于香港联合交易所有限公司刊发发售通函之通告 - 招商银行股份有限公司5,000,000,000美元中期票据计划

香港交易及结算所有限公司及香港联合交易所有限公司对本公告的内容概不负责，对其准确性或完整性亦不发表任何声明，并明确表示，概不对因本公告全部或任何部分内容而产生或因倚赖该等内容而引致之任何损失承担任何责任。 本公告仅供信息参考之用，并不构成收购、购买或认购证券的邀请或要约，或订立任何协议以作出任何该等事宜的邀请，其目的亦并非为了作出收购、购买或认购任何证券的任何要约邀请。 本公告及本公告所述的上市文件乃按上市规则（定义见下文）规定刊发，仅供参考之用，并不构成出售任何证券的要约或招揽购买任何证券的要约。本公告及本公告所述任何内容（包括上市文件）并非任何合同或承诺的依据。为免生疑，刊发本公告及本公告所述的上市文件不应被视为就香港法例第32章公司（清盘及杂项条文）条例而言根据本公司（定义见下文）或其代表刊发 的售股章程提出的证券发售要约，亦不构成香港法例第571章证券及期货条例所指其中载有向公众人士发出邀请以订立或发出要约以订立有关收购、出售、认购或承销证券的协议的广告、邀请或文件。 如未根据美国或任何其他司法权区的证券法例办理登记或取得资格而在任何有关司法权区内建 议出售或游说建议购买任何证券即属违法，则本公告仅供参考之用而并不构成于美国出售任何证券的要约或招揽购买任何证券的要约。本公告所述的证券概无及将不会按照经修订的1933年美国证券法（「证券法」）进行登记，亦不得在美国境内招售或出售，惟获豁免或毋须遵守证券法登记规定的交易除外。因此，根据证券法S条例，证券仅在美国境外以离岸交易方式发售和出售。 香港投资者谨请注意：本公司确认，票据（定义见下文）拟仅供专业投资者（如上市规则第37章所定义）购买，以及该计划（定义见下文）已按此基础于香港联交所（定义见下文）上市，而票据（若于香港联交所上市）亦将按此基础于香港联交所上市。因此，本公司确认票据不适合作为香港零售投资者之投资。投资者应审慎考虑所涉及的风险。 于香港联合交易所有限公司刊发发售通函之通告招商银行股份有限公司 CHINA MERCHANTS BANK CO. LTD.（于中华人民共和国注册成立的股份有限公司）（H股股票代码：03968）（「本公司」） 5000000000美元中期票据计划 本公告乃根据香港联合交易所有限公司（「香港联交所」）证券上市规则（「上市规则」）第37.39A条刊发。 1请参阅本公告随附有关5000000000美元中期票据计划（「该计划」）的日期为2024年6月28日的发售通函（「发售通函」）。发售通函仅以英文刊发，并无刊发中文版发售通函。诚如发售通函所披露，根据该计划将予发行的中期票据（「票据」）拟仅供专业投资者（如上市规则第37章所定义）购买，以及该计划已按此基础于香港联交所上市，而票据（若于香港联交所上市）亦将按此基础于香港联交所上市。 发售通函并不构成向任何司法权区的公众人士提呈出售任何证券的售股章程、通 告、通函、宣传册或广告，且并非向公众人士发出邀请以就认购或购买任何证券作出要约，亦非供传阅以邀请公众人士就认购或购买任何证券作出要约。 发售通函不应被视为认购或购买本公司任何票据的劝诱，且本公司并无意进行有关劝诱。 招商银行股份有限公司董事会 2024年7月2日 于本公告日期，本公司的执行董事为王良及朱江涛；本公司的非执行董事为缪建民、孙云飞、周松、张健及陈冬；及本公司的独立非执行董事为王仕雄、李孟 刚、刘俏、田宏启、李朝鲜及史永东。 2IMPORTANT NOTICE THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (1) QIBs (AS DEFINED BELOW) UNDER RULE 144A UNDER THE SECURITIES ACT (AS DEFINED BELOW) OR (2) PURCHASING THE SECURITIES OUTSIDE THE UNITED STATES (THE “U.S.”) IN AN OFFSHORE TRANSACTION IN RELIANCE ON REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”).IMPORTANT: You must read the following before continuing. The following applies to the offering circular following this page (the “Offering Circular”) and you are therefore advised to read this carefully before reading accessing or making any other use of the Offering Circular. In accessing the Offering Circular you agree to be bound by the following terms and conditions including any modifications to them any time you receive any information from us as a result of such access.NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE U.S. OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR THE SECURITIES LAWS OF ANY STATE OF THE U.S. OR OTHER JURISDICTION AND SECURITIES IN BEARER FORM ARE SUBJECT TO U.S. TAX LAW REQUIREMENTS. THE SECURITIES MAY NOT BE OFFERED SOLD OR (IN THE CASE OF NOTES IN BEARER FORM) DELIVERED WITHIN THE U.S. EXCEPT PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS.THIS OFFERING CIRCULAR MAY NOT BE DOWNLOADED FORWARDED OR DISTRIBUTED IN WHOLE OR IN PART TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER AND IN PARTICULAR MAY NOT BE FORWARDED TO ANY U.S. ADDRESS. ANY DOWNLOADING FORWARDING DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS YOU ARE NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE SECURITIES DESCRIBED THEREIN.Confirmation of your Representation: In order to be eligible to view the following Offering Circular or make an investment decision with respect to the securities investors must be either (I) qualified institutional buyers (“QIBs”) (within the meaning of Rule 144A under the Securities Act) or (II) purchasing the securities outside the U.S. in an offshore transaction in reliance on Regulation S under the Securities Act. By accepting the e-mail and accessing the following Offering Circular you shall be deemed to have represented to us and the dealers under this programme that (1) you and any customers you represent are either (a) QIBs or (b) purchasing the securities outside the U.S. in an offshore transaction in reliance on Regulation S under the Securities Act and that the electronic e-mail address that you gave us and to which this e-mail has been delivered is not located in the U.S. and (2) that you consent to the delivery of such Offering Circular by electronic transmission.You are reminded that the Offering Circular has been delivered to you on the basis that you are a person into whose possession the Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not nor are you authorised to deliver or disclose the contents of the Offering Circular to any other person. You should not reply by e-mail to this notice and you may not purchase any securities by doing so. Any reply by e-mail communications including those you generate by using the “Reply” function on your e-mail software will be ignored or rejected.The Offering Circular does not constitute and may not be used in connection with an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Dealers or any affiliate of the Dealers is a licensed broker or dealer in that jurisdiction the offering shall be deemed to be made by the Dealers or such affiliate on behalf of the Issuer (as defined in the Offering Circular) in such jurisdiction.The Offering Circular has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Issuer the Bank the Arrangers the Dealers or the Agents (each as defined in the Offering Circular) nor any person who controls any of them nor any of their respective affiliates officers employees agents representatives directors or advisers accepts any liability or responsibility whatsoever in respect of any difference between the Offering Circular distributed to you in electronic format and the hard copy version available to you on request from the Arrangers or the Dealers.You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.CHINA MERCHANTS BANK CO. LTD.(a joint stock company incorporated in the People’s Republic of China with limited liability) U.S.$5000000000 Medium Term Note Programme Under the U.S.$5000000000 Medium Term Note Programme described in this Offering Circular (the “Programme”) China Merchants Bank Co. Ltd. (the “Bank”) or such branch of China Merchants Bank Co. Ltd. as specified in the applicable Pricing Supplement (each an “Issuer”) subject to compliance with all relevant laws regulations and directives may from time to time issue Notes (the “Notes”). The aggregate nominal amount of Notes outstanding will not at any time exceed U.S.$5000000000 (or the equivalent in other currencies) subject to increases of the programme size made in accordance with the terms of an amended and restated Dealer Agreement dated 28 June 2024 (the “Dealer Agreement”).The Notes may be issued on a continuing basis to one or more of the Dealers appointed under the Programme from time to time by the Issuer (each a “Dealer” and together the “Dealers”) which appointment may be for a specific issue or on an ongoing basis. References in this Offering Circular to the “relevant Dealer” shall in the case of an issue of Notes being (or intended to be) subscribed for by more than one Dealer be to all Dealers agreeing to subscribe for such Notes.Investing in the Notes involves certain risks. See “Risk Factors” beginning on page 14.Where applicable for a relevant Tranche of Notes the Notes will be issued within the relevant annual or otherwise general foreign debt issuance quota granted to the Bank by the National Development and Reform Commission of the PRC (the “NDRC”) or registration will be completed by the Bank with the NDRC pursuant to the Administrative Measures for the Examination and Registration of Medium- and Long-term Foreign Debts of Enterprises (企业中长期外债审核登记管理办法(国家发展和改革委员会令第56号)) which took effect on 10 February 2023 (as supplemented amended or replaced from time to time) and any implementation rules or policies as issued by the NDRC from time to time (the “NDRC Administrative Measures”). After the issuance of such relevant Tranche of Notes the Bank intends to provide the requisite information on the issuance of such Notes to the NDRC within the time period as required by the NDRC.Application has been made to The Stock Exchange of Hong Kong Limited (“HKSE” or “Hong Kong Stock Exchange”) for the listing of the Programme within the 12-month period after the date of this Offering Circular on the HKSE by way of debt issues to professional investors (as defined in Chapter 37 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) (“Professional Investors”) only. This document is for distribution to Professional Investors only.Notice to Hong Kong Investors: Each Issuer confirms that each Tranche of Notes issued under the Programme is intended for purchase by Professional Investors only and the Programme and the Notes to the extent that they are to be listed on the HKSE will be listed on the HKSE on that basis. Accordingly each Issuer confirms that the Notes are not appropriate as an investment for retail investors in Hong Kong. Investors should carefully consider the risks involved.The HKSE has not reviewed the contents of this Offering Circular other than to ensure that the prescribed form disclaimer and responsibility statements and a statement limiting distribution of this Offering Circular to Professional Investors only have been reproduced in this Offering Circular. Listing of the Programme and the Notes on the HKSE is not to be taken as an indication of the commercial merits or credit quality of the Programme the Notes or the Issuer or the Bank or the Group or quality of disclosure in this Offering Circular. Hong Kong Exchanges and Clearing Limited and the HKSE take no responsibility for the contents of this Offering Circular make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Offering Circular.Each Series (as defined in “Summary of the Programme”) of Notes in bearer form (“Bearer Notes”) will be represented on issue by a temporary global note in bearer form (each a “Temporary Global Note”) or a permanent global note in bearer form (each a “Permanent Global Note” together with the Temporary Global Note the “GlobalNotes”). Interests in a Temporary Global Note will be exchangeable in whole or in part for interests in a permanent Global Note or for definitive Bearer Notes after the expiry of 40 days after the later of the completion of the distribution of the relevant Tranche of the Notes and the issue date upon certification as to non-U.S. beneficial ownership.Notes in registered form (“Registered Notes”) will be represented by registered certificates (each a “Certificate”) one definitive Certificate being issued in respect of each Noteholder’s (as defined in the Conditions (as defined below)) entire holding of Registered Notes of one Series or (a) in the case of Notes issued in reliance on Category 3 of Regulation S (“Regulation S”) of the United States Securities Act of 1933 (the “Securities Act”) a temporary global certificate in registered form (a “Temporary GlobalCertificate”) or (b) in in the case of all other Notes a permanent global certificate in registered form (a “Permanent Global Certificate” and together with the Temporary Global Certificate the “Global Certificates”) in respect of the Notes. Interests in Temporary Global Certificates will be exchangeable for interests in a Permanent Global Certificate on or after a date which is expected to be the first business day following the period of 40 calendar days from (but not including) the later of the completion of the distribution of the relevant Tranche of the Notes and the issue date and upon certification as to non-U.S. beneficial ownership. Global Notes and Global Certificates may be deposited on the issue date with a common depositary on behalf of Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream”) or with a sub-custodian for the Central Moneymarkets Unit Service operated by the Hong Kong Monetary Authority (the “CMU”). In the case of a Series intended to be cleared through a clearing system other than or in addition to Euroclear and/or Clearstream or CMU or delivered outside a clearing system the Global Notes and Global Certificates may be deposited on the relevant issue date as agreed between the Issuer and the relevant Dealer.The Notes of each Series to be issued in registered form (“Registered Notes”) and which are sold in an “offshore transaction” within the meaning of Regulation S (“UnrestrictedNotes”) will initially be represented by a permanent registered global certificate (each an “Unrestricted Global Certificate”) without interest coupons which may be deposited on the relevant issue date (a) in the case of a Series intended to be cleared through Euroclear and/or Clearstream with a common depositary on behalf of Euroclear and Clearstream and (b) in the case of a Series intended to be cleared through a clearing system other than or in addition to Euroclear and/or Clearstream or delivered outside a clearing system as agreed between the Issuer and the relevant Dealer. Registered Notes which are sold in the United States to “qualified institutional buyers” (each a “QIB”) within the meaning of Rule 144A (“Rule 144A”) under the Securities Act (“Restricted Notes”) will initially be represented by a permanent registered global certificate (each a “Restricted Global Certificate”) without interest coupons which may be deposited on the relevant issue date (a) in the case of a Series intended to be cleared through Euroclear and/or Clearstream with a common depositary on behalf of Euroclear and Clearstream and (b) in the case of a Series intended to be cleared through a clearing system other than or in addition to Euroclear and/or Clearstream or delivered outside a clearing system as agreed between the Issuer and the relevant Dealer.THE NOTES HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND THE NOTES MAY INCLUDE BEARER NOTES THAT ARE SUBJECT TO U.S. TAX LAW REQUIREMENTS. SUBJECT TO CERTAIN EXCEPTIONS THE NOTES MAY NOT BE OFFERED SOLD OR IN THE CASE OF BEARER NOTES DELIVERED WITHIN THE UNITED STATES. SEE “SUBSCRIPTION AND SALE” FOR FURTHER DESCRIPTION OF RESTRICTIONS ON TRANSFER.The Issuer may agree with any Dealer that Notes may be issued in a form not contemplated by the Terms and Conditions of the Notes herein (the “Conditions”) in which event a supplementary Offering Circular if appropriate will be made available which will describe the effect of the agreement reached in relation to such Notes.The Programme is rated “A2” by Moody’s Investors Service Inc. (“Moody’s”). In addition the Bank has been assigned a rating of “A2” by Moody’s a rating of “A-” by S&P Global Ratings (“S&P”) and “A-” by Fitch Ratings Ltd. (“Fitch”). These ratings are only correct as at the date of this Offering Circular. Tranches of Notes (as defined in “Summary of the Programme”) to be issued under the Programme may be rated or unrated. Where a Tranche of Notes is to be rated such rating will not necessarily be the same as the ratings assigned to the Programme. A rating is not a recommendation to buy sell or hold securities and may be subject to suspension reduction revision or withdrawal at any time by the assigning rating agency.Arrangers for the Programme Citigroup CMB International J.P. Morgan Dealers Agricultural Bank Bank of China BNP PARIBAS China Merchants Citigroup of China Limited Securities (HK) Hong Kong Branch CMB International CMB Wing Lung Crédit Agricole CIB ICBC (Asia) J.P. Morgan Bank Limited OCBC Standard Chartered Bank Offering Circular dated 28 June 2024IMPORTANT NOTICE This Offering Circular includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) for the purpose of giving information with regard to the Issuer the Group and the Bank. Each of the Issuer and the Bank accepts full responsibility for the accuracy of the information contained in this Offering Circular and confirms having made all reasonable enquiries that to the best of its knowledge and belief there are no other facts the omission of which would make any statement herein misleading.Each Tranche of Notes will be issued on the terms set out herein under “Terms and Conditions of theNotes” as amended and/or supplemented by a document specific to such Tranche called a pricing supplement (the “Pricing Supplement”). This Offering Circular must be read and construed together with any amendments or supplements hereto and with any information incorporated by reference herein (see “Documents Incorporated by Reference”) and in relation to any Tranche of Notes must be read and construed together with the relevant Pricing Supplement.No person has been authorised to give any information or to make any representation other than those contained in this Offering Circular in connection with the issue or sale of the Notes and if given or made such information or representation must not be relied upon as having been authorised by the Issuer the Bank or any of the Arrangers or the Dealers (as defined in “Summary of the Programme”) or the Agents (as defined in “Terms and Conditions of the Notes”) or any of their respective affiliates officers employees agents representatives directors or advisers. Neither this Offering Circular nor any other information supplied in connection with the Programme or any Notes should be considered as a recommendation by the Issuer the Bank any Arranger any Dealer the Agents or any of their respective affiliates officers employees agents representatives directors or advisers that any recipient of this Offering Circular or any other information supplied in connection with the Programme or any Notes should purchase any Notes. This Offering Circular does not take into account the objectives financial situation or needs of any potential investor. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs and its own appraisal of the creditworthiness of the Issuer and the Bank. Neither this Offering Circular nor any other information supplied in connection with the Programme or the issue of any Notes constitutes an offer or invitation by or on behalf of the Issuer the Bank any Arranger any Dealer the Agents or any of their respective affiliates officers employees agents representatives directors or advisers to any person to subscribe for or to purchase any Notes.Neither the delivery of this Offering Circular nor any sale made in connection herewith shall under any circumstances create any implication that there has been no change in the affairs of the Group since the date hereof or the date upon which this Offering Circular has been most recently amended or supplemented or that there has been no adverse change in the financial position of the Issuer or the Bank since the date hereof or the date upon which this Offering Circular has been most recently amended or supplemented or that any other information supplied in connection with the Programme is correct as at any time subsequent to the date on which it is supplied or if different the date indicated in the document containing the same.The distribution of this Offering Circular and the offering or sale of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Issuer the Bank the Dealers the Arrangers and any of their respective affiliates officers employees agents representatives directors or advisers to inform themselves about and to observe any such restriction. The Notes have not been and will not be registered under the United States Securities Act of 1933 (the “Securities Act”) or with any securities regulatory authority of any state or other jurisdiction of the United States and the Notes may include Notes in bearer form that are subject to U.S. tax law requirements.– i –EU MiFID II product governance/target market – The Pricing Supplement in respect of any Notes may include a legend entitled “EU MiFID II Product Governance” which will outline the target market assessment in respect of the Notes and which channels for distribution of the Notes are appropriate. Any person subsequently offering selling or recommending the Notes (a “distributor”) should take into consideration the target market assessment; however a distributor subject to Directive 2014/65/EU (as amended “EU MiFID II”) is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the target market assessment) and determining appropriate distribution channels.A determination will be made in relation to each issue about whether for the purpose of the MiFID ProductGovernance rules under EU Delegated Directive 2017/593 (the “EU MiFID Product GovernanceRules”) any Dealer subscribing for any Notes is a manufacturer in respect of such Notes but otherwise neither the Arrangers nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose of the EU MiFID Product Governance Rules.UK MiFIR product governance/target market – The Pricing Supplement in respect of any Notes may include a legend entitled “UK MiFIR Product Governance” which will outline the target market assessment in respect of the Notes and which channels for distribution of the Notes are appropriate. Any distributor should take into consideration the target market assessment; however a distributor subject tothe FCA Handbook Product Intervention and Product Governance Sourcebook (the “UK MiFIR ProductGovernance Rules”) is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the target market assessment) and determining appropriate distribution channels.A determination will be made in relation to each issue about whether for the purpose of the UK MiFIR Product Governance Rules any Dealer subscribing for any Notes is a manufacturer in respect of such Notes but otherwise neither the Arrangers nor the Dealers nor any of their respective affiliates will be a manufacturer for the purpose of the UK MiFIR Product Governance Rules.IMPORTANT – EEA RETAIL INVESTORS – If the Pricing Supplement in respect of any Notes includes a legend entitled “Prohibition of Sales to EEA Retail Investors” the Notes are not intended to be offered sold or otherwise made available to and should not be offered sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of EU MiFIDII; (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended the “InsuranceDistribution Directive”) where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of EU MiFID II; or (iii) not a qualified investor as defined in Regulation (EU) 2017/1129 (as amended the “Prospectus Regulation”). Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended the “PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.IMPORTANT – UK RETAIL INVESTORS – If the Pricing Supplement in respect of any Notes includes a legend entitled “Prohibition of Sales to UK Retail Investors” the Notes are not intended to be offered sold or otherwise made available to and should not be offered sold or otherwise made available to any retail investor in the United Kingdom (“UK”). For these purposes a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (“EUWA”); (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (the – ii –“FSMA”) and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97 where that customer would not qualify as a professional client as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the EUWA; or (iii) not a qualified investor as defined in Article 2 of the Prospectus Regulation as it forms part of domestic law by virtue of the EUWA (the “UK Prospectus Regulation”). Consequently no key information documentrequired by the PRIIPs Regulation as it forms part of domestic law by virtue of the EUWA (the “UKPRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the UK has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the UK may be unlawful under the UK PRIIPs Regulation.The Notes are being offered and sold outside the United States to non-US persons in reliance on Regulation S and in the case of Registered Notes within the United States to QIBs in reliance on Rule 144A. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of these and certain further restrictions on offers sales and transfers of Notes and distribution of this Offering Circular see “Subscription and Sale” and “Transfer Restrictions”.Singapore SFA Product Classification – The Pricing Supplement in respect of any Notes may include a legend entitled “Singapore SFA Product Classification” which will state the product classification of the Notes pursuant to Section 309B(1) of the Securities and Futures Act 2001 (the “SFA”). The Issuer will make a determination and provide the appropriate written notification to “relevant persons” in relation to each issue about the classification of the Notes being offered for the purposes of Section 309B(1)(a) and Section 309B(1)(c) of the SFA.Notice to capital market intermediaries and prospective investors pursuant to paragraph 21 of the Hong Kong SFC Code of Conduct – Important Notice to Prospective Investors: Prospective investors should be aware that certain intermediaries in the context of certain offerings of Notes pursuant to this Programme each such offering a CMI Offering including certain Dealers may be “capital market intermediaries” (together the “CMIs”) subject to Paragraph 21 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the “SFC Code”).This notice to prospective investors is a summary of certain obligations the SFC Code imposes on such CMIs which require the attention and cooperation of prospective investors. Certain CMIs may also be acting as “overall coordinators” (together the “OCs”) for a CMI Offering and are subject to additional requirements under the SFC Code. The application of these obligations will depend on the role(s) undertaken by the relevant Dealer(s) in respect of each CMI Offering.Prospective investors who are the directors employees or major shareholders of the Issuer a CMI or its group companies would be considered under the SFC Code as having an association (an “Association”) with the Issuer the CMI or the relevant group company. Prospective investors associated with the Issuer or any CMI (including its group companies) should specifically disclose this when placing an order for the relevant Notes and should disclose at the same time if such orders may negatively impact the price discovery process in relation to the relevant CMI Offering. Prospective investors who do not disclose their Associations are hereby deemed not to be so associated. Where prospective investors disclose their Associations but do not disclose that such order may negatively impact the price discovery process in relation to the relevant CMI Offering such order is hereby deemed not to negatively impact the price discovery process in relation to the relevant CMI Offering.– iii –Prospective investors should ensure and by placing an order prospective investors are deemed to confirm that orders placed are bona fide are not inflated and do not constitute duplicated orders (i.e. two or more corresponding or identical orders placed via two or more CMIs). A rebate may be offered by the Issuer to all private banks for orders they place (other than in relation to Notes subscribed by such private banks as principal whereby it is deploying its own balance sheet for onward selling to investors) payable upon closing of the relevant CMI Offering based on the principal amount of the Notes distributed by such private banks to investors. Private banks are deemed to be placing an order on a principal basis unless they inform the CMIs otherwise. As a result private banks placing an order on a principal basis (including those deemed as placing an order as principal) will not be entitled to and will not be paid the rebate. Details of any such rebate will be set out in the applicable Pricing Supplement or otherwise notified to prospective investors. If a prospective investor is an asset management arm affiliated with any relevant Dealer such prospective investor should indicate when placing an order if it is for a fund or portfolio where the relevant Dealer or its group company has more than 50% interest in which case it will be classified as a “proprietary order” and subject to appropriate handling by CMIs in accordance with the SFC Code and should disclose at the same time if such “proprietary order” may negatively impact the price discovery process in relation to the relevant CMI Offering. Prospective investors who do not indicate thisinformation when placing an order are hereby deemed to confirm that their order is not a “proprietaryorder”. If a prospective investor is otherwise affiliated with any relevant Dealer such that its order may be considered to be a “proprietary order” (pursuant to the SFC Code) such prospective investor should indicate to the relevant Dealer when placing such order. Prospective investors who do not indicate thisinformation when placing an order are hereby deemed to confirm that their order is not a “proprietaryorder”. Where prospective investors disclose such information but do not disclose that such “proprietaryorder” may negatively impact the price discovery process in relation to the relevant CMI Offering such “proprietary order” is hereby deemed not to negatively impact the price discovery process in relation to the relevant CMI Offering.Prospective investors should be aware that certain information may be disclosed by CMIs (including private banks) which is personal and/or confidential in nature to the prospective investor. By placing an order prospective investors are deemed to have understood and consented to the collection disclosure use and transfer of such information by the relevant Dealer and/or any other third parties as may be required by the SFC Code including to the Issuer any OCs relevant regulators and/or any other third parties as may be required by the SFC Code it being understood and agreed that such information shall only be used for the purpose of complying with the SFC Code during the bookbuilding process for the relevant CMI Offering. Failure to provide such information may result in that order being rejected.THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION ANY STATE SECURITIES COMMISSION IN THE UNITED STATES OR ANY OTHER U.S. REGULATORY AUTHORITY NOR HAS ANY OF THE FOREGOING AUTHORITIES PASSED UP ON OR ENDORSED THE MERITS OF THE OFFERING OF NOTES OR THE ACCURACY OR THE ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE IN THE UNITED STATES.This Offering Circular does not constitute an offer to sell or the solicitation of an offer to buy any Notes in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. None of the Issuer the Bank any Arranger any Dealer the Agents or any of their respective affiliates officers employees agents representatives directors or advisers makes any representation to any investor in the Notes regarding the legality of its investment under any applicable law. The distribution of this Offering Circular and the offer or sale of Notes may be restricted by law in certain jurisdictions.– iv –None of the Issuer the Bank the relevant Arrangers the relevant Dealers the Agents or any of their respective affiliates officers employees agents representatives directors or advisers represents that this Offering Circular may be lawfully distributed or that any Notes may be lawfully offered in compliance with any applicable registration or other requirements in any such jurisdiction or pursuant to an exemption available thereunder or assumes any responsibility for facilitating any such distribution or offering. In particular unless specifically indicated to the contrary in the applicable Pricing Supplement no action has been taken by the Issuer the Bank the relevant Arrangers the relevant Dealers the Agent or any of their respective affiliates officers employees agents representatives directors or advisers which is intended to permit a public offering of any Notes or distribution of this Offering Circular in any jurisdiction where action for that purpose is required. Accordingly no Notes may be offered or sold directly or indirectly and neither this Offering Circular nor any advertisement or other offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Offering Circular or any Notes may come must inform themselves about and observe any such restrictions on the distribution of this Offering Circular and the offering and sale of Notes. In particular there are restrictions on the distribution of this Offering Circular and the offer or sale of Notes in the United States the European Economic Area the United Kingdom Hong Kong Singapore the PRC and Japan. See “Subscription and Sale”.To the fullest extent permitted by law none of the Arrangers the Dealers the Agents or any of their respective affiliates officers employees agents representatives directors or advisers accepts any responsibility for the contents of this Offering Circular or for any other statement made or purported to be made by an Arranger or a Dealer or any Agent or any of their respective affiliates officers employees agents representatives directors or advisers or on its behalf in connection with the Bank the Issuer the Group or the issue and offering of the Notes. Each Arranger each Dealer and each Agent or any of their respective affiliates officers employees agents representatives directors or advisers accordingly disclaims all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in respect of this Offering Circular or any such statement. Neither this Offering Circular nor any financial statements of the Issuer the Bank or the Group are intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by any of the Issuer the Bank the Arrangers the Dealers the Agents or any of their respective affiliates officers employees agents representatives directors or advisers that any recipient of this Offering Circular or any financial statements of the Issuer the Bank or the Group should purchase the Notes. Each potential investor of Notes should determine for itself the relevance of the information contained in this Offering Circular and its purchase of Notes should be based upon such investigation as it deems necessary. The Dealers do not make any representation warranty or undertaking express or implied as to the accuracy or completeness of the information contained herein. None of the Arrangers the Dealers the Agents or any of their respective affiliates officers employees agents representatives directors or advisers undertakes to review the financial condition or affairs of the Issuer the Bank or the Group during the life of the arrangements contemplated by this Offering Circular nor to advise any investor or potential investor in the Notes of any information coming to the attention of any of the Arrangers the Dealers the Agents or any of their respective affiliates officers employees agents representatives directors or advisers.From time to time in the ordinary course of business certain of the Dealers and any of their respective affiliates officers employees agents representatives directors or advisers have provided advisory and investment banking services and entered into other commercial transactions with the Issuer the Bank and their respective affiliates including commercial banking services for which customary compensation has been received. It is expected that the Dealers and any of their respective affiliates officers employees agents representatives directors or advisers will continue to provide such services to and enter into such transactions with the Issuer the Bank and their respective affiliates in the future.The Dealers or any of their respective affiliates officers employees agents representatives directors or advisers may purchase the Notes and be allocated Notes for asset management and/or proprietary purposes and not with a view to distribution.– v –In making an investment decision each potential investor must rely on its own examination of the Issuer the Bank and the terms of the Notes being offered including the merits and risks involved. The Issuer the Bank the Arrangers the Dealers the Agents and any of their respective affiliates officers employees agents representatives directors or advisers do not make any representation regarding the legality of investment under any applicable laws.Potential investors should be able to bear the economic risk of an investment in the Notes for an indefinite period of time.In connection with any Tranche of Notes any Dealer (or persons acting on its behalf) may be appointed and act in its capacity as stabilisation manager (the “Stabilisation Manager”). The identity of the Stabilisation Manager(s) (if any) will be disclosed in the relevant Pricing Supplement.In connection with the issue of any Tranche of Notes the Dealer or Dealers (if any) named as Stabilisation Manager(s) (or persons acting on behalf of any Stabilisation Manager(s)) in the applicable Pricing Supplement may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However stabilisation may not necessarily occur. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Notes is made and if begun may cease at any time but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilisation Manager(s) (or person(s) acting on behalf of any Stabilisation Manager(s)) in accordance with all applicable laws and rules.In the Offering Circular unless otherwise specified references to “Hong Kong” are to the Hong Kong Special Administrative Region of the People’s Republic of China; all references to the “PRC” or “China” are to the People’s Republic of China and for geographical reference only (unless otherwise stated) excluding Taiwan Hong Kong and Macau; references to “US$” “U.S.$” “USD” or “U.S. dollars” are to the lawful currency of the United States of America; references to “Renminbi” “RMB” or “CNY” are to the lawful currency of the PRC; and references to “Hong Kong dollar” or “HK$” are to the lawful currency of Hong Kong.In this Offering Circular unless otherwise specified references to: * “the Bank” refer to China Merchants Bank Co. Ltd. and “the Group” to the Bank and its subsidiaries; * a “business day” is a day that is not Saturday Sunday or a public holiday in Hong Kong; and * the terms “associate” “subsidiary” and “substantial shareholder” shall have the meanings given to such terms in the Listing Rules unless the context otherwise requires.For ease of reference in this Offering Circular unless otherwise indicated the terms “loans and advancesto customers” “loans” and “loans to customers” are used synonymously.In this Offering Circular unless otherwise indicated the discussions on loans are based on the Bank’s gross loans and advances to customers before taking into account the related allowance for impairment losses rather than its net loans to customers. The Bank’s loans and advances to customers are reported net of the allowance for impairment losses on its consolidated balance sheet.The growth rates with respect to the business and financial data of the Bank presented in this Offering Circular are calculated based on amounts in millions of Renminbi.– vi –CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Offering Circular includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The words “anticipate” “believe” “expect” “plan” “intend” “targets” “aims” “estimate” “project” “will” “would” “may” “could” “continue” and similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact included in this Offering Circular including without limitation those regarding the Bank’s financial position business strategy management plans and objectives for future operations are forward-looking statements. These forward-looking statements involve known and unknown risks uncertainties and other factors which may cause the Bank’s actual results performance or achievements or industry results to be materially different from those expressed or implied by these forward-looking statements. These forward-looking statements are based on numerous assumptions regarding the Bank’s present and future business strategies and the environment in which the Bank expects to operate in the future. Important factors that could cause the Bank’s actual results performance or achievements to differ materially from those in the forward-looking statements include among other factors referenced in this Offering Circular: * the Bank’s ability to integrate its newly-acquired operations and any future expansion of its business; * the Bank’s ability to realise the benefits it expects from existing and future investments in its existing operations and pending expansion and development projects; * the Bank’s ability to obtain requisite governmental or regulatory approvals to undertake planned or proposed terminal development projects; * the Bank’s ability to obtain external financing or maintain sufficient capital to fund its existing and future operations; * changes in political social legal or economic conditions in the markets in which the Bank and its customers operate; * changes in the competitive environment in which the Bank and its customers operate; * the Bank’s ability to secure or renew concessions at future or existing facilities; * failure to comply with regulations applicable to the Bank’s business; * fluctuations in the currency exchange rates in the markets in which the Bank operates; * actions taken by the Bank’s joint venture partners that may not be in accordance with the Bank’s policies and objectives; and * actions taken by the Bank’s controlling shareholder China Merchants Group Ltd. that are not in line with or may conflict with the best interests of the Bank and/or the holders of the Bank’s debt including Noteholders.– vii –Additional factors that could cause actual results performance or achievements to differ materially include but are not limited to those discussed under “Risk Factors”. Forward-looking statements speak only as at the date of this Offering Circular and the Bank expressly disclaims any obligation or undertaking to publicly update or revise any forward-looking statements in this Offering Circular to reflect any change in the Bank’s expectations or any change in events conditions or circumstances on which these forward-looking statements are based. Given the uncertainties of forward-looking statements the Bank cannot assure you that projected results or events will be achieved.Presentation of financial information This Offering Circular contains the consolidated financial information of the Bank as at and for each of the years ended 31 December 2022 and 2023.The audited financial statements of the Bank were prepared in accordance with the International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (the “IASB”) and the relevant disclosure requirements pursuant to the Companies Ordinance (Cap. 622) of Hong Kong and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and have been audited in accordance with the International Standards on Auditing (“ISA”) issued by the International Auditing and Assurance Standards Board (“IAASB”).The audited financial information as at and for the years ended 31 December 2022 and 2023 included in this Offering Circular is derived from the Bank’s published consolidated financial statements for the years ended 31 December 2022 and 2023 (the “2022 and 2023 Statements”) which were prepared and presented in accordance with IFRSs and the relevant disclosure requirements pursuant to the Companies Ordinance (Cap. 622) of Hong Kong and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and have been audited by Deloitte Touche Tohmatsu.The 2022 and 2023 Statements are included in this Offering Circular and should be read in conjunction with such published consolidated financial statements and the notes thereto included elsewhere in this Offering Circular.The unaudited consolidated quarterly interim financial information as at and for the three months ended 31 March 2023 and 2024 of the Bank included in this Offering Circular is derived from the Bank’s unaudited consolidated quarterly interim report as at and for the three months ended 31 March 2024 as announced on 29 April 2024 (the “First Quarterly Report”). The unaudited consolidated quarterly interim financial information as at and for the three months ended 31 March 2023 and 2024 set forth in the First Quarterly Report was prepared on the same basis as the audited consolidated financial statements for the year ended 31 December 2023 and has not been reviewed by the Bank’s auditors. Consequently such consolidated quarterly interim financial information and the First Quarterly Report should not be relied upon by investors to provide the same quality of information associated with information that has been subject to an audit or review. Investors must exercise caution when using such data to evaluate the Bank financial condition and results of operations. Such unaudited consolidated quarterly interim financial information as at and for the three months ended 31 March 2023 and 2024 should not be taken as an indication of the expected financial condition and results of operations of the Bank for the full financial year ending 31 December 2024.In this Offering Circular because certain amounts have been rounded totals of columns or rows of numbers in tables may not be equal to the apparent total of the individual items and actual numbers may differ from those contained herein due to rounding.