks shall calculateits capital adequacy ratios under both advanced approaches and other approaches, and shall complywith the capital floor requirements.

At the end of 2017, the Bank adopted the foundation IRB approach for non-retail exposures and IRBapproach for retail exposures to measure credit risk-weighted assets, weighting approach for creditrisk-weighted assets uncovered by IRB approach, the Internal Models Approach (IMA) for marketrisk-weighted assets, standardized measurement approach to measure market risk-weighted assetsuncovered by IMA， and standardized measurement approach to measure operational risk-weightedassets. Unless otherwise specified, such information as regulatory capital, risk exposure, capitalrequirement and risk-weighted assets contained herein were made by regulatory consolidation.

The table below sets out the net capital, risk-weighted assets and capital adequacy ratios calculated bythe Bank pursuant to the Capital Rules for Commercial Banks (Provisional).

In millions of RMB, except for percentagesTable 1.2A: Capital Adequacy Ratio

Item 31 December 2017 31 December 2016The Group The Bank The Group The Bank

CET 1 capital, net 1,339,953 1,319,628 1,231,030 1,221,815Additional Tier 1 capital, net 79,906 79,899 79,904 79,899Tier 1 capital, net 1,419,859 1,399,527 1,310,934 1,301,714Tier 2 capital, net 312,087 310,747 235,566 236,568Total capital , net 1,731,946 1,710,274 1,546,500 1,538,282Risk-weighted assets 12,605,577 12,435,568 11,856,530 11,749,661Credit risk-weighted assets 11,569,211 11,412,929 10,805,524 10,698,032Portion covered by IRB 7,943,112 7,943,112 8,104,766 8,104,766Portion uncovered by IRB 3,626,099 3,469,817 2,700,758 2,593,266

Market risk-weighted assets 123,924 115,895 133,907 139,098Portion covered by IMA 111,741 111,741 - -Portion uncovered by IMA 12,183 4,154 133,907 139,098

Operational risk-weighted assets 912,442 906,744 917,099 912,531Additional risk-weighted assets

due to the requirement of thecapital floor

- - - -

CET 1 capital adequacy ratio 10.63% 10.61% 10.38% 10.40%Tier 1 capital adequacy ratio 11.26% 11.25% 11.06% 11.08%



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Capital adequacy ratio 13.74% 13.75% 13.04% 13.09%

The table below sets out the consolidated and unconsolidated capital adequacy ratios calculated inaccordance with the Rules on Capital Adequacy of Commercial Banks (Decree of CBRC [2007] No.11)issued by the CBRC during the transitional period.

Table 1.2B: Capital Adequacy Ratio

Item31 December 2017 31 December 2016

The Group The Bank The Group The BankCore capital adequacy ratio 10.00% 10.00% 10.32% 10.34%Capital adequacy ratio 12.74% 12.71% 13.13% 13.15%

1.3 Disclosure Statement

Since 2013, the Bank has been disclosing to investors and the public the Capital Adequacy Ratio Reportthrough public channels in accordance with the requirements of the Capital Rules for CommercialBanks (Provisional) issued by the CBRC. With a view to regulating this process the Bank formulatedthe Administrative Measures on Information Disclosure of Capital Adequacy Ratio, which wasconsidered and approved by the Board of Directors.

The information disclosure of capital adequacy ratio of the Bank can be classified into provisionaldisclosure and regular disclosure. Where changes arise from the common stocks and other capitalinstruments of the Bank, a provisional disclosure will be made in a timely manner. The Bank makesregular quarterly, interim and annual disclosures. The quarterly and interim disclosures are included inthe reports of the listed company at the same period, while the annual disclosure is presented as aseparate report. Investors and the public can visit the Investor Relations at the Bank’s official Website(http://www.abchina.com) to inquire the Bank's disclosures.

This report was prepared pursuant to the regulatory requirements including the Capital Rules forCommercial Banks (Provisional) (Decree of CBRC [2012] No. 1)and the Notice of the China BankingRegulatory Commission on Issuing the Supporting Policy Documents for the Capital Regulation ofCommercial Banks (CBRC [2013] No.33) issued by the CBRC. On 26 March 2018, the Board ofDirectors of the Bank considered and approved this report in the fifth meeting of 2018. On 26 March2018, the Board of Supervisors of the Bank reviewed and approved this report in the first meeting of2018.

It should be noted that this report is formulated in accordance with the regulatory requirements of theCBRC, while the annual report of the listed company is formulated in accordance with the PRCaccounting standards and the International Financial Reporting Standards. As such, certain disclosure inthis report is not directly comparable to the Bank’s annual report of the listed company.

The report contains forward-looking statements on the Bank’s financial positions, operation results andrisk profile. These statements are made on basis of existing plans, estimates and forecast. The Bankbelieves that the expectations made in these forward-looking statements are reasonable. However, the



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Bank considers that the actual operation condition is related to the future external events, internalfinance, progress of business development, risk occurrence conditions or other performance, therefore,investors shall not heavily rely on these statements.



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2 Risk Management Framework

2.1 Firm-wide Risk Management

Firm-wide risk management refers to the timely identification, measurement, monitoring, reporting andcontrol of risks in all aspects of business operations, processes and staff through the integration ofelements of risk management including risk appetite, policies, organizations, tools and models, ITsystems and risk culture, so as to ensure effective risk management in decision making, implementationand supervision.

In 2017, in response to the complicated and ever-changing domestic and international circumstance ofrisk management and control, the Bank kept pushing forward the establishment of firm-wide riskmanagement system. Under the general requirement of emphasizing the importance of preventing andcontrolling risks and fighting against the risks, the bank stuck to the risk bottom line by keeping theprincipal line of preventing new risks and reducing existing risks. The Bank optimized theresponsibility and duty of risk management departments, perfected the risk management accountabilityand performance assessment mechanism fulfilled the daily management of risks in a solid manner,strengthened the efforts to mitigate risk in key areas, maintained improvement in asset quality. TheBank continuously enhanced the market risk management in bond investment, asset management andfinancial services with banks and other financial institutions, and deepened case prevention and controland operational risk management. The Bank further enhanced the risk assessment system at bothhorizontal and vertical levels, with standards for risk assessment and evaluation improved. Thus theeffectiveness of risk management of the Bank was further improved.

In January 2017, the CBRC officially approved our applications to implement the Internal ModelsApproach (IMA) for market risks, unify the major benchmarks of non-retail rating among domestic andoverseas branches, and abolish the regulatory restriction which provides that retail risk weighted assetsshall not be less than those calculated using the weighted approach, so the implementation andapplication of the advanced approach of capital management were furtherly reinforced. In 2017, wecontinued to advance the unification and management of the non-retail Internal Rating Systems (IRS)among domestic and overseas branches, and optimized the non-retail customer rating system. Wecarried out early warning and identification of fraud risks in respect of retail loans based on big data.We reinforced the application of IMA for market risk to improve data quality and increase monitoringcoverage of exposure limit system. We deepened the internal application of advanced approaches foroperational risk to improve the measurement of case and anti-money laundering risks.

In 2017, the Risk Management Committee under the Board of Directors of the Bank held 5 meetingswhich discussed and considered various motions and reports, including the risk appetite statement,administrative measures on consolidated risk management, comprehensive risk management report,liquidity risk management report, analysis of implementation of advanced approaches of IRS Operationand capital management and consumer interests protection report. In 2017, the Risk ManagementCommittee under the Bank’s senior management held 6 meetings which discussed and considered



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various motions and reports, including self-assessment report on the Bank’s comprehensive riskmanagement system, administrative measures on limit management of industry-specific exposures,administrative measures on risk management on subsidiaries, administrative measures on riskmanagement of overseas branches and subsidiary banks, the working rules of the Risk ManagementCommittee under the senior management and the IT risk assessment report at the Bank’s level.

2.2 Risk Appetite

Risk appetite is a term that refers to the types and levels of risks acceptable to the Bank as determinedby the Board of Directors of the Bank, which depends on the expectations and constraints of the Bank’smajor stakeholders, external operating environment and the conditions of the Bank, in order to achievestrategic targets and effective risk management. In 2017, the Risk Appetite Statement of the Bank wasrevised by the Bank and was considered and approved for implementation. Based on comprehensiveconsideration at the Group level, the revised Risk Appetite Statement covers all non-bank financialsubsidiaries and overseas branches and subsidiaries. In addition, new types of risk such as IT risk andmoney laundering risk are included, quantitative risk measurement are refined, and the transmissionmechanism for risk appetite is improved, which help provide further guidelines for risk managementand operation management. Meanwhile, we further improved the management system of risk appetiteby monitoring the implementation of risk appetite measurement on a monthly basis. We conduct annualreview of the risk appetite measurement to improve the quantitative and qualitative risk measurementand statement.

The Bank adhered to the comprehensive policy relating to risk appetite which is: The Bank is devotedto developing itself into a first-class global commercial banking group, maintaining its prudent riskappetite, operating in compliance with laws and regulations and trying to keep balance between capital,risks and revenue while taking into consideration of the security, profitability and liquidity. The Bankopposed over-aggressive or over-conservative attitude in undertaking risks, received the moderatereturns through undertaking proper risks, and maintained an adequate reserve and capital adequacy. TheBank will promote comprehensive development of its ability of risk management to meet the needs ofbusiness development and innovation, which helps the Bank to achieve value through risk managementand ultimately provide sound support for the Bank to achieve its strategic goals.

2.3 Structure and Organization of Risk Management

The Board of Directors of the Bank assumes the ultimate responsibility for risk management. The RiskManagement Committee, the Audit and Compliance Committee and the Risk Management Committeeof Institutions in the United States Regions under the Board of Directors perform the risk managementfunctions, review the key risk management issues and supervise and evaluate the establishment of riskmanagement system and the risk level of the Bank.

The Board of Supervisors is the supervisory body of the Bank. It is primarily responsible forsupervising the Board of Directors and Senior Management in their performance and due diligence, and



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supervising financial activities, operating decision-making, risk management and internal control withinthe Bank.

Senior Management is the organizer and executor of risk management of the Bank. Under the seniormanagement oversight, the Bank has various risk management committees with different functions,including Risk Management Committee, Credit Approval Committee, Asset and Liability ManagementCommittee and Asset Disposal Committee. Risk Management Committee is primarily responsible forconsidering material risk management issues, studying and drafting risk management policies, systemsand tools, and analyzing and evaluating the overall risk profile of the Bank.

Based on the principles of "centralized management and control, matrix distribution, overall coverage,all-staff participation", the Bank has established "Three Lines of Defense" for risk managementconsisting of business operation departments (risk-taking departments), risk management departments,and the Internal Audit Department. In 2017, the Bank continued to improve its risk management systemand enhancing the expertise of our risk management team by strengthening comprehensive riskmanagement and the management units that take charge of credit, market, operating and other key risks.The Bank kept on developing a professional group of risk management, and strived to achievecontinuous improvement in the performance and competence of the bank-wide risk management staffthrough job rotation, special training programme, qualification verification and expertise tests.



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Risk Management Organizational Chart

2.4 Risk Management Policies and Systems

In 2017, the Bank continued to refine its risk management policy and systems. As for organization ofrisk management, the Bank revised the working rules of the Risk Management Committee under thesenior management, Administrative Measures for Qualification of Responsible Persons at Risk



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Management Department of Tier-1 branch of the Bank and Implementing Rules for the Supervisionover due diligence at all risk management functions of the Bank. As for credit risk management, theBank formulated the Opinions Relating to Further Strengthening the Development of Credit Teams,the Opinions Relating to Further Strengthening the Regulation on Loans and Strengthening OverallCredit Risk Management, the Administrative Measures on Filing of Credits to CorporateCustomer ,Administrative Measures on limit management of industry-specific exposures of the Bankand Administrative Measures on risks relating to credit assets of overseas branches of the Bank. As forconsolidated risk management, the Bank formulated the Administrative Measures on Risk Managementof Subsidiaries, Administrative Measures on Risk Management of overseas branches and subsidiarybanks. Meanwhile, the Bank formulated the policies in relation to the annual rating, classification,financing/borrowing transactions and market risk, which provide effective guidelines for daily riskmanagement of the Bank.

2.5 Risk Management Tools and IT Systems

Implementation of the advanced approaches for capital management

The Bank further reinforced the implementation of the advanced approaches of capital management. InJanuary 2017, the CBRC formally approved the Bank’s application to expand the implementation of theadvanced approaches of capital management through implementation of the Internal Model Approach(IMA) for market risks, setting unified benchmarks for non-retail portfolios in domestic and overseasbranches, and removing the restriction that retail risk-weighted asset shall be no less than the levelrequired under the weighting approach, facilitating the implementation and application of advancedapproaches for capital management.

In respect of credit risk, the Bank launched the online application of the foreign and domestic non-retailInternal Ratings-Based (IRB) system in 2007 and 2009 respectively, and the retail IRB system wasbrought online in 2011. Since then, the quality of data gradually improved, while the model, riskparameters and risk identification ability have remained satisfactory, and widening use of risk rating hasbeen evident. During the Reporting Period, the Bank strictly improved the parameters of the model toenhance the application of the rating model. The Bank further strengthened sensitivity management incredit rating and the ability to timely detect potential default risk by conducting investigation on risk ofdefault and enhancing the dynamic adjustment mechanism for credit ratings. The Bank strengthened themanagement on rating of customers of overseas institutions to enhance coverage of the internal rating.The Bank strengthened the leading role of rating in risk management. The Bank expanded andintensified the application of the rating mechanism for retail portfolios by refining the scoring cardrelating to applications for residential mortgage loans and loans to commodity houses, which furtherenhanced the ability to identify risks. The Bank continued to strengthen the management on retail ratingmechanism to enhance accuracy and prudence of the rating mechanism.

In respect of market risk, the CBRC formally approved the Bank’s implementation of the InternalModel Approach (IMA) for market risks. The Bank launched the application of Internal ModelsApproach (IMA) in 2013 and established the advanced measurement and management system for



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market risk with regard to organizational structure, policies and procedures, measurement methods andIT systems. In addition, the Bank applied the measurement results of the IMA to risk limit managementand policy-making process in order to provide strong support to the risk analysis and investmentdecision-making in financial market business. In 2017, the Bank conducted overall assessment on IMAfor market risks to further refine its measurement mechanism. The measurement mechanism has beenoperating throughout the year with prudent and reliable results.

In respect of operational risk, the Bank kept on promoting the implementation of the advancedmeasurement approaches for operational risk, collected the internal loss data since 2008 and establishedan advanced measurement approach system based on the loss distribution approach, which has beenapplied in measuring operational risk economic capital since January 2014. During the internaloperation procedure of the advanced approaches, the Bank continued to optimize the measurementmodels and measurement engines and explored measurement approaches that are suitable to ourconditions; the Bank improved the reporting standards for the internal loss data and enhanced thereview in order to ensure the data quality about internal loss; the Bank optimized the operational riskmanagement scoring card, and raised the weighting of quantitative indicators, which helped tostrengthened the sensitivity to and early detection of operational risk.

Internal Capital Adequacy Assessment Process (ICAAP). In 2017, the Bank kept pushing forward theimplementation of ICAAP and actively carried out the 2017 ICAAP. The assessment report has beenreviewed and approved by the Board of Directors. The Bank organized and carried out the 2017 specialaudit on ICAAP.

Information disclosure on capital adequacy ratio. In 2017, according to the requirements of the CapitalRules for Commercial Banks (Provisional), the Bank completed the 2016 Capital Adequacy RatioReport, which was published together with the Annual Report. The quarterly and semi-annualinformation of capital adequacy ratio were included in Quarterly Report and Interim Report of theBank.

Tools and measures for risk management

The Bank actively promoted the implementation of the advanced approaches for capital management,and established an operation and transmission mechanism of risk management to balance capital, riskand return. We strengthened monitoring, analysis and warning of risks related to key areas industriesand customers by using various risk management tools, such as economic capital, risk limits, creditrating, risk classification, impairment provision, stress test and risk appraisal. As such, the capability ofrisk identification, measurement, monitoring, control and reporting has been extensively enhanced.

The Bank continually refined the management of economic capital. In 2017, based on the principle of“adhering to objective measurement while accurately reflecting the risks”, the Bank optimized themeasurement plan for economic capital, which served as the guidelines for the Bank to strengthen therisk management. The Bank adjusted the parameters of the model in light of the historical performancein asset risks and the risk parameters applied to the rating model to reflect the objective changes in risks,The Bank continued to adjust the mechanism with the economic capital to strengthen the efforts in



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disposal and mitigation of risks in relation to guarantee circle with high risks and transactions withdubious motives and further reduced credit to controlled industries and strengthened risk managementon key areas.

The Bank continued to strengthen industry-specific exposure limit management. In 2017, the Bankactively adjusted and refine its asset structure through limit management on 13 industries among thecoal and steel industries with serious overcapacity and high risks, with a focus on the government’ssupply-side structural reform and the initiative to “cut overcapacity, reduce inventory, deleverage,lower costs and bolster areas of weakness”. At the end of the year, credits granted to all controlledindustries were kept within limit. The limit control effectively contained the risk exposure to steel andcoal industries with overcapacity, optimizing the credit structure of controlled industries.

The Bank’s risk management information system links up with its core business systems and data poolsfor credit risk, market risk and operational risk has been established. The risk management tools, datapool and information system we built and used provided a solid base for enhancing the delicacy andscientific quality of risk management and facilitated decision making for business operation andmanagement.



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3 Information on Composition of Capital

3.1 Scope for Calculating Capital Adequacy Ratio

The scope for calculating the Bank’s consolidated capital adequacy ratio includes the Bank and thefinancial institutions in which the Bank has direct or indirect investments in compliance with therequirements of the Capital Rules for Commercial Banks (Provisional). The scope for calculating theBank’s unconsolidated capital adequacy ratio covers all the domestic and foreign branches of the Bank.

The main difference between the scope of regulatory consolidation and the scope of accountingconsolidation is that ABC Life Insurance Co., Ltd., which is controlled by the Bank, is not included inthe scope of regulatory consolidation. As of the end of 2017, the Bank had 15 major subsidiaries.Pursuant to the Capital Rules for Commercial Banks (Provisional), capital deduction was adopted forinvestments in ABC Life Insurance Co., Ltd., while the remaining 14 subsidiaries were included in thescope of regulatory consolidation.

The following table sets out basic information of invested entities within the calculation scope ofconsolidated capital adequacy ratio according to the balance of equity investment.

Table 3.1B: Basic Information of the Invested Entities within the Calculation Scope ofConsolidated Capital Adequacy Ratio

No. Name of investedentity

Date ofestablish-ment

Place ofincorporation

Paid-in capital

Totalsharehold-ing ratio

(%)

Businessnature andprincipalactivities

1 China AgriculturalFinance Co., Ltd. 1988

HongKong,PRC

HKD588,790,000 100 Investment

2ABC-CA FundManagement Co.,Ltd.

2008 Shanghai,PRC

RMB200,000,001 51.67 Funds

3 ABC Hubei 2008 Hubei, RMB 50 Banking

Table 3.1A: Consolidation Treatments for Different Invested EntitiesNo. Classification of Invested Entities Consolidation Treatments

1Financial institutions included infinancial consolidation scope(excluding insurance company)

Included into the scope of regulatoryconsolidation

2Financial institutions not included infinancial consolidation scope(excluding insurance company)

Not included into the scope of regulatoryconsolidation

3Insurance companies Not included into the scope of regulatory

consolidation

4Other industrial and commercialenterprises

Not included into the scope of regulatoryconsolidation



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Hanchuan RuralBank LimitedLiability Company

PRC 31,000,000

4

ABC HexigtenRural BankLimited LiabilityCompany

2008Inner

Mongolia, PRC

RMB19,600,000 51.02 Banking

5 ABC InternationalHoldings Limited 2009

HongKong,PRC

HKD4,113,392,449 100 Investment

6 ABC FinancialLeasing Co., Ltd. 2010 Shanghai,

PRCRMB

3,000,000,000 100 Leasing

7 ABC Jixi RuralBank LimitedLiability Company

2010 Anhui,PRC

RMB29,400,000 51.02 Banking

8 ABC Ansai RuralBank LimitedLiability Company

2010 Shaanxi,PRC

RMB20,000,000 51 Banking

9 Agricultural Bankof China (UK)Limited

2011 London,UK

USD100,000,000 100 Banking

10 ABC ZhejiangYongkang RuralBank LimitedLiability Company

2012 Zhejiang,PRC


11 ABC XiamenTong’an RuralBank LimitedLiability Company

2012 Fujian,PRC


12 Agricultural Bankof China(Luxembourg)Limited

2014 Luxembourg

EUR20,000,000 100 Banking

13 Agricultural Bankof China(Moscow) Limited

2014 Moscow,Russia

SUR1,400,000,000 100 Banking

14

ABC FinancialAsset InvestmentCompanyLimited

2017 Beijing,PRC

RMB10,000,000,000 100

entityspecialized

indebt-to-equ

ityswap

business

Table 3.1C: Basic Information about the Invested Entity Subjected to DeductionTreatment

No. Name of investedentity

Date ofestablis

Place ofincorpor Paid-in capital Total

sharehBusinessnature and



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hment ation oldingratio(%)

principalactivities

1ABC LifeInsurance Co.,Ltd.

2005 Beijing,PRC

RMB2,949,916,475 51 Insurance

3.2 Regulatory Capital Shortfall of Investees

There was no regulatory capital shortfall of the investees in which the Bank has a majority equityinterest or control.

3.3 Restrictions on Intra-group Capital Transfers

The Bank carried out intra-group capital transfers pursuant to the Law of the People’s Republic ofChina on Commercial Banks, the Measures for Implementation of Administrative Licensing MattersConcerning Chinese-funded Commercial Banks, other related laws and regulations as well as relatedrequirements of regulatory authorities.

3.4 Contrast between Regulatory Consolidation and Financial StatementThe Bank compiled the balance sheet within the scope of regulatory consolidation in accordance withthe Capital Rules for Commercial Banks (Provisional) and the Notice of the China Banking RegulatoryCommission on Issuing the Supporting Policies for the Capital Regulation of Commercial Banks. Thecontrast between the items of regulatory consolidation and the audited financial statement is shown inthe table below.

In millions of RMB

Table 3.4: Balance Sheet as in Financial Statement and as under Regulatory Consolidation

Item

31 December 2017 31 December 2016CodeFinancial

StatementRegulatory

ConsolidationFinancialStatement

RegulatoryConsolidation

AssetsCash and balances at centralbanks

2,896,619 2,896,601 2,811,653 2,811,625 A01

Deposits with banks andother financial institutions

130,245 128,654 622,665 619,654 A02

Placements with banks andother financial institutions

505,269 505,269 580,949 580,949 A03

Financial assets designatedat fair value and changesincluded into the profits andlosses for the period

577,965 574,672 417,955 417,146 A04



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Derivative financialinstruments

28,284 28,284 31,460 31,460 A05

Financial assets held underresale agreements

540,386 538,471 323,051 322,951 A06

Interest receivables 118,693 117,672 110,370 109,487 A07Loans and advances tocustomers

10,316,311 10,315,613 9,319,364 9,318,095 A08

Available-for-sale financialassets

1,426,420 1,383,658 1,408,881 1,380,609 A09

Hold-to-maturityinvestments

3,489,135 3,477,280 2,882,152 2,869,711 A10

Accounts receivableinvestment

659,223 643,721 624,547 608,367 A11

Long term equityinvestment

227 4,029 213 4,015 A12

Fixed Assets 155,258 154,733 158,669 158,164 A13

Land use rights 21,798 21,798 22,419 22,419 A14

Deferred income tax assets 97,751 97,751 83,187 83,062 A15

Goodwill 1,381 - 1,381 - A16

Intangible assets 2,737 2,549 2,847 2,677 A17

Other assets 85,680 82,791 168,298 151,266 A18

Total assets 21,053,382 20,973,546 19,570,061 19,491,657 A00

LiabilitiesBorrowings from centralbank

465,947 465,947 291,052 291,052 L01

Deposits from banks andother financial institutions

974,730 975,111 1,156,044 1,158,482 L02

Placements from banks andother financial institutions

280,061 280,061 302,021 302,021 L03

Financial liabilitiesdesignated at fair value andchanges included into theprofits and losses for theperiod

391,772 391,772 301,170 301,170 L04

Financial assets sold underrepurchase agreements

319,789 315,037 205,832 203,429 L05

Due to customers 16,194,279 16,194,313 15,038,001 15,038,059 L06Derivative financialliabilities

30,872 30,872 20,758 20,758 L07

Debt securities issued 475,017 475,017 388,215 388,215 L08

Employee salary payables 40,222 40,006 39,902 39,675 L09

Taxes payables 40,164 40,191 21,578 21,591 L10



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Interest payables 228,805 228,842 229,115 229,148 L11

Deferred tax liabilities 87 87 58 45 L12

Provisions 10,709 10,708 13,590 13,590 L13

Other liabilities 171,531 97,516 241,134 165,295 L14

Total liabilities 19,623,985 19,545,480 18,248,470 18,172,530 L00

Owner’s equity

Paid-in capital 324,794 324,794 324,794 324,794 E01

Other equity instruments 79,899 79,899 79,899 79,899 E02

Capital reserve 98,773 98,773 98,773 98,773 E03

Surplus reserve 134,348 134,347 115,136 115,135 E04

General reserve 230,750 230,750 198,305 198,305 E05Undistributed profits 577,573 577,652 496,083 496,201 E06Minority interests 2,982 774 3,398 638 E07Other comprehensiveincome

(19,722) (18,923) 5,203 5,382 E08

of which: Foreigncurrency translation reserve

(32) (32) 1,625 1,625 E09

Total owner’s equity 1,429,397 1,428,066 1,321,591 1,319,127 E00

3.5 Composition of Capital

Pursuant to the Capital Rules for Commercial Banks (Provisional), the composition of regulatorycapital is shown in the table below.