– viii –Documents Incorporated by Reference The Bank hereby incorporates by reference (i) the most recently published audited consolidated annual financial statements and the most recently published unaudited but reviewed interim consolidated financial statements of the Bank published from time to time after the date of this Offering Circular in each case together with any audit or review reports prepared in connection therewith (ii) the most recently published unaudited and unreviewed consolidated quarterly financial statements of the Bank from the relevant quarterly interim report published subsequent to the most recently published consolidated financial statements of the Bank and (iii) all amendments and supplements from time to time to this Offering Circular each of which shall be deemed to be incorporated in and to form part of this Offering Circular and which shall be deemed to modify or supersede the contents of this Offering Circular to the extent that a statement contained in any such document is inconsistent with the contents of this Offering Circular.The Bank publishes its unaudited but reviewed interim consolidated financial statements in respect of the six months ended 30 June of each financial year. A copy of the unaudited but reviewed interim consolidated financial statements can be found on the website of the HKSE. The unaudited but reviewed interim consolidated financial statements have not been and will not be audited by the Bank’s auditors and were and will be prepared under IFRSs. The unaudited but reviewed interim reports may not provide the same quality of information associated with information that has been subject to an audit. Potential investors should exercise caution when using such data to evaluate the Bank’s financial condition and results of operation. The unaudited but reviewed interim reports should not be taken as an indication of the expected financial condition or results of operations of the Bank for the relevant full financial year.The Bank publishes its consolidated quarterly interim financial statements in respect of the three months ended 31 March and the nine months ended 30 September of each financial year. A copy of the quarterly interim consolidated financial statements can be found on the website of the HKSE. The quarterly interim consolidated financial statements have not been and will not be audited or reviewed by the Bank’s auditors and were and will be prepared under IFRSs. The quarterly interim reports may not provide the same quality of information associated with information that has been subject to an audit or review. Potential investors should exercise caution when using such data to evaluate the Bank’s financial condition and results of operation. The quarterly interim reports should not be taken as an indication of the expected financial condition or results of operations of the Bank for the relevant full financial year.Any documents not incorporated by reference in this Offering Circular shall not form part of this Offering Circular.Copies of all such documents which are so deemed to be incorporated in and to form part of this Offering Circular will be available free of charge during usual business hours on any weekday (Saturdays and public holidays excepted) from the specified offices of the Bank and of the Fiscal Agent (as defined below) set out at the end of this Offering Circular.Supplemental Offering Circular Each of the Bank and the Issuer has given an undertaking to the Dealers that unless the Bank has notified the Dealers in writing that it does not intend to issue Notes under the Programme for the time being if a significant new factor material mistake or inaccuracy arises or is noted relating to the information included in the Offering Circular which is capable of affecting an assessment by investors of the assets and liabilities financial position profits and losses and prospects of the Bank the Issuer and/or of the rights attaching to the Notes the Bank shall (i) prepare and publish an amendment or supplement to the Offering Circular (the “Supplemental Offering Circular”) (ii) advise the Dealers promptly of any proposal to amend supplement or replace the Offering Circular (iii) advise the Arrangers and Dealers of any proposal to amend supplement or replace the Offering Circular and (iv) provide the Dealers with a copy of any such proposed amendment supplement or replacement immediately prior to its publication.– ix –AVAILABLE INFORMATION The Issuer has agreed that for so long as any Notes are “restricted securities” as defined in Rule 144(a)(3) under the Securities Act the Issuer will during any period that it is neither subject to Section 13 or 15(d) of the United States Securities Exchange Act of 1934 (the “Exchange Act”) nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder furnish to any holder or beneficial owner of such restricted securities or any prospective purchaser designated by any such holder or beneficial owner upon the request of such holder beneficial owner or prospective purchaser the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.– x –SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES The Bank is a joint stock company incorporated in the People’s Republic of China with limited liability.None of the directors and executive officers of the Bank are residents of the United States and all or a substantial portion of the assets of the Bank and such persons are located outside the United States. As a result it may not be possible for investors to effect service of process within the United States or anywhere else outside the PRC upon the Bank or such persons or to enforce against any of them in the United States courts judgments obtained in United States courts including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state or territory within the United States.– xi –CONTENTS Page SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SUMMARY OF THE PROGRAMME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SUMMARY FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 TERMS AND CONDITIONS OF THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 SUMMARY OF PROVISIONS RELATING TO NOTES WHILE REPRESENTED BY GLOBAL NOTES OR GLOBAL CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 FORM OF PRICING SUPPLEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 CAPITALISATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 DESCRIPTION OF THE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 FUNDING AND CAPITAL ADEQUACY OF THE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 RISK MANAGEMENT OF THE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 ASSETS AND LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 SUBSTANTIAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 MANAGEMENT OF THE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189 BANKING REGULATION AND SUPERVISION IN THE PRC . . . . . . . . . . . . . . . . . . . . . . . . 198 TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 PRC CURRENCY CONTROLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 CLEARANCE AND SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 SUBSCRIPTION AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215 TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 – xii –SUMMARY The Bank was incorporated on 11 August 1987 as a joint stock company with limited liability under the Approval on Pilot Establishment of Merchants Bank (关于同意试办招商银行的批覆(银覆[1986]175号)) issued by the People’s Bank of China (the “PBOC”) and with registration number She Qi Fu No. 0345 (蛇 企副字0345号). Founded in 1987 with its head office in Shenzhen China the Bank mainly focuses on the market in China. The Bank’s distribution network is mainly distributed in major central cities in the Chinese mainland and some international financial centres such as Hong Kong New York London Singapore Luxembourg and Sydney. As at 31 December 2023 the Bank had 143 branches and 1781 sub-branches in mainland China two branch-level specialised institutions (a credit card centre and a capital operation centre) 2226 self-service banks 5281 cash self-service devices and 7603 visual counters. The Bank also has a Hong Kong branch a New York branch and a representative office in the United States a London branch in the United Kingdom a Singapore branch a Luxembourg branch a representative office in Taipei and a Sydney branch in Australia. As at 31 December 2023 the Bank ranked 1st among Chinese joint-stock banks in terms of the balance of deposits from retail customers (data from WIND). As at the date of this Offering Circular the Bank is the 5th largest bank in China by market capitalization (data from WIND).The growth of the Bank from a regional bank into a national commercial bank with significant asset scale and strength in China is primarily attributable to its resources and efforts. The Bank was listed on the Shanghai Stock Exchange in April 2002 and on the HKSE in September 2006.The Bank provides customers with various wholesale and retail banking products and services and maintains treasury businesses for proprietary purpose and on behalf of customers. Many innovative products and services of the Bank have been well received by the market. Retail banking services include the “All-in-one” multi- function debit card credit card account and payment settlement services classified wealth management services including the “Sunflower Wealth Management” services and private banking services retail credit services CMB APP CMB Life APP “All-in-one Net” which is a comprehensive online banking service platform and other online services. Wholesale banking services include payment and settlement wealth management investment and financing and digital services cash management sci-tech finance green finance inclusive finance retirement finance digital finance supply chain finance and cross-border finance services asset management asset custody and investment banking. The Bank continues to tap further into the living and business circles of customers to provide customers with customised intelligent and comprehensive solutions for their supply chains and investment chains.In recent years the Bank continues to deepen its strategic transformation and come up with the strategicvision of “building the best value creation bank with innovation-driven development leading model anddistinguished features” based on the internal and external situation and its own development. In line with the trend of acceleration in the construction of China’s modern industrial system the Bank consistently enhances its quality and efficiency in serving the real economy and social well-being and strives to create more value for customers employees shareholders partners and society with the aim of making greater contributions to the modernisation process with Chinese characteristics.As at 31 December 2022 and 2023 the Group had approximately RMB10138.912 billion and RMB11028.483 billion in total assets respectively and RMB6051.459 billion and RMB6508.865 billion in total loans and advances to customers respectively. For the years ended 31 December 2022 and 2023 the Group had an operating income of RMB342.215 billion and RMB336.602 billion respectively and a net profit of RMB139.294 billion and RMB148.006 billion respectively. For the year ended 31 December 2023 the Group had a net profit attributable to shareholders of the Bank of RMB146.602 billion – 1 –representing a year-on-year increase of 6.22%. Net operating income1 was RMB339.078 billion representing a year-on-year decrease of 1.64% among which the net interest income was RMB214.669 billion representing a year-on-year decrease of 1.63%. The Groups net non-interest income was RMB124.409 billion representing a year-on-year decrease of 1.66%. The return on average asset (ROAA) attributable to shareholders of the Bank and return on average equity (ROAE) attributable to ordinary shareholders of the Bank were 1.39% and 16.22% down by 0.03 percentage point and 0.84 percentage point year-on-year respectively. For the years ended 31 December 2022 and 2023 the net interest spread of the Group was 2.28% and 2.03% respectively and the net interest margin of the Group was 2.40% and 2.15% respectively. CORE COMPETITIVE STRENGTHS The Bank’s core competitive strengths are as follows: * Leading retail finance business with unique competitive advantages.* Corporate finance business with specialised and professional operations.* Rapidly developing cross-border finance platform.* Innovative e-channels and IT platform.* Industry benchmark of high-quality services.* Continuously enhanced brand influence.* Experienced management team.BUSINESS DEVELOPMENT STRATEGIES The Bank is committed to building the best value creation bank with innovation-driven development leading model and distinguished features. In light of the advantages of retail banking which is lesscyclically relevant and the advantages of endogenous growth of capital benefiting from the “Light-modelBank” the Bank upholds the philosophy of win-win business and business for common good to grow into a value creation bank. The Bank seeks to maximise the comprehensive value of customers employees shareholders partners and the society as well as creating a new pattern of high-quality growth aiming to become a world-class commercial bank. The Bank’s strategic focus is centred on building three capacities in wealth management Fintech and risk management and also to promote the evolution of organisational culture. Based on the needs of the country and enterprises and the ability of the Bank the Bank is expected to perform its ESG responsibilities serve the real economy and meet the needs of people’s livelihood to create a new stage for high-quality growth.The Bank intends to implement the following strategies: * Enlarging wealth management business and accelerating the transformation of the business model.* Optimising Fintech and accelerating comprehensive digital transformation. 1 Net operating income is the sum of net interest income net fee and commission income other net income as well as share of profits of joint ventures and associates.– 2 –* Strengthening risk management and building a fortress-style overall risk and compliance management system.* Pursuing the core values and building the cultural and organisational foundation for a value creation bank.– 3 –SUMMARY OF THE PROGRAMME The following summary is qualified in its entirety by the remainder of this Offering Circular. Words and expressions defined in “Terms and Conditions of the Notes” below shall have the same meaning in this summary.The Issuer . . . . . . . . . . . . . . . . . . China Merchants Bank Co. Ltd. or such branch of China Merchants Bank Co. Ltd.Description . . . . . . . . . . . . . . . . . Medium Term Note Programme.Size . . . . . . . . . . . . . . . . . . . . . . . Up to U.S.$5000000000 (or the equivalent in other currencies at the date of issue) aggregate nominal amount of Notes outstanding at any one time. The Bank may increase the amount of the Programme in accordance with the terms of the Dealer Agreement.Risk Factors . . . . . . . . . . . . . . . . There are certain factors that may affect the Issuer’s ability to fulfil its obligations under Notes issued under the Programme. These are set out under “Risk Factors” below. In addition there are certain factors which are material for the purpose of assessing the market risks associated with Notes issued under the Programme. These are set out under “Risk Factors” and include the fact that the Notes may not be a suitable investment for all investors certain risks relating to the structure of particular Series of Notes and certain market risks.Arrangers . . . . . . . . . . . . . . . . . . Citigroup Global Markets Limited CMB International Capital Limited J.P. Morgan Securities (Asia Pacific) Limited Dealers . . . . . . . . . . . . . . . . . . . . Agricultural Bank of China Limited Hong Kong Branch Bank of China Limited BNP Paribas China Merchants Securities (HK) Co. Limited Citigroup Global Markets Limited CMB International Capital Limited CMB Wing Lung Bank Limited Crédit Agricole Corporate and Investment Bank Industrial and Commercial Bank of China (Asia) Limited J.P. Morgan Securities (Asia Pacific) Limited Oversea-Chinese Banking Corporation Limited Standard Chartered Bank The Bank may from time to time terminate the appointment of any dealer under the Programme or appoint additional dealers either in respect of one or more Tranches or in respect of the wholeProgramme. References in this Offering Circular to “PermanentDealers” are to the persons listed above as Dealers and to such additional persons that are appointed as dealers in respect of the whole Programme (and whose appointment has not been terminated) and to “Dealers” are to all Permanent Dealers and all persons appointed as a dealer in respect of one or more Tranches.Fiscal Agent Principal Paying The Hongkong and Shanghai Banking Corporation Limited Agent and Transfer Agent . . . . .Calculation Agent . . . . . . . . . . . . To be appointed on a per series basis.– 4 –Registrar . . . . . . . . . . . . . . . . . . . The Hongkong and Shanghai Banking Corporation Limited.CMU Lodging and The Hongkong and Shanghai Banking Corporation Limited.Paying Agent . . . . . . . . . . . . . .Method of Issue . . . . . . . . . . . . . . The Notes may be issued on a syndicated or non-syndicated basis.The Notes may be issued in series (each a “Series”) having one or more issue dates (each tranche within such Series a “Tranche”) and on terms otherwise identical (or identical other than in respect of the first payment of interest) the Notes of each Series being intended to be interchangeable with all other Notes of that Series.Each Series may be issued in tranches on the same or different issue dates. The specific terms of each Tranche (which will be supplemented where necessary with supplemental terms and conditions and save in respect of the issue date issue price first payment of interest and nominal amount of the Tranche will be identical to the terms of other Tranches of the same Series) will be set out in a pricing supplement (a “Pricing Supplement”).Issue Price . . . . . . . . . . . . . . . . . . Notes may be issued at their nominal amount or at a discount or premium to their nominal amount. Partly Paid Notes may be issued the issue price of which will be payable in two or more instalments.Form of Notes . . . . . . . . . . . . . . . Notes may be issued in bearer form (“Bearer Notes”) or in registered form (“Registered Notes”). Registered Notes will not be exchangeable for Bearer Notes and vice versa.Each Tranche of Bearer Notes will initially be in the form of either a Temporary Global Note or a Permanent Global Note in each case as specified in the relevant Pricing Supplement. Each Global Note will be deposited on or around the relevant issue date with a common depositary or sub-custodian for Euroclear Clearstream and/or as the case may be the CMU and/or any other relevant clearing system. Each Temporary Global Note will be exchangeable for a Permanent Global Note or if so specified in the relevant Pricing Supplement for Definitive Notes. If the TEFRA D Rules (as defined below) are specified in the relevant Pricing Supplement as applicable certification as to non-U.S. beneficial ownership will be a condition precedent to any exchange of an interest in a Temporary Global Note or receipt of any payment of interest in respect of a Temporary Global Note. Each Permanent Global Note will be exchangeable for Definitive Notes in accordance with its terms. Definitive Notes will if interest- bearing have Coupons attached and if appropriate a Talon for further Coupons.