In millions of RMBTable 3.5: Composition of Capital

Item31 December

201731 December

2016Code

CET 1 capital

1 Paid-in capital 324,794 324,794 E01

2 Retained earnings 942,749 809,641

2a Surplus reserve 134,347 115,135 E04

2b General reserve 230,750 198,305 E05

2c Undistributed profits 577,652 496,201 E06

3Accumulated other comprehensive incomeand disclosed reserve

79,850 104,155

3a Capital reserve 98,773 98,773 E03



17

3b Others (18,923) 5,382 E08

4

Directly issued capital subject to phase outfrom CET 1 capital (only applicable tonon-joint stock companies, banks of jointstock companies just fill with “0”)

0 0

5Common share capital issued bysubsidiaries and held by third parties

60 93

6CET 1 capital before regulatoryadjustments

1,347,453 1,238,683

CET 1 capital: regulatory adjustments

7 Prudential valuation adjustments - -

8 Goodwill (net of deferred tax liability) - - A16

9Other intangible assets other than land userights (net of deferred tax liability)

2,549 2,677 A17

10

Deferred tax assets that rely on futureprofitability excluding those arising fromtemporary differences (net of related taxliability)

3 -

11Cash-flow hedge reserve to the items notcalculated at fair value

- -

12Shortfall of provisions to expected losses onloans

- -

13 Securitization gain on sale - -

14Unrealized gains and losses due to changesin own credit risk on fair valued liabilities

- -

15Defined-benefit pension fund net assets (netof deferred tax liability)

- -

16Investments in own shares (if not alreadynetted off paid-in capital on reportedbalance sheet)

- -

17 Reciprocal cross-holdings in common equity - -

18

Deductible amount of the CET 1 capitalfrom insignificant minority capitalinvestment of the financial institutionsoutside the scope of consolidation

- -

19

Deductible amount of the CET 1 capitalfrom significant minority capital investmentof the financial institutions outside the scopeof consolidation

- -



18

20 Mortgage servicing rights - -

21Other deductible amount in the net deferredtax asset that rely on future profitability ofthe bank

- -

22

Significant investments in the capital offinancial institutions outside the scope ofregulatory consolidation and other netdeferred tax assets that rely on the Bank’sfuture profitability (amount exceeding the15% of the CET 1 capital)

- -

23of which: significant investments in the

capital of financial institutions- -

24 of which: mortgage servicing rights - -

25of which: deductible amount in other net

deferred tax assets that rely on the Bank’sfuture profitability

- -

26a

Investment in CET 1 capital of financialinstitutions outside the scope of regulatoryconsolidation but in which the Bank has thecontrol

4,948 4,976

26b

Shortfall of CET 1 capital of financialinstitutions outside the scope of regulatoryconsolidation but in which the Bank has thecontrol

- -

26cTotal other items deductible from CET 1capital

- -

27Regulatory adjustments applied to CET 1due to insufficient Additional Tier 1 andTier 2 to cover deductions

- -

28Total regulatory adjustments to CET 1capital

7,500 7,653

29 CET 1 capital 1,339,953 1,231,030

Additional Tier 1 capital

30Directly issued qualifying Additional Tier 1instruments plus related stock surplus

79,899 79,899

31 of which: classified as equity 79,899 79,899 E02

32 of which: classified as liabilities - -

33Directly issued capital instruments subjectto phase out from Additional Tier 1

- -



19

34 Minority interest given recognition in Tier 1 7 5

35of which: instruments issued by

subsidiaries subject to phase out- (1)

36Additional Tier 1 capital beforeregulatory adjustments

79,906 79,904

Additional Tier 1 capital: regulatory adjustments

37Investments in own Additional Tier 1instruments

- -

38Reciprocal cross-holdings in Additional Tier1 instruments

- -

39

Additional Tier 1 capital from insignificantminority capital investment of the financialinstitutions outside the scope ofconsolidation

- -

40

Additional Tier 1 capital from significantminority capital investment of the financialinstitutions outside the scope ofconsolidation

- -

41a

Investments in Additional Tier 1 capital offinancial institutions outside the scope ofconsolidation but in which the Bank has thecontrol

- -

41b

Shortfall of Additional Tier 1 capital offinancial institutions outside the scope ofconsolidation but in which the Bank has thecontrol

- -

41cOther items deductible from Additional Tier1 capital

- -

42Amount deductible from Additional Tier 2capital but not yet deducted

- -

43Total regulatory adjustments toAdditional Tier 1 capital

- -

44 Additional Tier 1 capital 79,906 79,904

45Tier 1 capital (CET 1 capital + AdditionalTier 1 capital)

1,419,859 1,310,934

Tier 2 capital

46Directly issued qualifying Tier 2instruments plus related stock surplus

144,951 120,000

47Directly issued capital instruments subjectto phase out from Tier 2

75,000 90,000



20

48

Tier 2 instruments (and CET 1 and AT 1instruments not included in row 5 or 34)issued by subsidiaries and held by thirdparties (amount allowed in group Tier 2)

14 12

49of which: Portions not given recognition

after the transition period- (1)

50 Excess loan loss provisions 167,122 115,554

51Tier 2 capital before regulatoryadjustments

312,087 235,566

Tier 2 capital: regulatory adjustments

52 Investments in own Tier 2 instruments - -

53Reciprocal cross-holdings in Tier 2instruments

- -

54

Tier 2 capital from insignificant minoritycapital investment of the financialinstitutions outside the scope ofconsolidation

- -

55

Tier 2 capital from significant minoritycapital investment of the financialinstitutions outside the scope ofconsolidation

- -

56a

Investments in Tier 2 capital of financialinstitutions outside the scope ofconsolidation but in which the Bank has thecontrol

- -

56b

Shortfall of Tier 2 capital of financialinstitutions outside the scope ofconsolidation but in which the Bank has thecontrol

- -

56c Other items deductible from Tier 2 capital - -

57Total regulatory adjustments to Tier 2capital

- -

58 Tier 2 capital 312,087 235,566

59Total capital (Tier 1 capital + Tier 2capital)

1,731,946 1,546,500

60 Total risk weighed assets 12,605,577 11,856,530Capital adequacy ratios and reserve capitalrequirements61 CET 1 capital adequacy ratio 10.63% 10.38%



21

62 Tier 1 capital adequacy ratio 11.26% 11.06%

63 Capital adequacy ratio 13.74% 13.04%

64 Institution specific buffer requirement 3.50% 3.50%

65of which: capital conservation buffer

requirement2.50% 2.50%

66of which: countercyclical buffer

requirement0.00% 0.00%

67 of which: G-SIBs buffer requirement 1.00% 1.00%

68CET 1 capital available to meet buffers (as apercentage of risk weighted assets)

5.26% 5.04%

National minimum

69 CET 1 minimum ratio 5% 5%

70 Tier 1 minimum ratio 6% 6%

71 Total capital minimum ratio 8% 8%Amounts not deducted from the thresholds fordeduction

72Non-significant investments in the capital ofother unconsolidated financial institutions

51,309 62,918

73Significant investments in the commonstock of unconsolidated financialinstitutions

693 683

74Mortgage servicing rights (net of related taxliability)

N/A N/A

75Other net deferred tax assets relying on theBank’s future profitability (net of deferredtax liabilities)

97,661 83,017

Applicable caps on the inclusion ofover-provision for loss on loans in Tier 2 capital

76Provisions for excess loan loss actuallyprovided under the Weighting Approach

30,594 16,339

77The provision eligible for inclusion in Tier 2capital excess loan loss under the WeightingApproach

44,944 33,555

78Provisions for loan loss actually providedunder the Internal Ratings-Based approach

144,029 127,724

79The provision eligible for inclusion in Tier 2capital excess loan loss under the InternalRatings-Based Approach

136,528 99,215

Capital instruments subject to phase-out



22

arrangements

80Amount included in CET 1 capital due totransitional arrangements

- -

81Amount excluded from CET 1 capital due totransitional arrangements

- -

82Amount included in Additional Tier 1 capitaldue to transitional arrangements

- -

83Amount excluded from Additional Tier 1capital due to transitional arrangements

- -

84Amount included in Tier 2 instruments dueto transitional arrangements

75,000 90,000

85Amount excluded from Tier 2 due totransitional arrangements

50,000 35,000

3.6 Main Features of Eligible Capital Instruments

As of the end of 2017, the eligible capital instruments of the Bank included common stocks, preferenceshares and Tier 2 capital instrument. On 15 July 2010, A-shares of the Bank were listed on the ShanghaiStock Exchange, and H-shares of the Bank were listed on the Hong Kong Stock Exchange on 16 July2010. In September 2014, the Bank was approved to conduct a private issue of no more than 800million preference shares in China to raise no more than RMB80 billion with multiple issuances. As at13 November 2014, the Bank completed the first issuance of 400 million preference shares, withRMB40 billion raised. In March 2015, the Bank completed the second issuance of 400 millionpreference shares, with RMB40 billion raised. All of the raised funds after deducting issue expenses areused to replenish Additional Tier 1 capital.

During the period from 2009 to 2012, the Bank issued in aggregate subordinated bonds amounting toRMB150 billion in the PRC inter-bank bond market. Pursuant to the requirement of Capital Rules forCommercial Banks (Provisional), since 2013, the amount of conventional subordinated bonds that canbe included in regulatory capital shall be reduced year by year, and as of the end of 2017, the aggregateamount that could be included in Tier 2 capital was RMB75 billion. As at 18 August 2014, with theapproval from the CBRC and PBOC, the Bank successfully issued Tier 2 capital bonds amounting toRMB30 billion in national inter-banks securities market, all of which were included into Tier 2 capital.As at 17 October 2017, the Bank successfully issued Tier 2 capital bonds amounting to RMB40 billionin Chinese inter-banks securities market, all of which after deducting issue expenses were included intoTier 2 capital. The following table sets forth the main features of eligible capital instruments of theBank.



23

Table 3.6: Main Features of Eligible Capital Instruments

Ordinary shareof A-shares

Ordinary shareof H-shares Preference shares Tier 2 capital

instrumentsTier 2 capitalinstruments

1 IssuerAgricultural

Bank of ChinaLimited

AgriculturalBank of China

LimitedAgricultural Bankof China Limited

AgriculturalBank of China

Limited

AgriculturalBank ofChina

Limited

2 Unique code 601288 1288 360001and 360009 1428012 1728018

3 Governinglaws

“Company Lawof the People’sRepublic ofChina”,“Securities Lawof the People’sRepublic ofChina”, “Law ofthe People’sRepublic ofChina onCommercialBanks”, “RulesGoverning theListing ofStocks onShanghai StockExchange”, etc.

“CompanyLaw of thePeople’sRepublic ofChina”,“SecuritiesLaw of thePeople’sRepublic ofChina”, “Law ofthe People’sRepublic ofChina onCommercialBanks”,“RulesGoverning theListing ofSecuritieson the StockExchange ofHongKong Limited”,etc.

“Company Law ofthe People’sRepublic ofChina”, “SecuritiesLaw of thePeople’s Republicof China”, “theAdministrativeMeasures on thePilot Scheme ofPreferenceShares”, etc.

“Law of thePeople’sRepublic ofChina onCommercialBanks”,“Capital Rulesfor CommercialBanks(Provisional)”,Measures for theAdministrationof theIssuance ofFinancialBonds in theNationalInter-bank BondMarket”, etc.

“Law of thePeople’sRepublic ofChina onCommercialBanks”,“CapitalRules forCommercialBanks(Provisional)”,Measuresfor theAdministrationof theIssuance ofFinancialBonds in theNationalInter-bankBondMarket”, etc.

Regulatorytreatments

4

of which:Applicationof CapitalRules forCommercialBanks(Provisional) transitionalrules

CET 1 capital CET 1 capital Additional Tier 1capital Tier 2 capital Tier 2 capital



24

5

of which:Applicationof CapitalRules forCommercialBanks(Provisional)post-transitional rules

CET 1 capital CET 1 capital Additional Tier 1capital Tier 2 capital Tier 2 capital

6of which:Eligible atthe Bank /the Group

the Bank and theGroup

the Bank andthe Group



the Bank andthe Group

7 Instrumenttype Ordinary shares Ordinary shares Preference shares Tier 2 capital

bondsTier 2 capital

bonds

8

Recognizedinregulatorycapital (inmillion ofRMB, mostrecentreportingdate)

294,055 30,739 79,899 30,000 39,951

9 Par value RMB 1 RMB 1 RMB 100 RMB 100 RMB 100

10Accountingclassification

Equity Equity Equity Liability Liability

11Originaldate ofissuance

2010/7/15 2010/7/16 2014/10/31and 2015/03/06 2014/8/18 2017/10/17

12 Perpetual ordated Perpetual Perpetual Perpetual Dated Dated

13

ofwhich:Originalmaturitydate

No maturitydate

No maturitydate No maturity date 2024/8/18 2027/10/17

14

Issuer callsubject topriorregulatoryapproval

No No NoYes (subject to

priorregulatoryapproval)

Yes (subject toprior

regulatoryapproval)



25

15

ofwhich:Optionalcall date,contingentcall datesandredemptionamount (inmillion ofRMB)

- - -2019/8/18,redemption

amount30,000

2022/10/17,Redemption

amount40,000

16

ofwhich:Subsequentcall dates, ifapplicable

- - - - -

Bonus orDividends

17

ofwhich:Fixed orfloatingdividend /bonus

Floating Floating

The coupon rateof the preferenceshares will beadjusted every 5years. Thedividend of thepreference sharesunder theIssuance will bepaid at an agreedfixed coupon rateduring eachdividendadjustmentperiod.

Fixed Fixed

18

ofwhich:coupon rateand anyrelatedindex

Subject to theBoard’s decision

Subject to theBoard’sdecision

Coupon rate of thefirst dividendadjustment periodof the firstissuance ofpreference sharesis 6%. Coupon rateof the firstdividendadjustment periodof the secondissuance ofpreference sharesis 5.5%.

5.80% 4.45%

19

ofwhich:Existence ofa dividendstopper

No No Yes No No



26

20

ofwhich:Whetherfullydiscretionary incancellationofbonus ordividend

Fulldiscretionary

Fulldiscretionary Full discretionary Without

discretionaryWithout

discretionary

21

ofwhich:Existence ofstep up orotherincentive toredeem

No No No No No

22

ofwhich:cumulativeornoncumulative

Non-cumulative Non-cumulative Non-cumulative Non-cumulative Non-cumulative

23Convertibleornon-convertible

No No Yes No No

24

ofwhich: Ifconvertible,specifyconversiontrigger(s)

- -

(1) If the CET 1capital adequacyrate of the Bankdecreased to5.125% (or below),the preferencesharesissued will be fullyorpartiallytransferredto ordinary sharesof A share, inorderto make the CET 1capital adequacyrateresumed to above5.125%. In caseof partial transfer,all preferenceshares issued willbe transferred inproportion on thesame conditions.(2) All preferenceshares issued willbe transferred into

-

-



27

ordinary shares ofAshare in case of theearlier occurrenceof the followingtwo situations: 1)the CBRCconsidersthat the Bankcouldnot survive in caseno conversion willbe carried out; 2)relevant authorityconsiders that theBank could notsurvive in case nocapital injectionwithpublic departmentsor no provision ofsupport with thesame effectiveness.If the Bankmandatorilytransferthe issuedpreferenceshares to ordinaryshares, it shallreportto the CBRC forinvestigation andmaking decision,and shall performthe obligationsof disclosure oftemporary reportsandannouncementsin accordance withSecurities Law ofthePeople’s RepublicofChina and relevantrequirements of theCSRC.

25

ofwhich: Ifconvertible,fully orpartially

- - Fully or partially - -



28

26

ofwhich: Ifconvertible,determinemethods forconversionprice

- -

The initialconversionprice of thepreference sharesunder the Issuanceshall be theaveragetrading price of theordinary shares oftheA Share of theBankin 20 trading dayspreceding the dateofthe Boardresolutionon the IssuancePlan(i.e. RMB2.43 pershare).After the date oftheBoard resolution,inthe event the Bankissues stockdividends,converts capitalreserves to sharecapital, conductsfollow-onissuances ofshares (excludingtheordinary sharesthatmay be convertedfrom theconvertiblecapital instrumentsissued by the Banksuch as preferenceshares andconvertiblecorporate bonds),conducts a rightsissue or acts undersimilarcircumstances,the Bank willadjustthe conversionpriceon a cumulativebasis in accordance

- -



29

with the sequenceofoccurrences of theforegoing events.Thespecific adjustmentmeasures are asfollows:In the event ofissuingstock dividends orconverting capitalreserves to sharecapital:P1=P0/(1+n);In the event ofconductingfollow-onissuances ofshares or rightsissue:P1=P0×(N+Q×(A/M))/(N+Q);Among which:“P0”is the conversionprice before theadjustment; “n”is the ratio ofstock dividends orconverting capitalreserves to sharecapital; “Q” is thenumber of ordinaryshares issued in thefollow-onissuancesof shares or therightsissue; “N” is thetotal number of theBank’s ordinarysharesbefore the increaseor rights issue; “A”is the subscriptionprice of thefollow-onissuances of sharesor rights issue;“M”is the newly issuedshares’ closingpriceon the trading dayone day prior to



30

thedate of theeffectiveand irrevocableannouncement onoffering results inthefollow-onissuances ofshares or rightsissue;P1 is the adjustedconversion price.When the abovechanges in theBank’s shares and/or shareholder’sinterests occur, theBank will adjusttheconversion price insequence, and willmakecorrespondinginformationdisclosurein accordance withrelevantrequirements.The mandatoryconversion price ofthe preferenceshareswill not beadjustedaccording to theBank’s distributionof cash dividendsonordinary shares.

27

ofwhich: Ifconvertible,mandatoryor optionalconversion

- - Yes - -

28

ofwhich: Ifconvertible,specifyinstrumenttypeconvertibleinto

- - Ordinary Shares - -



31

29

ofwhich: Ifconvertible,specifyissuer ofinstrument itconvertsinto

- -Agricultural Bank

ofChina Limited

- -

30 Write-downfeature No No No Yes Yes

31

of which:Ifwrite-down,write-downtrigger(s)

- - -

Triggers refer tothe occurrenceof the earlier ofthe followingtwoevents: (1) theCBRCconsiders thattheissuer could notsurvive if nowritedowncarried out;(2) relevantauthorityconsiders thattheissuer could notsurvive in casenocapital injectionwithpublicdepartmentsor no provisionofsupport with thesameeffectiveness.

Triggers refer tothe occurrenceof the earlier ofthe followingtwoevents: (1) theCBRCconsiders thattheissuer could notsurvive if nowritedowncarried out;(2) relevantauthorityconsiders thattheissuer could notsurvive in casenocapital injectionwithpublicdepartmentsor no provisionofsupport with thesameeffectiveness.

32

of which:Ifwrite-down,full orpartial

- - - Full write-down Full write-down

33

of which:Ifwrite-down,permanentortemporary

- - - Permanent Permanent



32

34

ofwhich: Iftemporarywrite-down,descriptionof write-upmechanism

- - - - -

35

Position insubordinationhierarchy inliquidation(instrumenttypeimmediatelysenior toinstrument)

Subordinate tothedepositors,creditors,junior debt andAdditional Tier1capitalinstruments

Subordinate tothedepositors,creditors,junior debt andAdditional Tier1capitalinstruments

Subordinate to thedepositors,creditors,junior debt, priorto CET 1 capitalinstruments

Subordinate tothedepositors,creditors,junior debt,priorto CET 1 capitalinstruments

Subordinate tothedepositors,creditors,junior debt, priorto CET 1 capitalinstruments

36Non-eligibletransitionedfeatures

No No No No No

37

of which:If yes,specifynon-eligiblefeatures

- - - - -

3.7 Threshold Deductions Limit and Limit of Excess Loan LossProvisionsAccording to the Capital Rules for Commercial Banks (Provisional), the Bank’s non-significantminority capital investments to financial institutions outside the scope of consolidation, significantminority capital investment in financial institutions outside the scope of consolidation and otherdeferred tax assets that rely on future profitability of the bank do not meet the threshold deduction limit,details of which are as followings.

In millions of RMBTable 3.7A: Threshold Deduction Limit

Items applied thresholddeduction approach Amount

Capital deduction limit Difference up tothe capItem Amount

Non-Significant minoritycapital investments in thefinancial institutionsoutside the scope ofconsolidation, of which:

51,309

10% of the CET1 capital1, net 133,995 82,686

CET 1 capitalinvestment 2,204

Additional Tier 1 capital 1,673Tier 2 capital 47,432



33

CET 1 capital ofsignificant minority capitalinvestments in financialinstitutions outside thescope of consolidation

69310% of the CET1 capital2, net

133,995 133,302

Other net deferred taxassets that rely on futureprofitability of the bank

97,661 133,995 36,334

Un-deducted part of CET1 capital of significantcapital investment infinancial institutionsoutside the scope ofconsolidation andadditional net deferred taxassets rely on the Bank’sprofitability

98,35415% of the CET1 capital3, net 200,993 102,639

Notes: 1. The CET 1 capital, net of regulatory deduction refers to the balance after deducted all deductible items of the CET1 capital.

2. The CET 1 capital, net of regulatory deduction refers to the balance after deducted all deductible items of the CET1 capital and non-significant minority capital investment to financial institutions outside the consolidation.

3. The CET 1 capital, net of regulatory deduction refers to the balance after deducted all deductible items of the CET1 capital, non-significant minority capital investment of the financial institution outside the consolidation, CET 1 capital ofsignificant minority capital investment in financial institutions outside the consolidation and other net deferred tax assets thatrely on future profitability of the bank.

According to the Capital Rules for Commercial Banks (Provisional), under the weighting approach,provisions of excess loan loss included in the Tier 2 capital is the excess of the provision of the loanloss actually provided by the Bank over the minimum requirement, which is not allowed to exceed1.25% of the credit risk weighted asset. Under the Internal Ratings-Based approach, provisions ofexcess loan loss included in the Tier 2 capital is the excess of the provision of the loan loss actuallyprovided by the Bank over the expected loss, which is not allowed to exceed 0.6% of the credit riskweighted asset. In the parallel run period, the amount of provisions of excess loan loss with thecoverage lower than 150% included into Tier 2 capital is not allowed to excess 0.6% of the credit riskweighted asset, and the provisions of excess loan loss with the coverage higher than 150% could be allincluded into Tier 2 capital.

In millions of RMB

Table 3.7B: Limits of Excess Loan Loss Provisions Could be Included into the Tier 2 CapitalMeasurement

method Item 31 December 2017 31 December 2016

Portionuncovered byIRB approach

Provisions for loan loss 43,018 42,315The amount of provisions eligible forinclusion in Tier 2 capital 30,594 16,339

The limit of provisions eligible forinclusion in Tier 2 capital 44,944 33,555



34

If not reach the provision cap, thedifference up to the cap 14,350 17,216

Portioncovered by

IRB approach

Provisions for loan loss 361,282 357,872The amount of provisions eligible forinclusion in Tier 2 capital 144,029 127,724

The limit of provisions eligible forinclusion in Tier 2 capital 136,528 99,215

If not reach the provision cap, thedifference up to the cap - -

3.8 Changes in Paid-in Capital

During the Reporting Period, the Bank did not have any increase or decrease in its paid-in capital,separation or consolidation matters.

3.9 Significant Capital Investments

In August 2017, ABC Financial Asset Investment Co., Ltd., a wholly-owned subsidiary of the Bank,was established with a registered capital of RMB10 billion.



35

4 Credit Risk

4.1 Credit Risk Management

Credit risk is the risk of economic loss arising from a counterparty’s failure to fulfill its obligationsunder an agreed covenant. The Bank is exposed to credit risk primarily from our loan portfolio,investment portfolio, guarantee business and various other on- and off-balance sheet credit riskexposures. The Bank’s objectives of credit risk management are to adhere to its risk appetite, andassume appropriate level of credit risk and earn returns commensurate with respective risks assumedbased on its credit risk management capability and capital level, as well as to lower and control the lossfor risk as a result of the default of obligators or counterparties, or the downgrading of credit rating orthe weakening of contractual capability.

The Bank gradually established and consummated a clear, scientific and applicable and comprehensivecredit risk management policy system which included basic policies, systems and measures, based onneeds of business development and comprehensive risk management of the Bank. The basic policies ofcredit risk management mainly covered the industry-specific credit, professional reviewing andapproval, risk categorization, transaction control, code of conduct, capital insurance, etc., which servedas the fundamental standard for credit risk management of the Bank as well as the fundamental basis forsetting out management measures. Under the basic policies, sound systems and measures of credit riskmanagement including credit reviewing and approval, limit management, internal rating, creditauthority, draw-down management, collateral management, post-lending management, disposal orwrite-offs, etc. were established to make sure each risk management activity complying withregulations. In addition, the Bank continuously clarified and perfected the specific managementmeasures and operation procedures of each business, product, customer operation for each departmentand business line, ensuring that the credit risk management system be comprehensively implemented.

The Bank authorized presidents of branches to conduct business and delegation according to the riskmanagement capability of the branches, and all businesses undertaking credit risk should be conductedin accordance with procedures and permissions. The Bank designed and implemented the basic processof credit underwriting, i.e. customer’s application and acceptance → business investigation (evaluation)→ business examination, reviewed by credit approval committee and approval by authorized person →(filing) → business implementation → post-business management → (management of non-performingassets) → recovery of loans, based on credit scale, complexity, and risk characteristics on the basicprinciples of “separating the loan initiation from approval, adopting checks and balance, achievingsymmetry between powers and responsibilities, and maintaining clarity and efficiency”. The Bankimplemented customer layering management. Customer management bank was determined by therequirement of customer maintenance and risk management. The business department of the customermanagement bank led daily management of customers. Credit management department and riskmanagement department at all levels supervised and controlled customer risks, oversaw thepost-lending management of business departments, until the loan recovered upon the expiry of business.



36

Where there was non-performing assets (including loan), disposal department of non-performing loanwould take over the non-performing assets under required procedures and permissions by variousdisposal means.

The Bank assesses the recoverability of loans due and classifies the loans by taking account of principlefactors, including the borrower’s repayment capacity, repayment record, willingness to repay the loan,profitability of the loan project, and the reliability of the secondary repayment source in accordancewith the Guidelines of Loan Credit Risk Classification issued by the CBRC. The Bank classifies itsloans into five categories, namely normal, special mention, substandard, doubtful and loss, in whichloans classified as substandard, doubtful and loss are regarded as non-performing loans. Overdue loansrefer to loans that customers fail to repay the principal or interest in accordance with the maturity datesstipulated in the contracts. The recognition and provision for impairment losses on loans are assessedindividually and collectively. Provision made individually represents the aggregate allowance forimpairment losses from corporate loans classified as substandard, doubtful and loss. Provision madecollectively represents the aggregate allowance for impairment losses provided for corporate loansclassified as normal and special mention, as well as retail loans (including card overdraft).

In 2017, the Bank actively supported the development of real economy and adhered to the supply-sidestructural reform and key national development strategies by making more efforts in providing creditsto key areas, projected related to people’s livelihood and under-attended areas. The Bank suppressedcredits to industries with overcapacity and high risks and proceeded to optimize and adjust creditstructure and improved the quality of credit assets by refining certain policies regarding classification ofloan risks, carrying out investigations on customer default, reviewing the ratings of clients, adjustingthe measurement of economic capital based on actual situation and strengthening limit management ofindustry-specific exposures. The Bank conducted special rectification programs to address risks ofcredit assets by focusing on key areas such as risky customers taking out large loans, hidden groupcustomers, and credit business authenticity. The Bank continued to strengthen the management ofglobal credit extension and consolidated credit granting, enhance risk management of local governmentdebt and emerging businesses, and therefore resulting in an enhancement in the overall control of creditrisks. The Bank continuously promoted credit underwriting review, lending approval, establishment ofthe risk supervision center. Besides, the centralization and professionalism of management have beenenhanced, thus laying a solid foundation for credit management.