– 5 –Registered Notes will be represented by registered Certificates one definitive Certificate being issued in respect of each Noteholder’s entire holding of Registered Notes of one Series or (a) in the case of Notes issued in reliance on Category 3 of Regulation S of the Securities Act a Temporary Global Certificate or (b) in the case of all other Notes a Permanent Global Certificate in respect of the Notes. Interests in Temporary Global Certificates will be exchangeable for interests in a Permanent Global Certificate only after the date falling at least 40 days after the completion of the distribution of the Notes of the relevant Series and upon certification as to non-U.S. beneficial ownership. Registered Notes sold in an “offshore transaction” within the meaning of Regulation S will initially be represented by an Unrestricted Global Certificate. Registered Notes sold in the United States to QIBs within the meaning of Rule 144A will initially be represented by a Restricted Global Certificate.Clearing Systems . . . . . . . . . . . . . Clearstream Euroclear the CMU and in relation to any Tranche such other alternative clearing system as may be agreed between the Issuer the Fiscal Agent and the relevant Dealers and as applicable the Registrar.Initial Delivery of Notes . . . . . . . On or before the issue date for each Tranche the Global Note representing Bearer Notes or the Global Certificate representing Registered Notes may be deposited with a common depositary for Euroclear and Clearstream or deposited with a sub-custodian for the HKMA as operator of the CMU or deposited with a depositary or sub-custodian for any other clearing system or may be delivered outside any clearing system provided that the method of such delivery has been agreed in advance by the Issuer the Fiscal Agent and the relevant Dealers. Registered Notes that are to be credited to one or more clearing systems on issue will be registered in the name of or in the name of nominees or a common nominee for such clearing systems.Currencies . . . . . . . . . . . . . . . . . . Subject to compliance with all relevant laws regulations and directives Notes may be issued in any currency agreed between the Issuer and the relevant Dealers.Maturities . . . . . . . . . . . . . . . . . . Subject to compliance with all relevant laws regulations and directives any maturity.Specified Denomination . . . . . . . . Notes will be in such denominations as may be specified in the relevant Pricing Supplement subject to compliance with all relevant laws regulations and directives. Unless permitted by then current laws and regulations Notes (including Notes denominated in sterling) which must be redeemed before the first anniversary of their date of issue and in respect of which the issue proceeds are to be accepted by the Issuer in the United Kingdom or whose issue otherwise constitutes a contravention of section 19 of the Financial Services and Markets Act 2000 must have a minimum redemption amount of ?100000 (or its equivalent in other currencies) and in the case of any Notes to be sold in the United States to QIBs the minimum specified denomination shall be U.S.$250000 (or its equivalent in other currencies).– 6 –Interest . . . . . . . . . . . . . . . . . . . . Notes may be interest-bearing or non-interest bearing. Interest (if any) may accrue at a fixed rate or a floating rate or other variable rate or be index-linked and the method of calculating interest may vary between the issue date and the maturity date of the relevant Tranche. All such information will be set out in the relevant Pricing Supplement.Benchmark Amendment. . . . . . . . The Benchmark Amendment provisions set out in the “Terms andConditions of the Notes” will apply if a Benchmark Event occurs.Redemption and Redemption The relevant Pricing Supplement will specify the basis for Amounts . . . . . . . . . . . . . . . . . . calculating the redemption amounts payable. Unless permitted by then current laws and regulations Notes (including Notes denominated in sterling) which must be redeemed before the first anniversary of their date of issue and in respect of which the issue proceeds are to be accepted by the Issuer in the United Kingdom or whose issue otherwise constitutes a contravention of section 19 of the Financial Services and Markets Act 2000 must have a minimum redemption amount of ?100000 (or its equivalent in other currencies) and in the case of any Notes to be sold in the United States to QIBs the minimum specified denomination shall be U.S.$250000 (or its equivalent in other currencies).Optional Redemption . . . . . . . . . . The Pricing Supplement issued in respect of each issue of Notes will state whether such Notes may be redeemed prior to their stated maturity at the option of the Issuer (either in whole or in part) and/or the holders and if so the terms applicable to such redemption.Status of the Notes . . . . . . . . . . . The Notes issued by the Issuer will constitute direct unconditional unsubordinated and unsecured obligations of the Issuer and will rank pari passu without any preference among themselves and pari passu with all other present and future unsecured and unsubordinated obligations of the Issuer other than any such obligations as are preferred by law all as further described in Condition 3.Events of Default . . . . . . . . . . . . . See “Terms and Conditions of the Notes – Events of Default”.Cross Acceleration . . . . . . . . . . . . See the relevant sub-condition under “Terms and Conditions of theNotes – Events of Default”.Ratings . . . . . . . . . . . . . . . . . . . . The Programme is rated “A2” by Moody’s. Tranches of Notes will be rated or unrated. Where a Tranche of Notes is to be rated such rating will be specified in the relevant Pricing Supplement.A rating is not a recommendation to buy sell or hold securities and may be subject to suspension reduction or withdrawal at any time by the assigning rating agency.Early Redemption . . . . . . . . . . . . Except as provided in “Optional Redemption” above Notes will be redeemable at the option of the Issuer prior to maturity only for taxreasons. See “Terms and Conditions of the Notes – RedemptionPurchase and Options”.– 7 –Withholding Tax . . . . . . . . . . . . . All payments of principal and interest in respect of the Notes will be made free and clear of withholding taxes of Hong Kong or thePRC subject to customary exceptions all as described in “Termsand Conditions of the Notes – Taxation”.Governing Law . . . . . . . . . . . . . . English law.Listing . . . . . . . . . . . . . . . . . . . . . Application has been made to the HKSE for the listing of the Programme valid within the 12-month period after the date of this Offering Circular on the HKSE by way of debt issues to Professional Investors only as described in this Offering Circular.Separate application may be made for the listing of the Notes on the HKSE or other stock exchange(s).Unlisted Notes may also be issued.The applicable Pricing Supplement will state whether or not the relevant Notes are to be listed and if so on which stock exchange(s).Selling Restrictions . . . . . . . . . . . For a description of certain restrictions on offers sales and deliveries of Notes and on the distribution of offering material in the United States the European Economic Area the United Kingdom Hong Kong Singapore the PRC and Japan see “Subscription and Sale” below.Bearer Notes will be issued in compliance with U.S. Treasury Regulations §1.163-5(c)(2)(i)(D) (or any successor rules in substantially the same form that are applicable for purposes of Section 4701 of the U.S. Internal Revenue Code of 1986 as amended (the “Code”)) (“TEFRA D Rules”) unless (i) such Bearer Notes are issued in compliance with U.S. Treasury Regulations §1.163-5(c)(2)(i)(C) (or any successor rules in substantially the same form that are applicable for purposes of Section 4701 of the Code) (“TEFRA C Rules”) or (ii) the Bearer Notes are issued in circumstances under which TEFRA is not applicable as set forth in the applicable terms for such Bearer Notes.Transfer Restrictions . . . . . . . . . . There are restrictions on the transfer of Notes sold pursuant to Regulation S under the Securities Act prior to the expiration of the relevant distribution compliance period and on the transfer of Registered Notes sold pursuant to Rule 144A under the Securities Act. See “Transfer Restrictions”.– 8 –SUMMARY FINANCIAL INFORMATION The following tables set forth the summary consolidated financial information of the Bank as at and for the years indicated.The summary consolidated financial information of the Bank as at and for the years ended 31 December 2022 and 2023 set forth below is derived from and should be read in conjunction with the 2022 and 2023 Statements including the notes thereto and the auditor’s reports in respect of the years ended 31 December 2022 and 2023 each of which is included elsewhere in this Offering Circular. The audited financial statements were prepared in accordance with IFRS issued by the IASB and have been audited in accordance with ISA issued by the IAASB. The 2022 and 2023 Statements were prepared and presented in accordance with IFRSs and have been audited by Deloitte Touche Tohmatsu.CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Year Ended 31 December 20232022 (Expressed in millions of Renminbi unless otherwise stated) Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375610 353380 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (160941) (135145) Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214669 218235 Fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . 92834 103372 Fee and commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . (8726) (9097) Net fee and commission income . . . . . . . . . . . . . . . . . . . . . . . 84108 94275 Other net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37825 29705 – Disposal of financial instruments at amortised cost . . . . . . . . . 967 170 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336602 342215 Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (120991) (122061) Operating profit before impairment losses and taxation . . . . 215611 220154 Expected credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (41278) (56751) Impairment losses on other assets . . . . . . . . . . . . . . . . . . . . . . . (191) (815) Share of profits of joint ventures . . . . . . . . . . . . . . . . . . . . . . . 1860 1710 Share of profits of associates . . . . . . . . . . . . . . . . . . . . . . . . . . 616 815 Profit before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176618 165113 Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28612) (25819) Profit for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148006 139294 Attributable to: Equity holders of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 146602 138012 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1404 1282 Earnings per share Basic and diluted (RMB Yuan) . . . . . . . . . . . . . . . . . . . . . . . . . 5.63 5.26 Other comprehensive income for the year after tax Items that may be reclassified subsequently to profit or loss . . . 2373 1285 Share of other comprehensive income/(expense) from equity-accounted investees . . . . . . . . . . . . . . . . . . . . . . . . . . 202 (1155) Net fair value gain/(loss) on debt instruments measured at fair value through other comprehensive income . . . . . . . . . . . . . . 3337 (5617) Net changes in expected credit losses of debt instruments measured at fair value through other comprehensive income . . (2045) 3471 Net movement in cash flow hedge reserve . . . . . . . . . . . . . . . . (59) 112 Exchange difference on translation of financial statements of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 983 4429 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45) 45 Items that will not be reclassified to profit or loss . . . . . . . . . . . 358 38 Net fair value gain on equity instruments designated at fair value through other comprehensive income . . . . . . . . . . . . . . 354 48 Remeasurement of defined benefit scheme . . . . . . . . . . . . . . . . 4 (10) Other comprehensive income for the year net of tax . . . . . . . 2731 1323 Attributable to: Equity holders of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 2658 1053 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 270 Total comprehensive income for the year . . . . . . . . . . . . . . . . 150737 140617 Attributable to: Equity holders of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 149260 139065 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1477 1552 – 9 –CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December 20232022 (Expressed in millions of Renminbi unless otherwise stated) Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14931 15209 Precious metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2321 2329 Balances with central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 667871 587818 Balances with banks and other financial institutions . . . . . . . . . 100769 91346 Placements with banks and other financial institutions . . . . . . . . 287694 264209 Amounts held under resale agreements . . . . . . . . . . . . . . . . . . . 172246 276676 Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . 6252755 5807154 Financial investments at fair value through profit or loss . . . . . . 526145 423467 Derivative financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18733 18671 Debt investments at amortised cost . . . . . . . . . . . . . . . . . . . . . . 1749024 1555457 Debt investments at fair value through other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 899102 780349 Equity investments designated at fair value through other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19649 13416 Interest in joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15707 14247 Interest in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10883 9597 Investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1160 1268 Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115348 99919 Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17041 17553 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2709 3402 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9954 9999 Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90557 90848 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53884 55978 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11028483 10138912 As at 31 December 20232022 (Expressed in millions of Renminbi unless otherwise stated) Liabilities Borrowing from central banks . . . . . . . . . . . . . . . . . . . . . . . . . 378621 129745 Deposits from banks and other financial institutions . . . . . . . . . 508378 645674 Placements from banks and other financial institutions . . . . . . . 247299 207027 Financial liabilities at fair value through profit or loss . . . . . . . 43958 49144 Derivative financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 17443 18636 Amounts sold under repurchase agreements . . . . . . . . . . . . . . . . 135078 107093 Deposits from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8240498 7590579 Salaries and welfare payable . . . . . . . . . . . . . . . . . . . . . . . . . . 28679 23866 Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13597 19458 Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5486 6679 Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12675 13013 Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19662 22491 Debt securities issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176578 223821 Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1607 1510 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113195 125938 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9942754 9184674 – 10 –As at 31 December 20232022 (Expressed in millions of Renminbi unless otherwise stated) Equity Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25220 25220 Other equity instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150446 120446 – Preference shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27468 27468 – Perpetual bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122978 92978 Capital reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65432 65435 Investment revaluation reserve . . . . . . . . . . . . . . . . . . . . . . . . . 13656 11815 Hedging reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 151 Surplus reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108737 94985 General reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141481 132471 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518638 449139 Proposed profit appropriations . . . . . . . . . . . . . . . . . . . . . . . . . 49734 43832 Exchange reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2934 2009 Total equity attributable to shareholders of the Bank . . . . . . . . . 1076370 945503 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9359 8735 – Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 6521 5948 – Perpetual debt capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2838 2787 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1085729 954238 Total equity and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 11028483 10138912 – 11 –CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended 31 December 20232022 (Expressed in millions of Renminbi unless otherwise stated) Operating activities Profit before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176618 165113 Adjustments for: – Impairment losses on loans and advances . . . . . . . . . . . . . . 46635 45157 – Impairment losses on investments and other . . . . . . . . . . . . (5166) 12409 – Unwinding of discount on loans and advances . . . . . . . . . . (257) (386) – Depreciation of property and equipment and investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11008 10279 – Depreciation of right-of-use assets . . . . . . . . . . . . . . . . . . . 4205 4151 – Amortisation of other assets . . . . . . . . . . . . . . . . . . . . . . . . 1170 1193 – Net gains on debt securities and equity investments . . . . . . (18149) (14722) – Interest income on investments . . . . . . . . . . . . . . . . . . . . . (80836) (65808) – Interest expense on issued debt securities . . . . . . . . . . . . . . 7781 9662 – Share of profits of associates . . . . . . . . . . . . . . . . . . . . . . . (616) (815) – Share of profits of joint ventures . . . . . . . . . . . . . . . . . . . . (1860) (1710) – Net gains on disposal of properties and equipment and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (168) (282) – Interest expense on lease liabilities . . . . . . . . . . . . . . . . . . 480 510 Changes in: Balances with central banks . . . . . . . . . . . . . . . . . . . . . . . . . . . (5004) (48851) Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . (482711) (508891) Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 817 63611 Deposits from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619696 1188664 Amount due to banks and other financial institutions . . . . . . . . . (69249) (135569) Amount due from banks and other financial institutions with original maturity over 3 months . . . . . . . . . . . . . . . . . . . . . . (13744) (46825) Borrowing from central banks . . . . . . . . . . . . . . . . . . . . . . . . . 247751 (30073) Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (45862) (39251) Cash generated from operating activities before income tax payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392539 607566 Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (34786) (37423) Net cash generated from operating activities . . . . . . . . . . . . . 357753 570143 Investing activities Proceeds from disposals and redemptions of investments . . . . . . 1954061 1334013 Investment income received . . . . . . . . . . . . . . . . . . . . . . . . . . . 97963 79122 Proceeds from the disposals of property and equipment and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4950 6750 Proceeds from the disposals of subsidiaries associates or joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 463 Payment for the purchases of investments . . . . . . . . . . . . . . . . . (2282035) (1898898) Payment for the acquisition of subsidiaries associates or joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (39) (484) Payment for the purchases of property and equipment and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30161) (34892) Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . (255107) (513926) – 12 –Year Ended 31 December 20232022 (Expressed in millions of Renminbi unless otherwise stated) Financing activities Proceeds from the issuance of negotiable interbank certificates of deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68608 78666 Proceeds from the issuance of certificates of deposit and other debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66504 20287 Proceeds from the issuance of debt securities . . . . . . . . . . . . . . 25201 21481 Proceeds from the issuance of perpetual bonds . . . . . . . . . . . . . 29997 – Proceeds from non-controlling interests of subsidiaries . . . . . . . – 2667 Proceeds from other financing activities . . . . . . . . . . . . . . . . . . 