4.2 Credit Risk Exposure

During the Reporting Period, the Bank calculates the non-retail credit risk-weighted assets byfoundation Internal Ratings-Based approach (IRB). As for risk exposure of company and financialinstitution, the Bank adopted the Internal Ratings-Based approach (IRB) for retail credit risk-weightedassets and the weighting approach for the part of credit risk-weighted assets not covered by IRBapproach with approval from the regulatory authorities. (Assets and Liabilities ManagementDepartment)



37

In millions of RMB

Table 4.2A: Credit Risk Exposure Covered by IRB Approach

Item 31 December 2017 31 December 2016Companies 6,817,160 6,074,330Sovereignty - -Financial institutes 1,942,056 2,867,298

Retail 3,926,954 3,309,065

Assets securitization

Equity

Others

Total 12,686,170 12,250,693

In millions of RMB

Table 4.2B: Credit Risk Exposure Uncovered by IRB Approach

Item 31 December 2017 31 December 2016

On-balance sheet credit risk exposure 9,317,303 8,354,524Cash and cash equivalents 2,917,291 2,816,099Debts issued by central governments and centralbanks 916,493 1,013,127

Loans to public sector entities 2,249,393 1,536,363

Loans to domestic financial institutions 1,493,572 1,221,962

Loans to foreign financial institutions 255,515 170,793

Loans to general enterprises 613,363 788,332

Loans to small and micro enterprises 7,131 2,837

Loans to individuals 197,373 182,733

Residual value of leasing assets - -

Equity investments 16,480 13,593

Real estate not for own use 762 1,251Risk exposures from the settlement of securities,commodity and foreign currency transactions - -

Asset securitization items on balance sheet 2,909 1,925

Others 647,021 605,509

Off-balance sheet credit risk exposure 1,061,927 672,582

Counterparty credit risk exposure 21,479 30,287

Total 10,400,709 9,057,393



38

4.3 Internal Ratings-Based Approach

4.3.1 Introduction of Internal Ratings-Based Approach

Under the unified leadership of the Board of Directors and the senior management, the Bankimplements the rating management mechanism of “initiated by customers’ department, reviewed bycredit management department and monitored by risk management department”. Risk managementdepartment is the competent department of internal rating, responsible for managing the general internalrating for the Bank; departments of customers, credit management, audit, internal compliance, asset andliability management, science and technology, etc. perform their respective duties and jointly carry outthe management of internal rating.

The Bank strengthened the rating management and enhanced its prudence in measuring the default risk.By leveraging the measuring results, the Bank improved its capability for risk decisions. Currently, therating parameters have been widely used in credit approval, loan pricing, economic capitalmeasurement, performance appraisal, risk monitor, risk report, loan clarification, limit management,risk appetite and reserve provision.

Customers with 90 days’ overdue or occurred advance on its off-balance sheet credit assets such asletter of guarantee, acceptance, letter of credit, etc. will be deemed automatically as default by thesystem. As to circumstances of business deterioration or insolvency of debtor, it will be identified bythe standardized and rigorous procedure.

The Bank has established a default database with date longer than 10 years, including numerous typesof data, providing a helpful data support for the development, validation, optimization of the ratingmodel of the Bank, as well as for the work of stress test and quantitative measurement.

Based on the statistical regression methods, after generally considering the fluctuation of systematicrisk and individual risk during a full economic cycle, the Bank established probability of default modelfor non-retail sector, and prediction models of probability of default, loss at given default, exposure atdefault risk for retail sector. All of the major models are supported by sufficient data, which effectivelyensured the accuracy and reliability of the models. The clarification ability of the models remains at arelatively high level. Basic assumptions of the rating models mainly include that the internal andexternal environment have no material change, the structure of customers and assets of the Bank haveno material adjustment and the historical data could be used to predict the future, etc.

4.3.2 Non-retail Credit Risk Exposure Covered by IRB Approach

Following table sets out non-retail risk exposure of the Bank classified by levels of probability ofdefault as of the end of 2017.



39

In millions of RMB, except for percentages

Table 4.3A: Non-retail Risk Exposure by Probability of Default31 December 2017

Probability ofdefault

Exposure at default Average PDWeightedaverageLGD

Weightedaverage risk

weight

Risk-weighted assets

Rating 1 920,433 0.03% 45.12% 18.24% 167,863Rating 2 565,508 0.05% 44.48% 19.98% 112,991Rating 3 1,303,646 0.14% 44.48% 40.33% 525,704Rating 4 320,792 0.24% 44.20% 49.62% 159,169Rating 5 272,722 0.34% 44.05% 55.91% 152,490Rating 6 271,217 0.47% 43.76% 64.90% 176,012Rating 7 522,353 0.64% 43.40% 72.86% 380,602Rating 8 776,682 0.87% 42.84% 78.46% 609,353Rating 9 741,259 1.22% 42.82% 84.87% 629,141Rating 10 713,697 1.70% 42.75% 93.40% 666,610Rating 11 802,189 2.40% 42.27% 103.11% 827,156Rating 12 513,426 3.19% 42.19% 108.72% 558,199Rating 13 361,328 4.44% 40.22% 113.42% 409,833Rating 14 212,087 5.69% 42.21% 132.53% 281,076Rating 15 122,940 8.93% 41.95% 142.91% 175,694Rating 16 97,423 15.38% 42.38% 176.15% 171,614Rating 17 8,190 37.15% 42.23% 196.34% 16,080Rating 18 4,798 67.20% 41.78% 136.54% 6,551Rating 19 19,319 87.17% 42.93% 58.17% 11,237Rating 20 192,077 100.00% 43.51% 78.31% 150,411Total 8,742,086 - 70.78% 6,187,786

31 December 2016

Probability ofdefault

Exposure at default Average PDWeightedaverageLGD

Weightedaverage risk

weight

Risk-weighted assets

Rating 1 1,714,542 0.03% 44.55% 16.89% 289,503Rating 2 1,190,560 0.16% 42.99% 43.94% 523,184Rating 3 1,073,250 0.42% 44.57% 75.33% 808,523Rating 4 1,229,322 0.78% 41.94% 75.94% 933,498Rating 5 702,141 1.23% 42.47% 87.68% 615,657Rating 6 711,150 1.71% 42.11% 96.45% 685,884



40

Rating 7 764,300 2.42% 41.36% 102.65% 784,549Rating 8 488,459 3.21% 41.48% 110.97% 542,018Rating 9 360,819 4.46% 40.82% 115.07% 415,180Rating 10 229,517 5.76% 41.67% 133.16% 305,625Rating 11 113,496 8.88% 41.51% 142.11% 161,283Rating 12 69,352 13.27% 42.50% 171.11% 118,666Rating 13 9,400 20.98% 41.67% 188.69% 17,738Rating 14 5,395 28.57% 44.09% 224.42% 12,109Rating 15 65,774 42.87% 41.44% 180.93% 119,003Rating 16 202,113 100.00% 43.54% 41.76% 84,400Total 8,929,590 - - 71.86% 6,416,820

Note: Counterparty credit risk exposure is excluded.

4.3.3 Retail Credit Risk Exposure Covered by IRB Approach

Following table sets out retail risk exposure of the Bank by types as of the end of 2017.


Table 4.3B Retail Risk Exposure by Types

31 December 2017

ItemExposureat default

AveragePD

WeightedaverageLGD

Weightedaveragerisk

weight

Risk-weightedassets

Personal residential mortgages 3,157,222 1.55% 25.34% 23.47% 740,911

Eligible circulation retail 441,691 2.13% 50.34% 28.25% 124,773

Other retail 328,041 3.47% 46.11% 53.18% 174,443

Total 3,926,954 2.07% 29.89% 26.49% 1,040,127

31 December 2016

ItemExposureat default

AveragePD

WeightedaverageLGD

Weightedaveragerisk

weight

Risk-weightedassets

Personal residential mortgages 2,574,471 1.54% 24.96% 24.14% 621,363

Eligible circulation retail 369,180 2.41% 51.73% 26.88% 99,240

Other retail 365,413 3.82% 46.82% 54.96% 200,814

Total 3,309,064 2.30% 30.36% 27.85% 921,417



41

4.4 Credit Risk Exposure Uncovered under Internal Ratings-Based

As of the end of 2017, the Bank calculated the part of credit risk exposure not covered by IRB approachby weighting approach, details of which are set out in the following table. (Assets and LiabilitiesManagement Department)

In millions of RMB

Table 4.4A: Credit Risk Exposure Uncovered under Internal Ratings-Based Approach

Items

31 December 2017 31 December 2016

Riskexposure

Riskexposuresafter riskmitigation

Riskexposure

Riskexposuresafter riskmitigation

On-balance sheet credit riskexposure 9,317,303 8,943,447 8,354,524 8,135,076

Cash and cash equivalents 2,917,291 2,917,291 2,816,099 2,816,099Debts issued by central

governments and central banks 916,493 916,493 1,013,127 1,013,127

Loans to public sector entities 2,249,393 2,249,393 1,536,363 1,536,363Loans to domestic financial

institutions 1,493,572 1,170,961 1,221,962 1,085,920

Loans to foreign financialinstitutions 255,515 255,515 170,793 170,792

Loans to general enterprises 613,363 570,237 788,332 713,895Loans to small and micro

enterprises 7,131 6,200 2,837 1,867

Loans to individuals 197,373 190,185 182,733 174,792

Residual value of leasing assets - - - -

Equity investments 16,480 16,480 13,593 13,536

Real estate not for own use 762 762 1,251 1,251Risk exposures from the

settlement of securities, commodityand foreign currency transactions

- - - -

Asset securitization items onbalance sheet 2,909 2,909 1,925 1,925

Others 647,021 647,021 605,509 605,509Off-balance sheet credit riskexposure 1,061,927 1,045,571 672,582 647,025

Counterparty credit riskexposure 21,479 12,113 30,287 23,591

Total 10,400,709 10,001,131 9,057,393 8,805,692



42

The table below sets forth the risk exposures before and after risk mitigation classified by risk weightsas of the end of 2017.

In millions of RMB

Table 4.4B: Risk Exposures before and after Risk Mitigation by Risk Weights

Risk weights


Risk exposureRisk exposuresbefore riskmitigation

Risk exposureRisk exposuresbefore riskmitigation

0% 4,614,702 4,614,702 4,740,669 4,740,669

20% 2,490,065 2,358,267 1,668,115 1,568,823

25% 400,208 395,828 482,211 468,185

50% 26,025 26,025 8,686 8,683

75% 214,475 206,201 200,367 190,853

100% 2,519,017 2,273,257 1,829,188 1,707,075

150% - - - -

250% 101,849 101,849 87,083 87,083

400% 1,224 1,224 1,129 1,129

1250% 11,665 11,665 9,658 9,601

Total 10,379,230 9,989,018 9,027,106 8,782,101Note: On-balance sheet and off-balance sheet credit risk exposures are included, but counterparty credit risk exposure isexcluded.

The following table sets forth the risk exposures of capital instruments held by the Bank that wereissued by other commercial banks, equity investments in industrial and commercial enterprises as wellas real estate not for own use as of the end of 2017.

In millions of RMBTable 4.4C: Risk Exposures for the Holdings of Capital Instruments Issued by Other Commercial

Banks, Equity Investments in Industrial and Commercial Enterprises and Real Estate Not for Own UseItem 31 December 2017 31 December 2016

CET 1 capital instruments issued by othercommercial banks

353 338

Additional Tier 1 capital instruments issued byother commercial banks

1,673 943

Tier 2 capital instruments issued by othercommercial banks

27,833 22,435

Equity investments in industrial and commercialenterprises

10,686 8,021

Real estate not for own use 762 1,251



43

Total 41,307 32,988

4.5 Credit Risk Mitigation

In 2017, the Bank proactively implemented the requirements of the CBRC that we issued the Notice ofthe China Banking Regulatory Commission on Issuing the Guidelines for the Collateral Management ofCommercial Banks, improved the governance framework on collateral management, specified thecollateral management duties of the relevant personnel, strengthened our efforts in acceptance,valuation and risk management of collaterals, to ensure that collateral management is implemented andcontinuously refined the credit management system and the collateral management functions. Qualifiedcollateral and pledges and guarantees that comply with regulatory requirements were firstly consideredin the course of our credit business in our efforts to improve the management on credit risk mitigation.

Under the IRB approach, the Bank acknowledged the mitigation effect of risk mitigation instruments,such as eligible collateral and pledges, net amount settlement, guarantees etc. based on relevantrequirements of the Capital Rules for Commercial Banks (Provisional). The effect was reflected by thedecrease of the loss at given default, exposure at default and probability of default. Qualified collateraland pledges include financial pledges, receivables, commercial and residential properties, and othercollateral and pledges. Qualified guarantees mainly consist of guarantees provided by financialinstitutions and common companies. The Bank took a full consideration of the impact of currencymismatch and term mismatch on the value of the mitigation instruments and determined prudentlyresult of mitigation. When a single risk exposure has various credit risk mitigation instruments, theBank will consider its risk mitigation effect by subdividing the risk exposure into exposure covered byeach risk mitigation instrument.

Under the weighting approach, the Bank identified eligible credit risk mitigation tools, and confirmedthat the risk mitigation effect of the eligible collateral and pledges or of the guarantee provided by theeligible guarantors in accordance with the relevant requirements of the Capital Rules for CommercialBanks (Provisional). Loans pledged by eligible collaterals and pledges have the same risk weights asthe collateral, or take the risk weights of the direct creditor rights against the collateral’s issuers oracceptors. For loans with partial pledges, the portion being protected by pledges have a relatively lowerrisk weight. Any loan being fully guaranteed by the eligible guarantors directly has the risk weight ofthe guarantor. For the loans that are partly guaranteed, the part of which obtains a relatively lower riskweight. (Assets and Liabilities Management Department)

In millions of RMB

Table 4.5A: Credit Risk Mitigation Quantitative Information under IRB Approach

31 December 2017Risk exposure

typeCovered by qualified collateral and

pledgesCovered by

Coveredby

Coveredby credit



44

nettingsettlements

qualifiedguaranto

r

derivatives

Commercial and

residentialproperty

Financialcollateral

Receivables

Othercollateral andpledges

Companies 724,784 116,271 9,374 24,935 - 348,192 -Sovereignty - - - - - - -Financialinstitutes

- 57,223 394 - - 764

Retail - - - - - - -Assetssecuritization

- - - - - - -

Equity - - - - - - -Others - - - - - - -Total 724,784 173,494 9,768 24,935 - 348,956 -

In millions of RMB

Table 4.5B: Credit Risk Mitigation under Weighting Approach

Item

31 December 2017

Covered bynetting

settlements

Covered byfinancialcollateral

andguarantees

Coveredby othereligiblemitigatio

nsOn-balance sheet credit risk exposure - 373,856 -

Cash and cash equivalents - - -

Debts issued by central governments and centralbanks - - -

Loans to public sector entities - - -

Loans to domestic financial institutions - 322,611 -

Loans to foreign financial institutions - - -

Loans to general enterprises - 43,126 -

Loans to micro and small enterprises - 931 -

Loans to individuals - 7,188 -

Residual value of leasing assets - - -

Equity investments - - -

Others - - -



45

Risk exposures from the settlement of securities,commodity and foreign currency transactions - - -

Asset securitization items on balance sheet - - -

Off-balance sheet credit risk exposure - 16,356 -

Counterparty credit risk exposure 9,366 - -

Total 9,366 390,212 -

4.6 Loans and Advances to Customers

As of the end of 2017, the total loans and advances to customers based on our accounting consolidationamounted to RMB10,720,611 million. The relevant data of loans and advances to customers in thissection are prepared under the scope of the accounting consolidation. The distribution of the loans andadvances to customers of the Bank is shown in the table below.


Table 4.6A: Distribution of Loans and Advances to Customers by Geographical Area


Amount Percentage(%) Amount Percentage

(%)Corporate loans andadvancesHead Office 246,123 3.7 279,658 4.4

Yangtze River Delta 1,420,351 21.2 1,310,376 20.6

Pearl River Delta 762,152 11.3 752,897 11.8

Bohai Rim 1,061,001 15.8 1,001,682 15.7

Central China 929,075 13.8 857,319 13.5

Western China 1,629,197 24.3 1,463,806 22.9

Northeastern China 287,187 4.3 272,460 4.3

Overseas and Others 379,633 5.6 435,027 6.8

Subtotal 6,714,719 100 6,373,225 100Personal loans andadvancesHead Office 74 - 104 -

Yangtze River Delta 994,938 25.0 860,092 25.6

Pearl River Delta 873,154 21.8 713,500 21.3

Bohai Rim 621,563 15.5 498,332 14.9

Central China 590,247 14.7 451,954 13.5



46

Western China 778,946 19.4 694,461 20.8

Northeastern China 141,351 3.5 122,436 3.7

Overseas and Others 5,619 0.1 5,535 0.2

Subtotal 4,005,892 100 3,346,414 100Total loans and advancesto customers 10,720,611 - 9,719,639 -


Table 4.6B: Distribution of Loans and Advances to Customers by Industry


Amount Percentage(%) Amount Percentage

(%)Corporate loans andadvancesManufacturing 1,286,480 19.2 1,325,386 20.9Production and supply of

power, heat, gas and water 812,850 12.1 673,621 10.6

Real estate 573,248 8.5 510,470 8.0Transportation, logistics

and postal services 1,268,677 18.9 1,052,336 16.5

Wholesale and retail 405,678 6.0 497,976 7.8Water, environment and

public utilities management 372,581 5.5 241,365 3.8

Construction 227,238 3.4 187,931 2.9

Mining 232,699 3.5 243,396 3.8Leasing and commercial

services 803,575 12.0 560,270 8.8

Finance 373,461 5.6 735,915 11.5

Others 358,232 5.3 344,559 5.4

Subtotal 6,714,719 100 6,373,225 100Personal loans andadvancesResidential mortgage 3,133,503 78.3 2,558,149 76.4

Personal business 205,549 5.1 232,728 7.0

Personal consumption 142,184 3.5 119,781 3.6

Credit card overdraft 317,547 7.9 242,451 7.2

Loans to rural households 206,044 5.2 191,786 5.7

Others 1,065 - 1,519 0.1



47

Subtotal 4,005,892 100 3,346,414 100Total loans and advancesto customers 10,720,611 - 9,719,639 -

In millions of RMB

In millions of RMB

Table 4.6D: Distribution of Loans and Advances to Customers by Period Overdue

31 December 2017

Item 1 to 90 dayspast due

91 to 360days past due

361 days to 3years past due

Over 3 yearspast due Total

Loans securedby mortgage 51,287 29,410 43,171 8,885 132,753

Loans secured 10,962 968 3,135 2,123 17,188

Table 4.6C: Distribution of Loans and Advances to Customers by Contractual Period andCollateral

31 December 2017

Item Less than 1 year 1 to 5 years Over 5 years TotalLoans securedby mortgage

817,342 409,405 3,718,936 4,945,683

Loans securedby pledged

438,651 79,322 981,516 1,499,489

Guaranteedloans

606,458 327,650 425,404 1,359,512

Unsecuredloans

1,266,909 620,786 1,028,232 2,915,927

Total 3,129,360 1,437,163 6,154,088 10,720,611

31 December 2016

Item Less than 1 year 1 to 5 years Over 5 years TotalLoans securedby mortgage 947,139 519,723 3,127,606 4,594,468Loans securedby pledged 786,985 69,113 629,535 1,485,633Guaranteedloans 618,532 330,718 344,430 1,293,680Unsecuredloans 992,899 466,138 886,821 2,345,858Total 3,345,555 1,385,692 4,988,392 9,719,639



48

by pledged

Guaranteedloans 22,362 12,158 17,004 5,864 57,388

Unsecuredloans 6,489 6,984 2,015 1,249 16,737

Total 91,100 49,520 65,325 18,121 224,066

31 December 2016

Item 1 to 90 dayspast due

91 to 360days past due

361 days to 3years past due

Over 3 yearspast due Total

Loans securedby mortgage 53,772 52,054 60,454 6,405 172,685

Loans securedby pledged 1,976 2,209 6,901 447 11,533

Guaranteedloans 19,386 23,586 26,612 2,937 72,521

Unsecuredloans 4,411 8,619 4,460 406 17,896

Total 79,545 86,468 98,427 10,195 274,635


Table 4.6E: Five-category Classification of Loans and Advances


Amount Percentage (%) Amount Percentage (%)

Normal 10,175,764 94.92 9,111,457 93.75

Special mentioned 350,815 3.27 377,348 3.88

Non-performing loans 194,032 1.81 230,834 2.37

Substandard 38,877 0.36 57,550 0.59

Doubtful 131,479 1.23 151,587 1.56

Loss 23,676 0.22 21,697 0.22

Total 10,720,611 100 9,719,639 100


Table 4.6F: Non-performing Loans by Product Type


Amount Percentage (%)

NPLratio Amount Percenta

ge (%)NPLratio



49

(%) (%)

Corporate loans 156,380 80.6 2.54 188,767 81.8 3.52Short-term corporate

loans 113,076 58.3 4.89 146,138 63.3 6.73

Medium- andlong-term corporateloans

43,304 22.3 1.13 42,629 18.5 1.33

Discounted bills - - - 1 - -

Retail loans 34,204 17.6 0.86 37,980 16.4 1.14Residential mortgage

loans11,268 5.8 0.36 11,014 4.8 0.43

Credit card overdraft 6,335 3.3 1.99 6,982 3.0 2.88Personal consumption

loans1,732 0.9 1.26 2,252 1.0 1.89

Loans to privatebusiness 8,753 4.5 4.28 10,672 4.6 4.68

Loans to ruralhouseholds

6,044 3.1 2.93 6,955 3.0 3.63

Others 72 - 7.19 105 - 8.61

Overseas and others 3,448 1.8 0.89 4,086 1.8 0.93

Total 194,032 100 1.81 230,834 100 2.37


Table 4.6G: Distribution of Non-performing Loans by Geographical Area

Item



NPLratio(%)


NPLratio(%)

Head Office 7 - - 7 - -Yangtze River Delta 29,460 15.2 1.22 35,471 15.4 1.63Pearl River Delta 26,957 13.9 1.65 30,530 13.2 2.08Bohai Rim 39,031 20.1 2.32 45,728 19.8 3.05Central China 27,377 14.1 1.80 30,194 13.1 2.31Northeastern China 8,438 4.3 1.97 8,772 3.8 2.22Western China 59,314 30.6 2.46 76,046 32.9 3.52Overseas and Others 3,448 1.8 0.89 4,086 1.8 0.93Total 194,032 100 1.81 230,834 100 2.37



50


Table 4.6H: Non-performing Loans by Industry to Domestic Enterprises

Item



NPLratio(%)


NPLratio(%)

Manufacturing 70,771 45.3 5.70 77,124 40.9 6.29

Production and supplyof power, heat, gas andwater

4,234 2.7 0.53 3,247 1.7 0.49

Real estate 5,789 3.7 1.13 11,086 5.9 2.47Transportation, logisticsand postal services 4,734 3.0 0.39 3,951 2.1 0.39

Wholesale and retail 42,925 27.4 12.05 63,140 33.4 15.62

Water, environment andpublic utilitiesmanagement

1,051 0.7 0.29 810 0.4 0.34

Construction 5,674 3.6 2.54 6,004 3.2 3.31

Mining 10,348 6.7 4.62 13,275 7.0 5.77Leasing and commercialservices 5,502 3.5 0.69 3,783 2.0 0.68

Finance 224 0.1 0.16 177 0.1 0.10Informationtransmission, softwareand IT service

147 0.1 0.33 140 0.1 0.59

Others 4,981 3.2 2.31 6,030 3.2 2.77

Total 156,380 100 2.54 188,767 100 3.52

In millions of RMB

Table 4.6I: Balance and Changes to the Allowance for Impaired Losses


Individuallyassessed

Collectively assessed Total Individuall

y assessedCollectively assessed Total

At 1st January2017 133,605 266,670 400,275 133,900 269,343 403,243

Charge for theyear 67,430 25,434 92,864 74,169 4,759 78,928



51

- Addition 87,588 107,125 194,713 96,110 64,216 160,326

- Reversal (20,158) (81,691) (101,849) (21,941) (59,457) (81,398)Write-offs andtransfer-out (82,283) (12,010) (94,293) (73,949) (8,797) (82,746)

Transfer-in 3,559 1,895 5,454 (515) 1,365 850- Recoveries

of loans andadvanceswritten-off inprevious years

4,758 2,343 7,101 925 1,421 2,346

-Unwindingof discount onallowance

(1,077) (353) (1,430) (1,730) (479) (2,209)

-Exchangedifference (122) (95) (217) 290 423 713

Othertransfer-in/out

- - - - - -

At 31stDecember 2017 122,311 281,989 404,300 133,605 266,670 400,275

In millions of RMB

Table 4.6J: Credit Quality of Loans and Advances

Item 31 December 2017 31 December 2016

Neither past due nor impaired 10,471,150 9,433,058

Past due but not impaired 55,429 55,747

Impaired 194,032 230,834

Subtotal 10,720,611 9,719,639Less: Allowance for impairmentlosses of loans and advances tocustomers

(404,300) (400,275)

Book value of loans and advances tocustomers 10,316,311 9,319,364



52

5 Market Risk

5.1 Market Risk Management

Market risk refers to the risk of loss in the on- and off-balance sheet businesses of banks as aresult of an adverse change in market prices (interest rates, exchange rates, commodity pricesand stock prices, etc.). The major types of market risks that the Bank is exposed to are interestrate risk, exchange rate risk and commodity price risk. The Bank’s objectives of market riskmanagement are to adhere to the risk appetite, identify, measure, monitor and control marketrisk of all trading and non-trading business activities, ensure that the level of market risk iscontrolled within a reasonable range.

In 2017, the Bank further improved its market risk measurement systems, refined theAdministrative Measures on Distinction between Trading Activities and Banking BookActivities and Administrative Measures on Measurement of VaR; The Bank strengthened itscontrol on risk limit for market risk, ensured adequacy of the risk limit based on the VolckerRule, and enhanced the coverage of the system in terms of automatic control over the risk limitand optimized the market risk management system. The Bank also improved parameter settingsand other functions of the system. In January 2017, the Bank’s implementation of IMA wasapproved. The measurement model and system have been operating throughout the year withprudent and reliable results, while the Bank continued to validation of IMA.