17303 10796 Repayment of negotiable interbank certificates of deposit . . . . . (112584) (250996) Repayment of certificates of deposit and other debt securities . . (48267) (16504) Repayment of debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . (51146) (78735) Payment for lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . (5053) (4932) Payment for redemption of preference shares . . . . . . . . . . . . . . – (7196) Payment for redemption of perpetual debt capital . . . . . . . . . . . – (1104) Distribution paid on perpetual debt capital . . . . . . . . . . . . . . . . (182) (202) Payment for dividends distribution . . . . . . . . . . . . . . . . . . . . . . (44120) (38664) Distribution paid on preference shares . . . . . . . . . . . . . . . . . . . (996) (1675) Distribution paid on perpetual bonds . . . . . . . . . . . . . . . . . . . . (3562) (3562) Interest paid on financing activities . . . . . . . . . . . . . . . . . . . . . (7482) (12400) Payment for other financing activities . . . . . . . . . . . . . . . . . . . . (7210) (14959) Net cash used in financing activities . . . . . . . . . . . . . . . . . . . (72989) (297032) Net increase/(decrease) in cash and cash equivalents . . . . . . . 29657 (240815) Cash and cash equivalents as at 1 January . . . . . . . . . . . . . . 567198 801754 Effect of foreign exchange rate changes . . . . . . . . . . . . . . . . . 2164 6259 Cash and cash equivalents as at 31 December . . . . . . . . . . . . 599019 567198 Cash flows from operating activities include: Interest received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293467 285050 Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121178 108496 – 13 –RISK FACTORS Prior to making any investment decision prospective investors should consider carefully all of the information contained in this Offering Circular including the risks and uncertainties described below. The Bank’s business financial condition or results of operations could be materially adversely affected by any of these risks. The Bank believes that the following factors may affect its ability to fulfil its obligations under the Notes. Additional considerations and uncertainties not presently known to the Bank or which the Bank currently deems immaterial may also have an adverse effect on an investment in the Notes. All of these factors are contingencies which may or may not occur and the Bank is not in a position to express a view on the likelihood of any such contingency occurring.Factors which the Bank believes may be material for the purpose of assessing the market risks associated with the Notes are described below. The Bank believes that the factors described below represent the principal risks inherent in investing in the Notes but the Bank’s inability to repay principal pay interest or other amounts or fulfil other obligations on or in connection with the Notes may occur for other reasons and the Bank does not represent that the statements below regarding the risks of holding the Notes are exhaustive.RISKS RELATING TO THE BANK’S BUSINESS If the Bank is unable to effectively maintain the quality of its loan portfolio its financial condition and results of operations may be materially and adversely affected.The Bank’s results of operations are negatively impacted by its non-performing loans and the sustainability of its growth depends largely on its ability to effectively manage its credit risk and maintain the quality of its loan portfolio. As at 31 December 2022 and 2023 the Group’s non-performing loans amounted to RMB58.004 billion and RMB61.579 billion respectively and its non-performing loan ratio was 0.96% and 0.95% respectively.The Bank cannot assure investors that its credit risk management policies procedures and systems are free from any deficiency. Failure of the Bank’s credit risk management policies procedures and systems may result in an increase in the level of the Bank’s non-performing loans and adversely affect the quality of the Bank’s loan portfolio. In addition the quality of the Bank’s loan portfolio may also deteriorate due to various other reasons including factors beyond the Bank’s control such as a slowdown in economic growth and other adverse macroeconomic trends in China which could impair the ability of the Bank’s borrowers to service their outstanding debt. For example the Bank’s small and medium enterprises (“SMEs”) customers may be particularly sensitive to the impact of outbreaks of contagious diseases inflationary pressures interest rate fluctuations and recessionary risks. There can be no assurance that the Bank will be able to maintain or lower its current NPL ratio in the future or that the quality of its existing or future loans and advances to borrowers will not deteriorate. As a result of the PRC government’s economic stimulus programmes many PRC banks including the Bank experienced high growth in their loan balances in the past. This increase in bank loans may lead to elevated impaired loan ratios and loan loss provisions as well as increasing strain on the Bank’s risk management resources which may affect the quality of its loan portfolio. If such deterioration were to occur it could materially and adversely affect the Bank’s financial condition results of operations and cashflows.– 14 –The Bank may have to increase its allowance for impairment losses to cover future actual losses to its loan portfolio.As at 31 December 2022 and 2023 the allowance-to-loan ratio of the Group being the ratio of allowances for impairment losses to total loans and advances2 to customers was 4.32% and 4.14% respectively. The amount of the allowance is based on its current assessment of and expectations concerning various factors affecting the quality of the Bank’s loan portfolio based on International Financial Reporting 9 or IFRS 9. These factors include among other things the Bank’s borrowers’ financial condition repayment ability and repayment intention the realisable value of any collateral and the ability of the guarantors of the Bank’s customers to fulfil their obligations as well as China’s economy government macroeconomic policies interest rates exchange rates inflationary pressures recessionary risks and the overall legal and regulatory environment. Many of these factors are subject to change and are beyond the Bank’s control.In addition the Bank relies on the skills of its employees to collect process and analyse relevant statistical data and estimate these factors processes which are not free of deficiencies and errors. If the Bank’s assessment of and expectations concerning these factors differ from actual developments or if the quality of the Bank’s loan portfolio deteriorates the Bank’s allowance for impairment losses may not adequately cover its actual losses and the Bank may need to make additional provision for impairment losses. The need to make additional loan loss provision may materially and adversely affect the Bank’s financial condition and results of operations.The collateral or guarantees securing the Bank’s loans may not be sufficient and the Bank may be unable to realise the full value of the collateral or guarantees.As at 31 December 2022 and 2023 loans and advances to customers secured by collateral or pledges accounted for 41.00% and 40.31% of the Group’s gross amount of loans and advances to customers respectively. The value of the collateral securing the Bank’s loans may significantly fluctuate or decline due to factors beyond the Bank’s control including macroeconomic factors affecting China’s economy.For example the slowdown in China’s economy leading to the downturn in China’s real estate markets may in turn result in declines in the value of the real properties securing the Bank’s loans to levels significantly below the outstanding principal balance of such loans. Any decline in the value of such collateral may reduce the amount the Bank can recover from collateral and increase its impairment losses.The Bank does not always appoint independent appraisers to re-evaluate its collateral (particularly its real properties) on a fixed periodic basis. As a result the Bank may not have updated current information on the value of such collateral which may adversely affect the accurate assessment of the Bank’s loans secured by such collateral.In addition in certain circumstances the Bank’s rights to the collateral securing its loans may have lower priority than certain other rights. In addition in China the procedures for liquidating or otherwise realising the value of collateral in the form of tangible assets may be protracted and it may be difficult to enforce claims in respect of such collateral. As a result it may be difficult and time-consuming for the Bank to take control of or liquidate the collateral securing non-performing loans.As at 31 December 2022 and 2023 loans and advances to customers with guarantee accounted for 13.82% and 12.63% of the Group’s gross amount of loans and advances to customers respectively. Some of such guarantees were provided by the relevant borrower’s affiliates. Such guarantees are generally not backed by collateral or other security interests. A significant deterioration in the financial condition of a guarantor 2 The total loan and advances to customers herein and set out below exclude accrued interest. – 15 –may significantly decrease the amount the Bank could recover under such guarantee. Moreover the Bank is subject to the risk that a court or other judicial or government authorities may declare a guarantee to be invalid. The Bank is therefore exposed to the risk that it may not be able to recover all or any part of the amount of the guarantees in respect of its loans.The Bank’s inability to realise the full value of the collateral and guarantees securing its loans on a timely basis may materially and adversely affect its asset quality financial condition or results of operations.The Bank may not be able to maintain the continuing growth of its loan portfolio.The Group’s net loans and advances to customers increased from RMB5796.546 billion as at 31 December 2022 to RMB6242.060 billion as at 31 December 2023. Various factors have impact on the size of the Bank’s loan portfolio such as China’s macroeconomic policies and capital constraints. In the future the growth rate of the Bank’s loan portfolio may slow down or the size of such loan portfolio may even decline. In addition in response to the constraints from various requirements on and the amount of the Bank’s regulatory capital the Bank may adopt strategies to reduce its reliance on its loan portfolio and expand its activities in other businesses that require relatively lower capital. Any of the foregoing factors could impact the growth of the Bank’s loan portfolio and thereby materially and adversely affect its business prospects financial condition and results of operations.The Bank has a concentration of loans to certain industries and regions and if these industries or the economies of these regions significantly deteriorate its financial condition and results of operations may be materially and adversely affected.As at 31 December 2022 and 2023 the Group’s loans in mainland China to the (1) manufacturing (2) transportation storage and postal services (3) property development (4) production and supply of electric power heating power gas and water (5) wholesale and retail and (6) leasing and commercial services sections represented in aggregate 30.67% and 31.45% of the Group’s gross amount of loans and advances to customers in mainland China respectively. If any of the industries significantly deteriorates the Bank’s asset quality financial condition and results of operations may be materially and adversely affected.As at 31 December 2022 and 2023 residential mortgage loans contributed 44.40% and 40.83% respectively to the Group’s retail loans in mainland China and 15.78% and 12.51% of its corporate loans in mainland China were to property development respectively. The real estate market in China continues to be prone to fluctuations in real estate prices. When real estate prices in China decline significantly the Bank’s asset quality will be negatively affected which will affect the quality of the Bank’s loans to the real estate industry and the portfolio of the Bank’s residential mortgage loans. Furthermore when the real estate market in China experiences a downturn as a whole the overall value of real estate collateral will decline which will in turn reduce the amount the Bank can recover in the event of a default. This may materially and adversely affect the Bank’s asset quality financial condition and results of operations.Pursuant to the PRC government’s policies designed to curb development of certain industries facing overcapacity (including steel cement coal chemical aluminium electrolysis plate glass and ship building industries) the Bank distributes loans to some of these aforementioned industries in accordance with strict regulations. Any further restriction to relevant industries or deteriorations in the production capabilities and operations of customers in relevant industries may materially and adversely affect the Bank’s asset quality financial condition and results of operations.Furthermore the Group’s profit before tax is generated mainly from the Yangtze River Delta the Bohai Rim and the Pearl River Delta and West Coast region. For the years ended 31 December 2022 and 2023 41.90% and 33.33% of the Group’s total profit before tax was derived from these three areas respectively. A significant economic downturn in any of these regions or any inaccurate assessment of the credit risks regarding borrowers located in or with substantial operations in such regions may materially and adversely affect the Bank’s asset quality financial condition and results of operations.– 16 –Deterioration in the debt repayment abilities of local government financing vehicles to which the Bank extends loans may adversely affect the Bank’s asset quality financial condition and results of operations.Loans extended to local government financing vehicles are a part of the loan portfolio for China’s commercial banks. According to the State Council local government financing vehicles consist of economic entities with independent legal identity established by local government or its departments and institutions by fiscal appropriation or injection of land use rights or equity which take the responsibility of financing for government-invested projects. These vehicles primarily provide support to various infrastructure development and quasi-public interest government investment projects.In recent years with the aim of reinforcing the risk management of loans to local government financing vehicles the State Council National Financial Regulatory Administration (the “NFRA”) former China Banking and Insurance Regulatory Commission (“CBIRC”) and the PBOC along with several other PRC regulatory authorities promulgated a series of notices guidelines and other regulatory documents to direct PRC banks and other financial institutions to optimise and strengthen their risk management measures regarding their loans to local government financing vehicles. The Bank closely tracks changes in the domestic and international macroeconomic environment with a view to continuously prevent and defuse risks in key areas such as local government financing platforms and for such key regulatory areas the loan granting control is strictly implemented in accordance with regulatory guidance.Certain factors such as unfavourable developments in macroeconomic conditions adverse changes to state policies and adverse changes to the financial condition of particular local governments may adversely affect the debt repayments of these financing platforms which may in turn materially and adversely affect the Bank’s asset quality financial condition and results of operations.The Bank’s loan classification and provisioning policies may be different in certain respects from those applicable to banks in certain other countries or regions.The Bank classifies its loans using a five-category loan classification system in accordance with the guidelines set forth by the PRC regulators. The five categories are normal special mention substandard doubtful and loss. The Bank assesses its loans for impairment determines a level of allowance for impairment losses and recognises any related provisions made in a year using the five-category classification system. The Bank performs such assessment determination and recognition using the concept of impairment under IFRS 9. For the Bank’s corporate loans classified as substandard or lower the Bank makes an assessment on the impairment allowance on an individual loan basis. For the Bank’s performing corporate loans and all of its retail loans the Bank makes a collective assessment based on its historical loan loss experience. The Bank’s loan classification and provisioning policies may be different in certain respects from those of banks incorporated in certain other countries or regions. As a result the Bank’s loan classification as well as its allowance for impairment losses as determined under the Bank’s loan classification and provisioning policies may differ from those that would be reported if the Bank was incorporated in those countries or regions.The Bank has expanded its wealth management and trust plan businesses in recent years and any adverse developments or changes in relevant regulatory policies could materially and adversely affect the Bank’s business financial condition results of operations and prospects.In recent years with the slowdown in the growth of deposits in the PRC banking industry as a whole competition for deposits among commercial banks has become increasingly intense. In response to such competition PRC commercial banks including the Bank have been expanding their extensive wealth management businesses.– 17 –The Group’s income from extensive wealth management includes the fee and commission income from wealth management asset management and custody business. Such income can be adversely affected by insufficient effective demand and downturn in the capital market. For the year ended 31 December 2023 the Group’s fee and commission income from wealth management amounted to RMB28.466 billion representing a year-on-year decrease of 7.89% of which: (1) income from agency distribution of insurance policies amounted to RMB13.585 billion representing a year-on-year increase of 9.33%; (2) income from agency distribution of wealth management products was RMB5.424 billion representing a year-on-year decrease of 18.37% which was mainly due to the changes in scale and structure of wealth management products; (3) income from agency distribution of funds amounted to RMB5.179 billion representing a year-on-year decrease of 21.52% which was mainly due to the downward trend amid volatility of the capital market resulting in year-on-year decrease in the holding and sales of equity funds with higher fees; (4) income from agency distribution of trust schemes amounted to RMB3.206 billion representing a year-on-year decrease of 19.43% which was mainly due to the decrease in the holding of agency distribution of trust; and (5) income from securities brokerage was RMB731 million representing a year-on-year decrease of 19.05% which was mainly affected by the market conditions and trading activities of Hong Kong’s capital market.Fee and commission income from asset management for the year ended 31 December 2023 amounted to RMB11.474 billion representing a year-on-year decrease of 7.89% which was mainly due to the year-on-year decrease in the daily average scale of products under the management of CMB Wealth Management Company Limited (“CMB Wealth Management”). For the same period commission income from custody business was RMB5.328 billion representing a year-on-year decrease of 8.00% which was mainly due to the decrease in income from equity mutual funds and wealth management custody.As most of the wealth management products issued by the Bank were non-principal-guaranteed products the Bank is not liable for losses suffered by investors in these products in principle. However if investors incur losses on these products the Bank’s reputation may be damaged and its prospects for its wealth management and trust plan businesses and otherwise may suffer. In addition the terms of wealth management products are often shorter than that of the underlying assets. This mismatch subjects the Bank to liquidity risk and requires it to issue new wealth management products sell the underlying assets or otherwise address the funding gap when existing wealth management products mature.PRC regulatory authorities have introduced regulatory policies with respect to operations of wealth management and trust plan businesses by PRC commercial banks. If PRC regulatory authorities implement further regulations restricting the wealth management and trust plan businesses of PRC commercial banks the Bank’s business financial condition results of operations and prospects could be materially and adversely affected.Consolidated quarterly financial information of the Bank has not been audited or reviewed.Where consolidated quarterly financial information is incorporated by reference into this Offering Circular none of such consolidated quarterly financial information in respect of the three months ended 31 March and nine months ended 30 September of each financial year of the Bank has been audited or reviewed by any auditors and such financial information may not provide the same type or quality of information associated with information that has been audited or reviewed. Potential investors must exercise caution when using such data to evaluate the Bank’s financial condition and results of operation and must not place undue reliance on such financial information.– 18 –The Bank is subject to interest rate risk.The Bank’s net interest income is affected by changes in interest rates. The Group’s net interest income represented 63.30% and 63.31% of its total net operating income3 in the years ended 31 December 2022 and 2023 respectively. Increasing competition in the banking industry and further liberalisation of the interest rate regime may result in more volatility in interest rates. Changes in the PBOC benchmark interest rates or volatility in market interest rates may adversely affect the Bank’s net interest income which may affect its business financial condition and results of operations.The PBOC publishes and adjusts benchmark interest rates on loans and deposits from time to time. For example with effect from 22 November 2014 1 March 2015 11 May 2015 28 June 2015 and 26 August 2015 and 24 October 2015 respectively the PBOC lowered the benchmark interest rates on RMB- denominated loans and deposits six times. On 22 November 2014 the PBOC allowed financial institutions to set interest rates on RMB-denominated deposits at up to 120% of PBOC benchmark rates which was increased to 130% and then 150% of PBOC benchmark rates on 1 March 2015 and 11 May 2015 respectively. With effect from 26 August 2015 the PBOC removed the cap on the interest rates on RMB-denominated time deposits with tenors of longer than one year while the cap on the interest rates on RMB-denominated demand deposits and time deposits with tenors up to one year remain unchanged.With effect from 24 October 2015 the PBOC ceased to set upper limits of RMB-denominated deposit interest rates for commercial banks and rural cooperative financial institutions. On the other hand the PBOC continues to liberalise the restrictions on interest rates for loans. For example on 20 July 2013 the PBOC eliminated the minimum interest rate requirements for RMB-denominated loans. On 20 August 2020 the ceiling on private lending interest rate was significantly lowered to 15.4% which was four times the then China loan prime rate of 3.85% from the previous ceiling which was set between 24% to 36%.On 20 May 2024 the ceiling on private lending interest rate was further decreased to 13.8% which was four times the then China loan prime rate of 3.45%. There is no assurance that the ceiling on private lending interest rate will not be further lowered in the future nor is there assurance that such adjustments in interest rate caps will not have a material adverse impact on the Bank’s business financial condition and results of operations.The PRC Banking Regulatory Authority (as defined below) may further liberalise the existing interest rate restrictions in the future. If the existing regulations were substantially liberalised or eliminated loan-deposit spreads in the PRC banking industry may further narrow due to market competition which may materially reduce the Bank’s net interest income. Furthermore the Bank cannot assure that it will be able to diversify its businesses and adjust the composition of its asset and liability portfolios and its pricing mechanism to enable it to effectively respond to the further liberalisation of interest rates.In addition major overseas economies also experienced inflation due to tight energy supply amid geopolitical tensions in 2023 and 2024 which was followed by interest rate hikes announced by central banks around the world (such as the United States Federal Reserve). This could lead to corresponding PBOC interest rate policy adjustments to the benchmark interest rates on loans or deposits or any changes in market interest rates which may negatively impact the Bank’s financial condition and results of operations. For example changes in the PBOC benchmark interest rates could affect the average yield on the Bank’s interest-earning assets and the average cost on its interest-bearing liabilities to different extents and may narrow the Bank’s interest margin leading to a reduction in its net interest income. In particular the yield arising from the Bank’s investment in debt securities is affected by changes in interest rates. As 3 Net operating income is the sum of net interest income net fee and commission income other net income as well as share of profits of joint ventures and associates.– 19 –at 31 December 2023 the Group’s total investment securities and other financial assets4 was RMB3209.473 billion which represented 29.10% of the Group’s total assets. As at 31 December 2022 the Group’s total investment securities and other financial assets was RMB2787.066 billion which represented 27.49% of the Group’s total assets. Changes in market interest rates may affect the yield from the Bank’s investments in debt securities and thus may further adversely affect the Bank’s business financial condition and results of operations.It should also be noted that changes in interest rates changes in relationship between short-term and long-term interest rates or changes in relationship between different types of interest rates can affect the interest rate charged on interest-earning assets to different degrees from the interest rate paid on interest-bearing liabilities. This impact may be increased by the Bank’s inability to adjust to rate changes with respect to the fixed rate portions of its portfolio.A reduction in interest rates for deposits could cause the Bank’s depositors to withdraw their funds from the Bank while an increase in interest rates for loans could result in increases in the financing costs of the Bank’s customers reduce overall demand for loans and increase the risk of customer default. How the Bank manages interest rate volatility generally will determine to a certain extent the impact of such volatility on the Bank’s net interest and dividend income and the Bank cannot assure investors that it will be able to manage such volatility in a manner that does not adversely affect its business financial condition and results of operations.The Bank is subject to currency risk.The value of the RMB against the USD and other currencies fluctuates from time to time and is affected by a number of factors such as changes in China’s and international political and economic conditions and the fiscal and foreign exchange policies prescribed by the PRC government. On 21 July 2005 the PRC government adopted a managed floating exchange rate system to allow the value of the RMB to fluctuate within a regulated band that is based on market supply and demand and with reference to a basket of currencies. On the same day the value of the RMB appreciated by approximately 2% against the USD. The PRC government has since made further adjustments to the exchange rate system. The PBOC further enlarged the floating band for the trading prices on the interbank spot exchange market of the RMB against the USD to 1.0% around the median rate on 16 April 2012. On 17 March 2014 the PBOC decided to further enlarge the floating band for the trading prices on the interbank spot exchange market of RMB against USD to 2.0%. On 11 August 2015 the PBOC announced to improve the central parity of RMB against USD by authorising market-makers to provide parity to the China Foreign Exchange Trading Centre with reference to the interbank foreign exchange market closing rate of the previous day the supply and demand for foreign currencies as well as changes in exchange rates of major international currencies.On the same day the central parity of RMB against the USD depreciated by nearly 2% as compared to 10 August 2015 and further depreciated by nearly 1.6% on 12 August 2015 as compared to 11 August 2015.Following the gradual appreciation against the USD in 2017 the RMB experienced a recent depreciation in value against the USD followed by a fluctuation in 2018 and early 2019. The exchange rate between RMB and USD has been experiencing fluctuations in recent years due to various matters such as geopolitical tensions and economic slowdown around the world. With the development of the foreign exchange market and progress towards interest rate liberalisation and RMB internationalisation the PRC government may in the future announce further changes to the exchange rate system. There can be no assurance that the RMB will not experience significant depreciation or appreciation against the USD or against any other currency in the future. 4 Total investment securities and other financial assets include financial investments at fair value through profit or loss derivative financial assets debt investments at amortised cost debt investments at fair value through other comprehensive income equity investments designated at fair value through other comprehensive income and investments in joint ventures and associates.– 20 –The Bank is subject to currency risk arising from losses incurred by unfavourable exchange rate fluctuations on its foreign exchange exposures resulting from the unmatched currency structure between foreign currency-denominated assets and foreign currency-denominated liabilities. Changes of exchange rates in the future may materially and adversely affect the Bank’s business financial condition and results of operations.The Bank is subject to liquidity risk.Customer deposits are the Bank’s primary funding source. As at 31 December 2022 and 2023 the Group’s total deposits from customers amounted to RMB7535.742 billion and RMB8155.438 billion respectively. However there are many factors affecting the growth of deposits some of which are beyond the Bank’s control such as economic and political conditions the availability of alternative investment choices and retail customers’ changing perceptions toward savings.However the Bank cannot assure investors that its depositors will not withdraw their demand deposits or will roll over their time deposits upon maturity. If the Bank fails to maintain its growth rate in deposits or if a substantial portion of its depositors withdraw their demand deposits or do not roll over their time deposits upon maturity the Bank’s liquidity position financial condition and results of operations may be materially and adversely affected. In case of such events the Bank may need to seek more expensive sources of funding to meet its funding requirements.The Bank’s ability to obtain additional sources of funding may be affected by factors such as deterioration of market conditions and disruptions to financial markets. If the Bank fails to secure required funding on a timely basis or at terms or levels which are acceptable the Bank may face liquidity risk which may adversely affect its business financial condition and results of operations.In addition the Bank relies on the inter-bank money market to obtain a portion of its funding including the portion of funds that are used to manage its liquidity. Any fluctuation in liquidity or funding costs on the inter-bank money market including those fluctuations as a result of financial or other crisis or changes in the central bank’s policies or practices affecting the liquidity of other banking institutions may materially and adversely affect the Bank’s ability to fund its business and manage its liquidity through the inter-bank money market at a reasonable cost or at all.The Bank may not be able to maintain the growth of its retail finance business.The growth in the Bank’s retail banking business has contributed significantly to its operating income and its profitability in recent years. The Group’s profit before tax from retail finance increased from RMB94.178 billion for 2022 to RMB99.913 billion for 2023. The Bank may not be able to maintain its competitive position or sustain the growth of its retail banking business due to increasing market saturation and competition changes in government regulations in the retail banking and credit card segments and other factors any of which may materially and adversely affect the Bank’s financial condition and results of operations.For example on 26 February 2013 the General Office of State Council promulgated the Notice of theGeneral Office of the State Council on Continuing Regulation and Control of Real Estate Market (《国务院办公厅关于继续做好房地产市场调控工作的通知》) which requires banking institutions to carry on strict implementation of the differentiated housing credit policies further implement the policy of down payment ratio and lending rate for loan of the first-set housing rigidly tighten the credit policies for the second set (or more sets) of housing and strictly impose a 20% personal income tax on the profit generated from sale of residential property. Such measures may slow down the development of residential real estate market hinder the increase of housing mortgages and reduce the average amount of housing mortgages – 21 –and thus have an adverse impact on the increase of the Bank’s retail finance business. On 29 September 2014 the PBOC and the former China Banking Regulatory Commission (the “CBRC”) jointlypromulgated the Notice on Further Improving Financial Services for Housing (《关于进一步做好住房金融服务工作的通知》) which allows households owning only one residential property and having paid all mortgages on such property to enjoy the benefit of first-time home buyers under certain circumstances. On 18 August 2023 the Ministry of Housing and Urban-Rural Development the PBOC and the NFRA have promulgated a series of relaxation policies including the Notice on Optimizing the Criteria for Determining the Number of Housing Units in Individual Housing Loans (住房城乡建设部、中国人民银 行、金融监管总局关于优化个人住房贷款中住房套数认定标准的通知) and the Notice on Adjusting and Optimizing the Differential Housing Credit Policy (中国人民银行、国家金融监督管理总局关于调整优化 差别化住房信贷政策的通知). These policies have expanded the scope of buyers who are qualified for first-time mortgage rates and reduced mortgage rates on existing first-home loans. Notwithstanding such relaxation the PRC government has not abandoned its position that real estate should serve residential purposes instead of speculative investment. Therefore it remains uncertain whether these latest relaxation policies will effectively address the slowdown in the PRC’s residential market.The expansion of the Bank’s retail finance businesses also increases the Bank’s exposure to changes in economic conditions affecting Chinese consumers. For example a slowdown in China’s economic development inflationary pressures and interest rate hikes could adversely affect the ability of retail borrowers and credit card holders to make payments thereby increasing the probability of defaults and reducing the demand for retail loans and credit cards. Such a slowdown may also reduce the demand for the Bank’s non-interest-based products and services which could result in a reduction among other things of the Bank’s credit card transaction volume and sales of investment products. Accordingly economic difficulties in China that have a material adverse effect on Chinese consumers could materially and adversely affect the Bank’s financial condition and results of operations.The Bank may be unable to meet regulatory requirements relating to capital adequacy.Following the issuance of Basel III in December 2010 on 27 April 2011 the former CBIRC issued new guidelines setting more stringent capital adequacy leverage liquidity and loan loss provisioning requirements for PRC banks in accordance with the reform of China’s banking industry and the related regulatory framework. On 7 June 2012 the former CBRC further issued the Regulation Governing Capital of Commercial Banks (Provisional) (《商业银行资本管理办法(试行)》) (the “Capital Regulation”) which in view of the new international capital regulatory framework and the spirit of Basel II and Basel III establish a unified and comprehensive regulatory system for capital adequacy re-define the term “capital” expand the scope of capital risk coverage and set forth different regulatory requirements for commercial banks with different capital adequacy levels. Also the rules set forth a new method for calculate the capital adequacy ratio and provide a transition period for PRC commercial banks to meet their capital adequacy requirements progressively. The Capital Regulation has been effective since 1 January 2013. Pursuant to the Notice of Interim Arrangement for Implementation of the Capital Regulation (《中国银监会关于实施<商业银行资本管理办法(试行)>过渡期安排相关事项的通知》) the former CBRC encouraged the commercial banks which had satisfied the capital adequacy requirements in the Capital Regulation before the end of 2012 to continue to meet such requirements during the transition period and the commercial banks which had failed to meet such requirements by the end of 2012 to gradually improve their capital adequacy during the transition period by satisfying the year-by-year capital adequacy requirements. On 1 January 2024 the NFRA issued the Regulation Governing Capital of Commercial Banks (《商业银行资本管理办法》) (the “New Capital Regulation”) replacing the existing Capital Regulation. Consequently the Bank is obligated to maintain a minimum core tier one capital adequacy ratio of 5% a minimum tier one capital adequacy ratio of 6% and a minimum capital adequacy ratio of 8%. The New Capital Regulation also imposes higher standards for the quality and quantity of the Bank’s capital and after the implementation of these measures there are more stringent definition of capital and further improved regulatory standards for capital instruments.– 22 –In December 2020 the PBOC and the former CBIRC issued the Assessment Methods for Systemically Important Banks (《系统重要性银行评估办法》) which aimed to release a list of systemically important banks in China annually to place these banks under differentiated supervision so as to reduce the possibility of their incurring material risks and prevent systemic risks. The systemic importance scores of sample banks shall be calculated by using quantitative assessment indicators and supervisory judgments shall be made based on other quantitative and qualitative information so as to comprehensively assess the systemic importance of sample banks. In September 2021 the PBOC and the former CBIRC further issuedProvisions on the Additional Regulation of Systemically Important Banks (《系统重要性银行附加监管规定(试行)》) which subjected the sample banks to more additional capital requirements. The PBOC the former CBRC the former CBIRC or the NFRA (each of the PBOC the former CBRC the former CBIRC or the NFRA as the case may be the “PRC Banking Regulatory Authority”) may based on other quantitative or qualitative auxiliary information give supervisory judgment recommendation for putting a sample bank with a systemic importance score of less than 100 points on the list of systemically important banks and submit the recommendation to the FSDC Office together with the initial list.As at 31 December 2022 the core Tier 1 capital adequacy ratio Tier 1 capital adequacy ratio and capital adequacy ratio of the Group under the advanced measurement approach set out in the Capital Regulation were 13.68% 15.75% and 17.77% respectively representing increases of 1.02 0.81 and 0.29 percentage point respectively as compared with those at the end of 2021. As at 31 December 2023 the core Tier 1 capital adequacy ratio Tier 1 capital adequacy ratio and capital adequacy ratio of the Group under the advanced measurement approach set out in the Capital Regulation were 13.73% 16.01% and 17.88% respectively representing increases of 0.05 0.26 and 0.11 percentage point respectively as compared with those at the end of 2022.As the Bank continues to carry out its business operations in the future it may be required from time to time to raise additional core or supplementary capital in order to continue to meet the minimum capital adequacy requirements prescribed by the PRC Banking Regulatory Authority. To raise additional capital in order to meet such minimum capital adequacy requirement the Bank may need to issue additional equity securities that qualify as core capital or additional instruments that qualify as supplementary capital. However the Bank’s ability to obtain additional capital may be restricted by a number of factors including its future business financial condition results of operations and cash flows; necessary government regulatory approvals; its credit rating; general market conditions for capital-raising activities by commercial banks and other financial institutions; and economic political and other conditions both within and outside the PRC.The Bank cannot assure investors that it will be able to obtain additional capital on commercially acceptable terms or in a timely manner or at all. As such there can be no assurance that the Bank will continue to be able to comply with the capital adequacy requirements. Furthermore the PRC Banking Regulatory Authority may increase the minimum capital adequacy requirements or change the methodology for calculating regulatory capital or capital adequacy ratios or the Bank may otherwise be subject to new capital adequacy requirements. If the Bank’s capital adequacy ratio does not meet the regulatory requirements the regulatory authorities may adopt certain correction measures including but not limited to restricting the growth of the Bank’s risk-bearing assets suspending all of its operation activities other than low-risk business as well as restricting its dividend payment which may adversely affect the Bank’s business financial condition and results of operations.