5.2 Market Risk Exposure

5.2.1 Market Risk Capital Requirement

The following table sets forth the market risk capital requirement based on measurement by theBank as of the end of 2017.

In millions of RMB

Table 5.2A: Market Risk Capital Requirements

Item 31 December 2017

Portion Covered by IMA 8,939

Portion Uncovered by IMA 975

Interest rate risk 415

Equity risk -

Foreign exchange risk 560

Commodity risk -

Option risk -



53

Total 9,914

5.2.2 VaR

The following table sets forth the Bank’s VaR and stressed VaR under IMA of market risk.

In millions of RMB

Table5.2B: VaR and stressed VaR under IMA of market risk

Item2017

Average Highest Lowest Period endValue at-risk （VaR） 981 1,661 502 1,568Stressed value at risk 1,225 1,968 755 1,568



54

6 Operational Risk

6.1 Operational Risk Management

Operational risk refers to the risk of loss caused by imperfect or problematic internal procedures,personnel and information technology systems as well as external events, including legal risk,but excluding strategic risk and reputation risk. The Bank’s objectives of operational riskmanagement are to adhere to the risk appetite, and incessantly improve the capacity ofoperational risk management, control the operational risk within the tolerable range as well asmaintain a balance among risk, cost and return. The Bank set up operational risk tolerancemanagement mechanisms, based on which the strategy and strength of operational riskmanagement were determined. The Bank established the process of operational riskmanagement covering identification, assessment, monitoring, reporting, control/mitigation andmeasurement.

In 2017, the Bank further refined the governance structure and responsibilities of departmentsfor operational risk management and strengthened the professional control on operational risk.The Bank continued to implement the operational risk monitoring and reporting mechanism toidentify latest types of risks and changes in risks in a timely manner. The Bank thoroughlycarried out the risk investigation relating to cases prevention and risks control, carried outself-assessment on the risks related to business lines, reinforced the management of operationalrisk associated with new products before the occurrence thereof, and strengthened thecapabilities of identifying and controlling operational risk in key areas. The Bank conductedassessment on information technology risks, formulated overall plans for ensuring businesscontinuity and sped up the construction of the disaster recovery center, and enhanced thecapabilities of managing information technology risks and ensuring business continuity. Inaddition, the Bank optimized the economic capital measurement policies for operational risk andput focused efforts on the measurement of cases of violations and anti-money laundering risks.

6.2 Operational Risk Exposure

As of the end of 2017, the Bank adopted standardized approach to measure the regulatorycapital for operational risk, in which the regulatory capital requirement for the Group wasRMB72,995 million, and for the Bank was RMB72,539 million.



55

7 Other Risks

7.1 Securitization Risk

7.1.1 Information on Securitization Business

Securitization refers to that the originator packages and transfers the asset to the special purposevehicle which generates future cash flows and in turn issues securities supported by the futurecash flow of the assets, with different payment order and credit ratings.

The Bank participates in securitization business, mainly serving as originator, lending servicesprovider and investor.

As Originator and Lending Services Provider

To adjust the asset and liability proactively, enrich the risk management measures, promoteoperational transformation and mobilize non-performing assets, the Bank carried out two issuesof credit asset securitization business in 2017- (1)“Nongying Green Credit Asset-backedSecurities 2017 Issue I”. The underlying asset for the product is a special loan granted by theZhejian branch to the “Clean Water and Green Hill” project. These products are normalcorporate loans with an aggregate scale of RMB1,434 million; (2) “Nongying Non-performingAsset-backed Securities 2017 Issue II”. The underlying asset for the product is thenon-performing loans related to credit card business by the Bank with a scale of RMB195million. In the credit asset securitization business, the Bank served as the originator,participating in the selection of the underlying assets, transaction structure design and road-showactivities. As the lending services provider, the Bank provided post-lending management,receiving the principal and the interest, fund transfer and information disclosure for the assetspool.

As of the end of 2017, the balance of the underlying assets in the securitization for the Bank asthe originator was RMB9,399 million, of which the balance of normal corporate loans’ principalwas RMB1,521 million, the balance of non-performing corporate loans’ principal wasRMB6,408 million and the balance of non-performing loans related to credit card business wasRMB1,470 million.

As Investor

As an investor in the ABS market, the Bank generates investment returns through purchasingand holding assets-backed securities, and exposes to the relevant credit risk, market risk andliquidity risk. Investment amount is determined with reference to the annual investment strategyand risk-adjusted returns.

7.1.2 Accounting Policies



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In the normal course of business, the Bank transfers credit assets to a special purpose trust whichthen issues ABS to investors.

The Bank may retain a part of subordinated tranches, which may give rise to part of the risksand returns of the transferred assets. The Bank will, according to the retention degree of risk andreturns, analyze and judge whether to terminate recognition of relevant credit assets. Thosefinancial assets concerning the continuing involvement are recognized on the consolidatedstatement of financial position to the extent of the Bank’s continuing involvement. The extent ofthe Bank’s continuing involvement is the extent to which the Bank is exposed to changes in thevalue of the transferred financial assets or the return from them. (Finance and AccountingDepartment)

7.1.3 Securitization Risk Exposure

The Bank adopted the standardized approach to measure the capital requirement of therisk-weighted assets in securitization in accordance with the Capital Rules for CommercialBanks (Provisional). As of the end of 2017, the risk exposure of the Bank was RMB3,107million, and the capital requirement was RMB 508 million.

In millions of RMB

Table 7.1A: Securitization Originated by the Bank, not Settled during the ReportingPeriod

Asset securitizationproduct

Originatingyear

Balance ofUnderlyingassets at

origination

Balance ofUnderlying

assets at the endof 2017

External creditrating

institution

Nongying Credit AssetSecuritization TrustAsset-backedSecurities 2015 Issue I

2015 5,092 245

China ChengxinInternationalCredit Rating

Co., Ltd., ChinaCredit Rating

Co., Ltd.

NongyingNon-performing AssetSecuritization TrustAsset-backedSecurities 2016 Issue I

2016 10,154 6,408



Co., Ltd.

Nongying GreenCredit Asset-backedSecurities 2017 Issue I

2017 1,434 1,276



Co., Ltd.Nongying 2017 1,568 1,470 China Chengxin



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Non-performingAsset-backedSecurities 2017 IssueII

InternationalCredit Rating


Co., Ltd.Total 18,248 9,399

In millions of RMBTable 7.1B: Balance of Risk Exposures of Securitization

Type 31 December 2017 31 December 2016As originator 1 As Investor As originator 1 As Investor

Risk exposure bytransaction typesBalance of risk

exposures oftraditional assetsecuritization

696 2,411 878 1,047

Balance of riskexposures ofsynthetic assetsecuritization

- - - -

Risk exposure byrisk exposure typesAsset-backed

securities 498 1,507 878 52

Mortgage-backedsecurities (MBS) - 904 - 995

Creditenhancement - - - -

Liquidity facility - - - -Interest rate or

currency swap - - - -

Credit derivatives - - - -Offset by tranche - - - -Others 198 - - -

1. Serving as originator refers to risk exposure arising from the assets securitization retained and issued by theBank other than aggregate amount of the assets securitization program issued as the originator

In millions of RMB

Table 7.1C: Risk Exposures of Securitization Based on Risk Weights

Risk weights31 December 2017 31 December 2016

Riskexposure

Capitalrequirement

Riskexposure

Capitalrequirement

Risk weights≤20% 1,828 29 1,169 19



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20%<Risk weights≤50% 644 26 - -

50%<Risk weights≤100% 198 16 - -

100%<Risk weights≤350% - - - -

350%<Risk weights≤1250% 437 437 756 756

Total 3,107 508 1,925 775

In millions of RMB

Table 7.1D: Securitization Assets of Originator

31 December 2017

TypeBalance ofunderlyingassets

Balance of thenon-performin

g assets

Balance ofthe overdue

loans

Profits or Lossesrecognizedduring theReportingPeriod 1

Loans to corporatecustomers 7,929 - - 40

Personal residentialmortgage loans - - - -

Other personal loans - - - -

Re-securitization - - - -

Others 1,470 - - -

Total 9,399 - - 40

31 December 2016

TypeBalance ofunderlyingassets

Balance of thenon-performin

g assets

Balance ofthe overdue

loans

Profits or Lossesrecognizedduring theReportingPeriod 1

Loans to corporatecustomers 13,088 - - 102

Personal residentialmortgage loans - - - -

Other personal loans - - - -

Re-securitization - - - -

Others - - - -

Total 13,088 - - 102Note: 1. Losses recognized during the reporting period refers to the impairment and write-off of the securitizationretained and issued by the Bank as originator during the reporting period.2. As of the end of the Reporting Period, no normal asset expires or performs badly.



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7.2 Counterparty Credit Risk

Counterparty credit risk refers to the risk from the default of the counterparty to a transactionbefore the final settlement of the transaction’s cash flows. The counterparty credit risk of Bankis mainly from Over-the-Counter (OTC) derivative transactions. During the Reporting Period,the Bank continuously improved the management of counterparty credit risk, prudently selectedcounterparties, and accurately measured the counterparty credit risk. The Bank developedrelevant management measures, which required clients to accept a risk rating assessment andpay a corresponding proportion of margins before entering into derivative transactions. Theclients should enter into derivative transactions on an as-required basis, so as to avoid clientsconducting derivative transactions for speculative purpose and reduce wrong-way risk.Collateral were monitored periodically to keep abreast of changes in collateral.

As of the end of 2017, the Bank adopted the Current Exposure Method (CEM) to measure thecounterparty credit risk exposure and took into account the risk mitigation effect of netting.Details are shown in the following table.

In millions of RMB

Table 7.2A: Net Credit Risk Exposures of Counterparties

Item 31 December2017

31 December2016

Total positive contractual fair value (without netting) 26,561 7,458

Total current credit risk exposures (without netting) 44,244 15,472

Total current credit risk exposures (after netting) 32,346 15,481

Less: Collateral and pledges - -

Net credit risk exposure of derivatives 32,346 15,481

In millions of RMB

Table 7.2B: Distribution of Current Credit Risk Exposures by Product Type

Item 31 December2017

31 December2016

Interest rate contract 2,132 311

Foreign exchange contract 42,112 15,170

Stock contract - -

Commodity contract - -

Credit derivatives contract - -

Total 44,244 15,481

7.3 Equity Risk of Banking Book



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The equity investments of the Bank are classified into three types: long-term equity investments,financial assets at fair value through profit and loss for the current period and available-for-salefinancial assets. Long-term equity investments are initially measured at initial investment costs,and are subsequently measured by cost method and equity method. Available-for-sale equityinvestments are measured at fair value for both initial and subsequent measurement.

In accordance with the Capital Rules for Commercial Banks (Provisional), for thenon-significant minority capital investments in unconsolidated financial institutions, the Bankdeducted the amount exceeding 10% of its CET 1 net capital in aggregate from the regulatorycapital at all tiers respectively. For the significant minority capital investments in unconsolidatedfinancial institutions, the Bank deducted the amount of investment in CET 1 capital exceeding10% of its CET 1 net capital in aggregate from its CET 1 capital, and for investments inAdditional Tier 1 capital and Tier 2 capital, deducted in full from the corresponding tiers ofcapital. Where the significant minority capital investments in unconsolidated financialinstitutions and the corresponding net deferred tax assets are not deducted from CET 1 capital ofthe Bank, the aggregate amount shall not exceed 15% of the Bank’s CET 1 net capital.

As of the end of 2017, the Bank adopted the weighting approach for the measurement of equityinvestments in financial institutions and other equity investments in banking book that were notdeducted. Details are shown in the following table.

In millions of RMB

Table 7.3: Risk Exposures of Equity in Banking Book31 December 2017

Types of theinvested entity

Risk exposures ofpublicly traded equity 1

Risk exposures ofnon-publicly traded

equity 1

Unrealized profit orloss on potential risk 2

Financial institutes 2,204 2,366 2,267Companies 4,124 7,786 4,768Total 6,328 10,152 7,035

31 December 2016

Types of theinvested entity

Risk exposures ofpublicly traded equity 1

Risk exposures ofnon-publicly traded

equity 1

Unrealized profit orloss on potential risk 2

Financial institutes 1,541 3,933 283

Companies 1,133 7,006 2,126

Total 2,674 10,939 2,409Note: 1. Risk exposures of publicly traded equity refers to the risk exposures of listed companies, and riskexposures of non-publicly traded equity refers to the risk exposures of unlisted companies.

2. Unrealized profit or loss on potential risk refers to gain or loss that has been recognized in the balance sheetbut not yet been recognized in the income statement.



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7.4 Interest Rate Risk of Banking Book

Interest rate risk refers to risk of loss to the Bank’s income or economic value arising fromadverse movements of the statutory or market interest rate. The interest rate risk of the bankingbook (IRRBB) mainly arises from a mismatch of the maturity or re-pricing dates of interestrate-sensitive assets and liabilities in the banking book and the inconsistencies in the change ofthe benchmark interest rate on which assets and liabilities are based.

In 2017, the Bank started the construction project of banking book interest rate risk system,which significantly improved the accuracy and promptness in risk measurement and furtherstrengthened our capability of managing IRRBB. With regard to pricing management, the Bankclosely followed changes of the external interest rates, adjusted the internal funds transfer pricedynamically and expanded our reforms in management on internal funds transfer pricing,improving the effectiveness of internal fund transfer pricing in reflecting values of funds,optimizing allocation of resources, guiding external pricing and strengthening risk management.