– 23 –The Bank’s expanding range of products and services exposes it to new risks.The Bank intends to expand its range of products and services in order to meet the needs of its customers and to expand its business. Some of the Bank’s new products and services in the past have contributed significantly to its operating results or are expected to provide it with competitive advantages such as the All-in-one Card debit cards the All-in-one Net online banking services new fintech infrastructure and the Sunflower wealth management services as well as certain loan products rolled out to small businesses (through the Bank’s small enterprise credit centres) and to the Bank’s corporate customers with operations in both the PRC and Hong Kong (through CMB Wing Lung Bank Limited or otherwise). Expansion of the Bank’s business activities exposes it to certain risks and challenges including the following: * the Bank may not have sufficient experience or expertise in certain new products and services and may not compete effectively in these areas; * the Bank’s new products and services may not be accepted by its customers or meet its expectations for profitability; * the Bank may need to hire additional qualified personnel who may not be available or available on commercially reasonable terms; * the Bank may lack adequate financial operational management and other human resources to support the new products and services; * the Bank may fail to obtain regulatory approval for its new products or services; and * the Bank may not be successful in enhancing its risk management and internal control capabilities and information technology systems to support a broader range of products and services.If the Bank is not able to achieve the intended results with respect to its new products and services its business financial condition and results of operations may be materially and adversely affected.The Bank may fail to effectively implement risk management and internal control policies and procedures and introducing certain information technology systems to assist it with its risk management and internal controls.The Bank cannot assure investors that its risk management and internal control policies and procedures will adequately control or protect it against all credit and other risks. The Bank also cannot assure investors that its employees will be able to consistently comply with or correctly apply these policies and procedures.The Bank’s risk management capabilities are limited by the information tools or technologies available to it. For example the Bank may not be able to effectively monitor credit risk due to limited information resources or tools. The Bank’s ability to operate its risk management systems and monitor and analyse the effectiveness of such systems is still subject to continued testing. If the Bank is not effective in improving its risk management and internal control policies procedures and systems or if the intended results of such policies procedures or systems are not achieved in a timely manner the Bank’s asset quality business financial condition and results of operations may be materially and adversely affected.– 24 –The Bank may not be able to detect and prevent fraud or other misconduct committed by its officers employees or third parties.There have been a number of publicised cases involving fraud or other misconduct by officers employees or third parties in connection with financial institutions in China in recent years. Fraud and other misconduct by officers or employees (at the headquarter or branch levels) or third parties may be difficult to detect and prevent and could subject the Bank to financial losses and sanctions imposed by governmental authorities or could seriously harm the Bank’s reputation. Types of misconduct by the Bank’s officers or employees in the past have included among other things theft embezzlement or misappropriation of customer funds; mishandling of customer deposits and settlement of payment transactions; improper extensions of credit; improper accounting; fraud; and acceptance of bribes. Types of possible misconduct by third parties against the Bank may include among other things fraud theft robbery and certain armed crimes. The types and incidents of fraud and other misconduct by officers employees or third parties against the Bank may go beyond those detected in the past. In addition the Bank’s officers or employees may commit errors or take improper actions that could subject it to financial or other claims and regulatory actions. Although the Bank has in the past and is at present continually increasing its efforts to detect and prevent officer employee and third-party fraud or other misconduct it is not always possible to detect or prevent such activities and the precautions the Bank takes may not be effective in all cases. The Bank may also need to implement more extensive or different measures and procedures in the future in response to changes in the legal and regulatory environment or to changes in technology and business practices which could result in additional cost and may not be effective in strengthening the Bank’s compliance frameworks as anticipated. The Bank cannot assure investors that fraud or other misconduct whether involving past acts that have gone undetected or future acts will not have a material adverse effect on its reputation results of operations and business prospects.The Bank is subject to reputational and general confidence risks related to its business operations.With the rapid development of the financial industry and social media technology the public (including customers of the Bank) is paying increasing attention to the banking industry and communicating any negative sentiments widely through social media or other form of internet network related to banks’ services quality their operations and management and compliance issues. Such communication may reflect negative feedback from the Bank’s customers investors and other stakeholders about the Bank’s services operations management or compliance with applicable laws and regulations or codes of conduct.Such adverse publicity if not managed swiftly or adequately could deter existing or potential customers from using the Bank’s services and may adversely affect the Bank’s operations and business causing a liquidity crisis in an extreme case.Within the banking industry the banks have close interbank relationships with one another and interbank deposits and lending are relatively common. If a certain bank does not operate properly or becomes insolvent a chain reaction may occur which may trigger a confidence crisis towards the whole banking industry and adversely affect the Bank’s financial condition and results of operations.The Bank has expanded its business into jurisdictions other than the PRC which has increased the complexity of the risks that it faces.In recent years the Bank has taken actions to expand its international operations. On 8 October 2008 the Bank’s New York branch which is located in the borough of Manhattan of New York City commenced operations. In January 2009 the Bank completed the acquisition of Wing Lung Bank a banking group primarily operating in Hong Kong with branch offices in Los Angeles the Cayman Islands Macau and the PRC. The Bank opened a representative office in London in June 2009 and one in Taipei in March 2011. In November 2013 the Bank opened its Singapore branch. In March 2015 the Bank opened its Luxembourg branch. In 2016 the Bank opened its London branch. In 2017 the Bank opened its Sydney branch. The Bank’s expansion into jurisdictions outside of the PRC may subject it to new regulatory and operational challenges and risks and has also increased the complexity of its risks in a number of areas – 25 –including currency risk interest rate risk regulatory and compliance risk reputational risk and operational risk. The loan portfolio of the Bank’s international branches includes foreign currency-denominated loans to Chinese companies engaged in international trade. This exposes it to additional risks including default risk resulting from the failure in the performance of the import or export agreements by any party trade protectionist measures or other factors and the Bank’s inexperience in various aspects of the economic and legal framework in overseas markets. Adverse market conditions in these international jurisdictions may result in mark-to-market and realised losses on the investment assets held by the Bank’s overseas branches and increase their cost of funding.Furthermore despite the Bank’s efforts to comply with all applicable regulations in all the jurisdictions in which it operates there may be incidences of the Bank’s failure to comply with the regulations in certain jurisdictions. Regulators have the power to bring administrative or judicial proceedings against the Bank or its employees representatives agents and third-party service providers which could result among other things in suspension or revocation of one or more of the Bank’s licences cease and desist orders fines civil penalties criminal penalties or other disciplinary actions. In addition the global financial crisis has led and may continue to result in significant regulatory changes in various jurisdictions including those in which the Bank has operations. These changes may include changes with respect to capital and liquidity ratios cross-border capital flows and consumer protection. The extent and impact of such changes is difficult to anticipate and estimate and such changes could have an adverse impact on the Bank’s growth capital adequacy and profitability. If the Bank is unable to manage the risks resulting from its international expansion its business reputation results of operations and financial condition may be adversely affected.The Group may be affected by Basel III Reforms and related reforms and the Financial Institutions (Resolution) Ordinance.The Basel Committee has proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks which are designed in part to ensure that capital instruments issued by such banks fully absorb losses before taxpayers are exposed to loss (the “Basel III Reforms”) the principal elements of which are set out in its papers dated 16 December 2010 (as revised in June 2011) and its press release dated 13 January 2011. The implementation of the Basel III Reforms in the PRC is currently under way. In addition to Basel III Reforms many jurisdictions have started to propose various reforms related or similar to the Basel III Reforms. As the Group operates its business globally it may the subject of recent international regulatory guidance and proposals for reform.In particular any Notes issues made by the Hong Kong Branch of the Bank may be subject to local regulations. On 7 July 2017 the Financial Institutions (Resolution) Ordinance (Cap. 628) of Hong Kong (the “FIRO”) came into operation. The FIRO provides for among other things the establishment of a resolution regime for authorised institutions and other within scope financial institutions in Hong Kong which may be designated by the relevant resolution authorities which may in the future include members of the Group (a “FIRO Group Entity”). The resolution regime seeks to provide the relevant resolution authorities with administrative powers to bring about timely and orderly resolution in order to stabilise and secure continuity for a failing authorised institution or within scope financial institution in Hong Kong.In particular in the context of a resolution of any FIRO Group Entity the relevant resolution authority may have the ability to resolve other entities within the Group as if they were themselves a within scope financial institution for the purposes of FIRO and take certain actions and make certain directions in relation to such entities. Any such actions could potentially affect contractual and property rights relating to the relevant entity. The implementation of FIRO remains untested and certain details relating to FIRO has been or will be set out through secondary legislation and supporting rules. Therefore the Bank is unable to assess the full impact of FIRO on the financial system generally the Bank’s counterparties the Bank any of its consolidated subsidiaries or other Group entities the Bank’s operations and/or its financial position.– 26 –The Bank’s acquisitions and the integration of acquired businesses may not result in the benefits anticipated.The Bank has in the past and may in the future continue expanding its business by acquiring other businesses. On 15 January 2009 the Bank completed the acquisition of 100% equity interest in Wing Lung Bank in order to expand its operations in Hong Kong. The Bank is in the process of integrating the business of CMB Wing Lung Bank Limited and its subsidiaries (“CMB Wing Lung Group”). However there is no guarantee that the Bank’s acquisition will achieve the anticipated positive results including results relating to the total cost of integration the time required to complete the integration the new business developed and the Bank’s overall performance after the acquisition or price for its common stock. Integration of an acquired business can be complex and costly involving among other things combining relevant accounting and data processing systems and management controls managing relevant relationships with employees clients depositors and other business partners and reconciling different corporate cultures. An unsuccessful integration process may result in business disruptions loss of clients and depositors inconsistencies in standards controls procedures and policies and loss of key employees.Integration efforts could also divert management attention and resources and require additional costs which may adversely affect the Bank’s operations.As the Bank’s wholly-owned subsidiary CMB Wing Lung Group’s financial condition and business operations directly affect the Bank’s financial condition and business operations. For the years ended 31 December 2022 and 2023 CMB Wing Lung Group recorded profit attributable to shareholders of HK$2.896 billion and HK$1.605 billion respectively. The Bank cannot assure investors that CMB Wing Lung Group will continue to be profitable or its profitability will maintain at a desirable level. If CMB Wing Lung Group recognises a net loss the Bank’s results of operations could be adversely affected.In addition the acquisition of CMB Wing Lung Group subjects the Bank to some additional risks that the business of CMB Wing Lung Group is subject to such as the economic and political condition of Hong Kong regulatory changes affecting the business of commercial banks in Hong Kong risks related to the insurance and securities brokerage business conducted by CMB Wing Lung Group companies and the international banking business conducted through CMB Wing Lung Group’s overseas branches and any occurrence of a natural disaster or health epidemics in Hong Kong. If CMB Wing Lung Group’s business operation deteriorates as a result of any of the foregoing factors the Bank’s financial condition and results of operations could be adversely affected. Furthermore the acquisition of CMB Wing Lung Group exposes the Bank to foreign exchange risks. The Bank needs to convert the financial statements of CMB Wing Lung Group originally presented in Hong Kong dollars to Renminbi in order to prepare the Bank’s consolidated financial statements. A significant depreciation of the Hong Kong dollar against the Renminbi may adversely affect the Bank’s results of operations and financial conditions. The Bank may also be subject to similar risks and difficulties in connection with any future acquisitions.The Bank is subject to credit risk in respect of certain commitments and guarantees.In the ordinary course of business the Bank makes commitments and guarantees that are not reflected on its balance sheet including the provision of financial guarantees and letters of credit to guarantee the performance of the Bank’s customers to third parties and bank acceptances. The Bank is subject to credit risk on its commitments and guarantees because certain commitments and guarantees may need to be fulfilled as a result of non-performance by its customers. If the Bank is not able to obtain payment from its customers in respect of these commitments and guarantees its financial condition and results of operations may be adversely affected.– 27 –The Bank is subject to counterparty risks in its derivative transactions.The Bank acts primarily as an intermediary in domestic and international foreign exchange and derivative markets and currently has foreign currency forward and swap arrangements with a number of domestic and international banks financial institutions and other entities. The Bank has also entered into interest rate swap arrangements. As at 31 December 2023 the notional amount of the Group’s outstanding derivative financial instruments amounted to RMB3387.252 billion and the fair values of its outstanding derivative assets and liabilities amounted to RMB18.733 billion and RMB17.443 billion respectively. As at 31 December 2022 the notional amount of the Group’s outstanding derivative financial instruments amounted to RMB2509.725 billion and the fair values of its outstanding derivative assets and liabilities amounted to RMB18.671 billion and RMB18.636 billion respectively. The Bank cannot assure investors that counterparties with significant exposures will not face difficulty in paying the amounts on derivative contracts when due which may result in financial losses to the Bank.The Bank’s business is highly dependent on the proper functioning and improvement of its information technology systems.The Bank’s business is highly dependent on the ability of its information technology systems to accurately process a large number of transactions across numerous and diverse markets and its broad range of products in a timely manner. The proper functioning of the Bank’s financial control risk management accounting customer service and other data processing systems together with the communication networks between its various branches and sub-branches and its main data processing centres are critical to the Bank’s business and its ability to compete effectively. The Bank has backup data for its key data processing systems and has established a backup system to carry on principal functions in the event of a catastrophe or a failure of its primary systems. However the Bank cannot assure investors that its operations will not be materially disrupted if there is a partial or complete failure of any of these primary information technology systems or communications networks. Such failures could be caused by among other things physical or electronic break-ins cyber-attacks software bugs computer virus attacks or conversion errors due to system upgrading extended power outages failure of service from the Bank’s telecommunications provider fires and natural disasters.The Bank’s business generates and processes a large quantity of personal and transaction data. The Bank faces risks inherent in handling large volumes of data and in protecting the security of such data. The Bank is also required to protect the personal data and confidential information of its customers under various laws regulations and rules. Any security or privacy breach of these databases could expose the Bank to liability including regulatory fines or penalties increase its expenses relating to the resolution of these breaches and the mitigation of their impact on affected individuals harm the Bank’s reputation and deter customers which could have a material adverse effect on the Bank’s business financial condition financial returns and results of operations.The Bank is subject to domestic and international laws relating to the collection use retention security and transfer of personally identifiable information with respect to its customers and employees. In many cases these laws do not only apply to third-party transactions but may also restrict transfers of personally identifiable information among the Bank and its branches and subsidiaries in other jurisdictions. Several jurisdictions have passed laws in this area and other jurisdictions are considering imposing additional restrictions. These laws continue to develop and may vary from jurisdiction to jurisdiction. Complying with emerging and changing international requirements may cause the Bank to incur substantial costs or require it to change its business practices and failure to comply with any data protection laws could subject the Bank to significant penalties and negative publicity and severely disrupt its operations.