As of the end of 2017, the details of IRRBB of the Bank are set forth in the table below.

In millions of RMB

Table 7.4: Sensitivity Analysis of Interest rate Risk of Banking Book

31 December 2017

Majorcurrencies

Interest rate increased by 100 bps Interest rate decreased by 100 bpsImpacts on the

profitImpacts on the

equityImpacts on the


equityRMB (18,862) (33,261) 18,862 33,261USD and Others (319) (3,834) 319 3,834Total (19,181) (37,095) 19,181 37,095

31 December 2016

Majorcurrencies

Interest rate increased by 100 bps Interest rate decreased by 100 bpsImpacts on the


equityImpacts on the


equityRMB (19,625) (36,471) 19,625 36,471USD and Others (34) (3,883) 34 3,883Total (19,659) (40,354) 19,659 40,354Note: The analysis above is made on the assumption that there is a parallel shift in the yield curves and without taking intoaccount assumptions of early repayment of loans and retained not-dated deposit and any risk management measuresadopted by the management to reduce interest rate risk.

7.5 Liquidity Risk

Liquidity risk refers to the risk that a commercial bank is unable to acquire sufficient funds in atimely manner at a reasonable cost, in response to repay due debts, fulfill other paymentobligations and meet other funding needs during normal course of business. The key factors that



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affect the liquidity risk include negative effects on market liquidity, withdrawal of deposits byclients, drawdown of loans by borrowers, mismatch of assets and liabilities, default by debtors,difficulties in realization of assets and impairment of funding capabilities.

Liquidity risk management

The structure of our liquidity risk management consists of the systems for decision making,implementation and monitoring. The decision making system includes the Board and the RiskManagement Committee under the Board, the senior management of the head office and theAsset and Liability Management Committee and Risk Management Committee under the seniormanagement.The implementation system consists of the liquidity management departments andthe asset and liability business divisions. The monitoring system consists of the Board ofSupervisors, the Audit Office and two functions, namely, the internal control and legalcompliance departments. These systems shall be responsible for decision making, performanceand monitoring relating to liquidity risk management within their roles and responsibilities.

The Bank formulated the strategies and policies related to liquidity risk management in itsliquidity risk appetite. The Bank adhered to the strategy of prudent management on liquidity risk,which specified the overall objective and management system for liquidity risk management.The Bank formulated the policy on liquidity risk management in accordance with regulatoryrequirements and in light of the global business environment and development of its businessesto effectively maintain the balanced relationship among security, liquidity and profitability,

The objective of liquidity risk management of the Bank is to establish a scientific and soundliquidity risk management framework to effectively identify, measure, monitor and reportliquidity risk, so that the Bank will be able to satisfy the liquidity requirement arising fromassets, liabilities and off-balance sheets operations and the obligation of external payment in atimely manner in normal or stressed operating environment, balance profitability and safety ofthe funds, and hence strengthen management and supervision on liquidity risk for branches,subsidiaries and business lines and safeguard the Bank against overall liquidity risk.

The Bank closely monitored the changes in monetary policies, regulatory requirements andmarket movements, strengthened analysis and judgment of the macro-economic and financialsituation and factors affecting liquidity, continued to monitor the movements and liquidity ofour assets and liabilities to secure our liquidity. The Bank formulated plans of preventing andcontrolling liquidity risks to closely monitor liquidity risk. The Bank secured the sources of coredeposits, strengthened initiative debt management and expanded the source of funds. Byrefining the asset and liability structure, regulating cash flows due to be paid properly andeliminating the risk of mismatch of maturity, the Bank ensured efficient market financingchannels and maintained the sufficient reserve of assets with high liquidity, thus satisfied thevarious payment demands. The Bank improved the forecasting mechanism for transactionsinvolving large sums of money, strengthened the real-time monitoring and warning of anddynamic adjustment to fund positions to ensure reasonable buffers, while addressing marketfluctuations effectively. The Bank also strengthened the management on contingent liquidity



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risk through emergency exercises at the head office and the branches, enhancing the capabilityof handling contingent liquidity risk. The Bank continued to refine the liquidity managementsystem by raising the effectiveness of monitoring, warning and control, and constantly enhancethe delicacy management.

The Bank conduct stress testing using a range of scenarios of liquidity risk in light of marketcondition and its actual situation and taking into account all risk factors that could affect theliquidity risk. The Bank conducts stress testing quarterly. The test demonstrated that under thescenarios of stress testing, the Bank is able to pass the test of shortest survival period as requiredby regulatory bodies.

Liquidity risk analysis

During the reporting period, the Bank rationalized the arrangement of cash flow for duepayment, and the liquidity position was adequate, safe and controllable in general. At the end of2017, we fulfilled the regulatory requirements that our liquidity ratio of RMB and foreigncurrency was 50.95% and 106.74% respectively. Please refer to “Other Financial Indicators”under “Basic Corporate Information and Major Financial Indicators” for details. The average ofliquidity coverage ratio was 121.2% in the fourth quarter of 2017, decreasing seven percentagepoints from the previous quarter.

In millions of RMB

Table 7.5: Liquidity Gap AnalysisTerm 31 December 2017 31 December 2016

Past due 29,774 52,387On demand (10,417,627) (9,355,146)In 1 month 169,469 (62,220)1-3 months (689,320) (510,004)3-12 months (155,304) 643,5761-5 years 3,009,691 2,295,700Over 5 years 6,494,599 5,409,806Not Dated 2,757,153 2,588,061Total 1,198,435 1,062,160



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8 Internal Capital Adequacy Assessment

8.1 Internal Capital Adequacy Assessment Methods and Process

The Bank coordinated and facilitated the construction of the Second Pillar, consolidated thefoundation of capital governance, and primarily established Internal Capital AdequacyAssessment Process (ICAAP) with the features of the Bank. Based on the corporate governanceprinciples of modern commercial bank, the Bank gradually optimized the management systemof ICAAP, and further clarified the reporting lines and the responsibilities of the Board ofDirectors, senior management and various departments on capital management, thereby makingthe division of responsibilities and process clearer. The Board of Directors took the primaryresponsibility for capital management, the senior management was responsible for organizingand implementing the work of the capital management, and all relevant departments cooperatedfor the internal growth, conservation and release of capital.

In 2017, the Bank kept on pushing forward the implementation of ICAAP, normalizing andconsolidating the working mechanism. The Bank carried out the annual assessment of internalcapital adequacy, and completed the report of internal capital adequacy assessment. The reportwas reviewed and approved by the Board of Directors, and filed with the regulatory authority.During the Reporting Period, the Bank carried out special audit of ICAAP to ensure compliance,effectiveness, and continuity of capital management. Based on the development strategy, withbalancing conformity to regulatory standard, risk coverage, value creation, and peercomparability, the Bank strengthened capital planning management and reasonably set budgetfor short, medium and long term capital adequacy ratio. Through refining capital allocation andenhancing monitoring and assessment, the Bank further improved capital management and had asound control over the pace of capital consumption, and continued to strengthen the capacity ofvalue creation.

8.2 Capital Planning and Capital Adequacy Ratio ManagementPlanIn 2013, the Bank formulated the Compliance Plan of Capital Adequacy Ratios for 2013-2018of Agricultural Bank of China, which was reviewed and approved by the Board of Directors. In2016, according to the relevant rules and regulations on commercial banks and requirements ofcorporate governance, the Bank formulated the Capital Plan for 2016-2018 of Agricultural Bankof China, which was reviewed and approved by the Board of Directors. The Bank continued tostrengthen economic capital management, optimize allocation of economic capital, refine themechanism of capital control, raise efficiency of capital utilization, optimize the size andstructure of risk-weighted assets, and improve the long-term capital management mechanism.

As the Global Systemically Important Banks (G-SIBs), in accordance with regulations of theFinancial Stability Board (FSB) and other international and domestic regulatory requirements,



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the Bank had completed the annual update of the Recovery Plan of Agricultural Bank of ChinaLimited, and the Resolution Plan of Agricultural Bank of China Limited. These documents havebeen examined and reviewed by the Board of Directors of the Bank, and reviewed and approvedby the cross-border crisis management group composed of international and domestic regulatoryauthorities.

9 Remuneration

9.1 Nomination and Remuneration Committee of the Board ofDirectorsAs of the end of 2017, Nomination and Remuneration Committee of Board of Directors of theBank was composed of 7 directors, including executive director Mr. Zhao Huan, non-executivedirectors Mr. Xu Jiandong and Mr. Liao Luming, independent non-executive directors Mr. WenTiejun, Ms. Xiao Xing, Mr. Wang Xinxin and Mr. Huang Zhenzhong. Mr. Wen Tiejun ischairman of Nomination and Remuneration Committee of the Board of Directors. The primaryduties of the Nomination and Remuneration Committee are to formulate selection andappointment standards and procedures of the Bank’s directors, chairperson and members of allspecial committees under the Board of Directors and senior management, makerecommendations to the Board of Directors on the candidates and qualifications of directors andsenior management, formulate remuneration measures of directors, supervisors and seniormanagement, propose remuneration distribution plans and submit to the Board of Directors forreviewing. During the Reporting Period, the Nomination and Remuneration Committee underthe Board of Directors convened 5 meetings.

For details of basic information about members of senior management and staff in positions thatexert significant influence on risks, please refer to the section headed “Directors, Supervisorsand Senior Management” in the Bank’s 2017 Annual Report.

9.2 Remuneration Policy

Determination and distribution of remuneration

The Bank formulated and adjusted the remuneration policy in strict accordance with relevantregulatory requirement, laws and regulations, and requirements under corporate governance ofthe Bank. In order to attract, retain and incentivize employees, a remuneration system in linewith the operational and management needs of a modern commercial bank has been initiallyestablished. The Bank established a position-based wage system on the principles that the salaryand bonus are determined based on positions, capabilities and performance, and varies withpositions, whereby the employees’ pay levels are determined based on such factors as post value,short-term and long-term performance.

Remuneration and risks



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The remuneration of our employees primarily comprised of basic salary, position-based wageand performance-based pay. The Bank established a performance-based salary deferred paymentsystem for employees who assume responsibilities for material risk and have a material impacton the Bank’s risk profile. Having considered the actual performance and time-lag risk, part ofthe payment would be made after expiry of deferred payment period, thereby linking theemployees’ current and long-term responsibilities and contributions with the development andtime-lag risk of the Bank. For persons receiving deferred payment, if significant losses of riskexposures are incurred within their responsibility during their employment, the Bank can recallpart or all of performance-related remuneration paid in relevant period and stop furtherpayments.

The remuneration of the staff of the risk and compliance department of the Bank wasdetermined based on factors such as personal ability, performance and dedication, without directrelation to its supervisory duties.

Remuneration and performance

In compliance with the requirements by the authorities in China, the Bank established a salarysystem based on performance of the Bank and the employees. According to the remunerationmanagement system, the remuneration of the Bank’s institutions was associated with theoperating results of the unit and the comprehensive appraising results, and the remuneration ofemployees was associated with the performance appraisal results of the units and individuals.The performance appraisal of the Bank’s institutions and employees at all levels included theassessment of performance, risk indicator and other indicators of sustainable development,reflecting long-term performance and risk profile in aggregate. According to the results of theperformance appraisal, the Bank adjusted the pay level by means of salary distribution, deferredpayment and other forms.

Variable remuneration

The Bank’s variable remuneration primarily comprised of performance-based pay (includingdeferred salary payment, etc.), which was paid in cash. Variable remuneration was allocatedbased on factors including the current and long-term contributions of employees and risk profile.If a cut or issue of a performance-based pay and deferred salary payment is applicable underrelevant rules and stipulations, the variable remuneration would be adjusted accordingly.



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10 Outlook

The Bank adheres to the operation philosophy of modern commercial banks, implements theprudent risk appetite, and continuously works on improving the corporate governancemechanism, maintaining a balance among safety, liquidity and profitability, and striking abalance among capital, risk and return. The Bank also proactively pushes forward thedevelopment of the firm-wide risk management system and implementation of advancedapproaches for capital management, so as to ensure that the asset quality has been stable as awhole, the risk-resisting ability has kept strong, and the ability in risk management has beenconstantly enhanced.

In the future, the Bank will closely monitor any changes in the trends of domestic and globaleconomy and finance, comply strictly with regulatory and compliance requirements at home andabroad, closely follow the impacts of the implementation of the new accounting standard(IFRS9), changes in regulatory policies and other factors on our capital adequacy ratio, furtherstrengthen the guiding role of the prudent risk appetite, enhance implementation of advancedapproaches for capital management and utilization of its contributions, and keep on improvingthe effectiveness of the firm-wide risk management system. The Bank will improve the systemfor credit operation management and continue to enhance the risk governance over key areasincluding local government debts, group customers, and industries with high energyconsumption, high pollution or overcapacity. The Bank will closely monitor the changes inmarket factors such as interest rate and exchange rate and keep alert on spreading of risks tocontrol market risk and liquidity. The Bank will improve the management on internal controland compliance, step up the prevention and control of internal and external cases, strengthenrisk management on its consolidated and foreign branches and subsidiaries, and increase itsmanagement ability in Group risk consolidation. The Bank will constantly strengthen its capitaladequacy level and ability to manage risk, forging ahead on the road to becoming a top-notchmodern commercial bank in the international arena.