– 28 –The proper functioning of the Bank’s information technology also depends on accurate and reliable data and other system input which is subject to human errors. Any failure mistake or delay in recording or processing the Bank’s transaction data could subject it to claims for losses and regulatory fines and penalties. In addition any security breach caused by unauthorised access to information or systems loss or corruption of data and malfunction of software hardware or other computer equipment could have a material adverse effect on the Bank’s business reputation results of operations and financial condition.The Bank’s ability to remain competitive will depend in part on its ability to upgrade its information technology systems on a timely and cost-effective basis. In addition the information available to and received by the Bank through its existing information technology systems may not be timely or sufficient for it to manage risks and plan for and respond to market changes and other developments in its current operating environment. As a result the Bank is making and intends to continue to make investments to improve or upgrade its information technology systems. Any substantial failure to improve or upgrade the Bank’s information technology systems effectively or on a timely basis could materially and adversely affect its competitiveness financial condition and results of operations.The Bank’s largest shareholder is able to exercise significant influence over it.The Bank does not have any controlling shareholder and de facto controller. However China Merchants Group Ltd. and its subsidiaries owned in aggregate 29.97% of the Bank’s outstanding shares as at 31 December 2023 remaining the same as the shareholding as at 31 December 2022. As such while fully complying with the Bank’s articles of association and the applicable laws and regulations China Merchants Group Ltd. may be able to exercise significant influence over the Bank’s business including matters relating to: * the timing and amount of the distribution of dividends; * the issuance of new securities; * the election of directors and supervisors; * the Bank’s business strategies and policies; * any plans relating to mergers acquisitions joint ventures investments or divestitures; and * amendments to the Bank’s articles of association.If the interests of China Merchants Group Ltd. are not consistent with the interests of the Noteholders it is possible that China Merchants Group Ltd. may take actions that are not in the best interests of the Noteholders.The Bank is subject to various PRC and overseas regulatory requirements and its failure to fully comply with such requirements could materially and adversely affect the Bank’s business financial condition results of operations and its reputation.The Bank is subject to various PRC and overseas regulatory requirements and the PRC and overseas regulatory authorities conduct periodic inspections examinations and inquiries in respect of the Bank’s compliance with such requirements. These inspections examinations and inquiries have from time to time revealed weaknesses in certain areas of the Bank’s operations such as risk management and internal controls. On occasion the Bank has failed to meet certain requirements and guidelines set by the PRC – 29 –regulatory authorities or was found to have violated certain regulations. The Bank cannot assure investors that it will be able to meet all the applicable regulatory requirements and guidelines or comply with all the applicable regulations at all times or that it will not be subject to sanctions fines or other penalties in the future as a result of non-compliance. If sanctions fines and other penalties are imposed on the Bank for failing to comply with applicable requirements guidelines or regulations its business financial condition results of operations and reputation may be materially and adversely affected.In particular the Bank may not be able to detect money laundering and other illegal or improper activities fully or on a timely basis which could expose it to additional liability and harm its business or reputation.The Bank is required to comply with applicable anti-money-laundering anti-terrorism laws economic sanctions and other regulations in the PRC the United States Hong Kong the Cayman Islands the United Kingdom the European Union and other jurisdictions where the Bank has operations. These laws and regulations require it among other things to adopt and enforce “know your customer” policies and procedures and to report suspicious and large transactions to the applicable regulatory authorities in different jurisdictions. Some branches of the Bank have in the past been subject to administrative fines and penalties imposed by regulatory agencies in the PRC for among other things incidences of non- compliance with the PRC anti-money laundering rules. While the Bank has adopted policies and procedures aimed at detecting and preventing the use of its network for money laundering activities and by terrorists and terrorist-related organisations and individuals generally such policies and procedures may not completely eliminate instances where the Bank may be used by other parties to engage in money laundering and other illegal or improper activities. The United States currently imposes various economic sanctions which are administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) and which apply only to U.S. persons and in certain cases to foreign subsidiaries of U.S.persons or to transactions involving certain items subject to U.S. jurisdiction. Similar sanctions are administered by the PRC European Union United Kingdom Hong Kong United Nations Security Council and other applicable jurisdictions. These sanctions are intended to address a variety of policy concerns among other things denying certain countries and certain individuals and entities the ability to support international terrorism and to pursue weapons of mass destruction and missile programmes.Countries and regions which are currently subject to the most comprehensive sanctions include Crimea region the so-called Donetsk People’s Republic the so-called Luhansk People’s Republic Cuba Iran Syria and North Korea and following the military conflict between Russia and Ukraine a broad range of sanctions and export controls have been imposed by the United States European Union United Kingdom Japan Singapore Australia and Ukraine on Russia and non-government controlled areas of Ukraine with measures adopted in response by Russia.Sanctions laws are subject to change sometimes with little advance notice. The Bank has mandatory policies and controls to comply with the relevant sanction programmes. In addition the Group may from time to time engage in business activities in countries or with entities that are the subject of certain sanctions. Notwithstanding that such business activities may not themselves be subject to sanctions the Group may face secondary sanctions if it is determined to be providing material support to countries or entities that are the subject of sanctions. The Bank believes it is in compliance with the economic sanctions that are applicable to the Group’s activities. However if the Group is in the future determined to have engaged in any prohibited transactions or otherwise violated applicable sanctions regulations the Group could be subject to penalties and sanctions and its reputation and ability to conduct future business in the relevant jurisdictions may be materially and adversely affected. To the extent the Bank may fail to fully comply with applicable laws and regulations the relevant government agencies to whom it reports have the power and authority to impose fines and other penalties on the Bank. In addition the Bank’s business and reputation could suffer if customers use the Bank for money laundering or illegal or improper purposes.– 30 –The Bank’s business and operations are directly affected by changes in China’s policies laws and regulations relating to the banking industry such as those affecting the extent to which the Bank can engage in specific businesses as well as changes in other governmental policies. The banking regulatory regime in China is currently undergoing significant changes some of which are applicable to the Bank and may result in additional costs or restrictions on the Bank’s activities. The Bank cannot assure investors that the policies laws and regulations governing the banking industry will not change in the future or that any such changes will not materially and adversely affect its business financial condition and results of operations nor can the Bank assure investors that it will be able to adapt to all such changes on a timely basis. In addition there may be uncertainties regarding the interpretation and application of new policies laws and regulations. Failure to comply with the applicable policies laws and regulations may result in fines and restrictions on the Bank’s activities which could also have a significant impact on the Bank’s business.The Bank is subject to risks related to PBOC’s changes in filing requirements.On 11 January 2017 the PBOC issued the Circular of the People’s Bank of China on the Macro-prudenceManagement of Cross-border Financing in Full Aperture (《中国人民银行关于全口径跨境融资宏观审慎管理有关事宜的通知》) (the “Cross-border Financing Circular”) which came into effect on the same date. The Cross-border Financing Circular established a mechanism aimed at regulating cross-border financing activities conducted by domestic institutions including domestic enterprises and financial institutions other than the governmental financing platforms and real estate enterprises based on the capital or net asset of the borrowing entities using a prudent management principle on a macro nationwide scale.Neither the PBOC nor the State Administration of Foreign Exchange (the “SAFE”) has promulgated implementation rules of the Cross-border Financing Circular as at the date of this Offering Circular. The filing process for the aforesaid regulations and the interpretation and enforcement of the Cross-border Financing Circular thus involve substantial uncertainties. There is also uncertainty as to whether the Issuer will fall under the Cross-border Financing Circular.Certain PRC regulations limit the Bank’s ability to diversify its investments and as a result a decrease in the value of a particular type of investment may have a material adverse effect on the Bank’s financial condition and results of operations.As a result of current PRC regulatory restrictions substantially all of the Bank’s RMB-denominated investment assets are concentrated in a limited number of investments permitted for PRC commercial banks such as PRC government bonds bonds issued by PRC policy banks bonds and subordinated notes issued by PRC commercial banks PBOC bills and commercial paper issued by qualified domestic corporations. These restrictions on the Bank’s ability to diversify its investment portfolio limit its ability to seek returns on its investments which are comparable with those of banks in other countries or to manage the Bank’s liquidity in the same manner as banks in other countries. In addition the Bank is exposed to a certain level of risk as a result of the concentration of its RMB-denominated investments assets. For example any deterioration of the financial condition of commercial banks in China would increase the risks associated with holding their bonds and subordinated notes. A decrease in the value of any of these types of investments could have a material adverse effect on the Bank’s financial condition and results of operations.– 31 –The Bank does not possess the relevant land use certificates or building ownership certificates for some of its properties and the Bank may be required to seek alternative premises for some of its offices or business premises due to its landlords’ lack of relevant title certificates for some leased properties.The Bank may not be able to obtain certificates for all of its properties and cannot assure investors that its ownership rights would not be adversely affected in respect of properties for which it is unable to obtain the relevant title certificates. If the Bank ceases to hold these properties due to the failure to obtain the relevant land use right certificates or building ownership certificates or is forced to relocate any of the operations it conducts on the affected properties it may incur additional costs as a result of such relocation.In addition the Bank leases a large number of properties in China primarily as business premises for its branches and sub-branches. Some of these properties were leased from lessors who were not able to provide the title certificates or documents evidencing the authorisation or consent of the owners of such properties and who did not register the lease. As a result the validity of the Bank’s leases may be subject to legal challenge. In addition the Bank cannot assure investors that it would be able to renew its leases on terms acceptable to it upon their expiration. If any of the Bank’s leases were terminated as a result of challenges by third parties or if it failed to renew them on terms acceptable to it upon expiration the Bank may be forced to relocate affected branches and sub-branches and incur additional costs associated therewith and its business financial condition and results of operations may be adversely affected.The Bank may not be able to hire train or retain a sufficient number of qualified staff.The Bank relies upon the continued service and performance of its employees including its senior management as most aspects of the Bank’s business depend on the quality of its professional staff.Therefore the Bank devotes considerable resources to recruiting and training these personnel. However the Bank faces increased competition in recruiting and retaining these individuals including its senior management as other banks are competing for the same pool of potential employees. In addition the Bank’s employees may resign at any time and may seek to divert customer relationships that they have developed while working for the Bank. Most of the Bank’s employees are not party to long-term employment contracts with the Bank. The loss of members of the Bank’s senior management team or professional staff may have a material adverse effect on its business and results of operations.Any future occurrence of natural disasters or outbreaks of contagious diseases in the PRC may have a material adverse effect on the Bank’s business financial condition and results of operations.The PRC has experienced natural disasters like earthquakes floods and drought in the past few years. Any future occurrence of severe natural disasters in the PRC may adversely affect its economy and in turn the Bank’s business financial condition and results of operations. There is no guarantee that any future occurrence of natural disasters or outbreak of avian influenza SARS H5N1 flu H1N1 flu H7N9 flu COVID-19 pandemic or other epidemics or the measures taken by the PRC government or other countries in response to a future outbreak of these epidemics will not seriously interrupt the Bank’s operations or its customers which may have a material adverse effect on the Bank’s business financial condition and results of operations.– 32 –RISKS RELATING TO THE BANKING INDUSTRY IN THE PRC The Bank’s business is inherently subject to market fluctuations and general economic conditions as well as PRC’s economic political and social conditions as well as government policies.A substantial majority of the Bank’s businesses assets and operations are located in the PRC. Accordingly the Bank’s business prospects financial condition and results of operations are to a significant degree subject to the economic political and legal developments in the PRC. The PRC government exercises significant control over the PRC’s economic growth by allocating resources setting monetary policy and providing preferential treatment to particular industries or companies. Since 1979 the PRC government has pushed forward a large number of economic reform measures to introduce market forces and promote the establishment of sound corporate governance structure. Such economic reform measures may be adjusted modified or applied according to different industries and different regions of the country. As a result the Bank may not benefit from certain of such measures. In addition the PBOC controls monetary supply through open market operations and adjustments to the deposit reserve ratio and rediscount rate in order to achieve targeted control over the economy. As commercial banks are a major means to implement monetary policy changes in monetary policy will affect their operations and profitability. If the Bank cannot timely adjust its operating strategy in response to the changes in monetary policy its business financial condition and results of operations may be adversely affected.The Bank’s business is also inherently subject to capital market fluctuations and general economic conditions in the PRC and globally. Market factors including economic growth rates inflation deflation interest rates credit spreads equity prices real estate markets energy prices foreign currency exchange rates consumer spending business investment government spending and the volatility and strength of the capital markets all affect the business and economic environment in the PRC and globally and ultimately the amount and profitability of the Bank’s business. In particular uncertain economic conditions volatility and disruptions in global capital markets such as those that occurred in late 2008 and 2009 during the global financial crisis the COVID-19 pandemic the conflict in Gaza Strip and the military conflict between Russia and Ukraine which has also resulted in the further imposition by the United States and other nations of sanctions and other restrictive actions against certain banks companies and individuals in Russia can have an adverse effect on the Bank.The economic recovery since the global financial crisis has been slow with economic growth rates in major economies such as Europe the United States Japan and the PRC generally remaining persistently lower than pre-crisis levels. Moreover there are on-going concerns about European sovereign debt levels and the consequences for economic growth and investor confidence in the Eurozone the prolonged period of uncertainty around the exit of the United Kingdom from the European Union (“Brexit”) political gridlock in the United States over government spending and debt levels and the consequences for economic growth and investor confidence in the United States and the “tapering” of the US Federal Reserve’s quantitative easing programme. There is also considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the central banks and financial authorities of some of the world’s leading economies including the PRC. While some governments worldwide are implementing or may implement “exit strategies” (in the form of reduced government spending higher interest rates or otherwise) with respect to the economic stimulus measures adopted in response to the global financial crisis such strategies may for reasons related to timing magnitude or other factors have the unintended consequence of prolonging or worsening global economic and financial difficulties.– 33 –As measured by GDP the PRC has been one of the world’s fastest growing economies in recent years.China’s real GDP growth was 8.1% in 2021 3.0% in 2022 and 5.2% in 2023 respectively. However the PRC may not be able to sustain such a growth rate. During the recent global financial crisis and economic slowdown the growth of the PRC’s GDP slowed down. Economic development in the PRC in recent year faced and may continue to face uncertainties and potential risks arising from the weakening traditional growth drivers and diminishing demographic advantages significant overcapacity the threat of a real estate market downturn and increasing risks associated with credit granted to local government financing platforms and the shadow banking system while the banking industry faces continuous increases in non-performing loans increasing complexity of business structures and the acceleration of interest rate liberalisation.In addition China’s economic growth may slow due to weakened exports as well as uncertainty caused by the trade-war between the United States and the PRC. Starting in March 2018 the United States imposed tariffs on steel and aluminium imports from China and later on 6 July 2018 the United States imposed 25% tariffs on U.S.$34 billion worth of Chinese goods as part of President Donald Trump’s tariffs policy. In turn the PRC responded with similarly sized tariffs on United States’ products. Significant further tariffs have been imposed by both countries since then. In January 2020 China and the United States signed the first stage of trade deal which among other things included a rollback by the United States of some existing tariffs. However significant tariffs remain and it is unclear how much economic relief the first stage of trade deal will offer. In July 2020 the United States imposed sanctions on certain Chinese companies from purchasing U.S. technology and products without a special license. Through various Executive Orders most recently in June 2021 the United States further determined that certain Chinese firms are allegedly owned or controlled by the Chinese military. It remains unclear whether the United States will impose further sanctions on more Chinese companies in the future or vice versa.In light of the high level of interdependence of the global economy any potential market and economic downturns economic slowdown or geopolitical uncertainties in the PRC its neighbouring countries or regions or the rest of the world may exacerbate the risks relating to the PRC capital markets. In addition global economic uncertainty and the slowdown in the PRC economic growth have precipitated and may continue to raise the possibility of fiscal monetary regulatory and other governmental actions. The Bank cannot predict whether or when such actions may occur nor can the Bank predict what ultimate impact if any such actions or any other governmental actions could have on its business results of operations and financial condition. There can be no assurance that the PRC’s economy or the global economy will continue to improve or maintain sustainable growth.Uncertainties in the global and the PRC’s economies may adversely affect the Bank’s business financial condition and results of operations in many ways including among other things: * during a period of economic slowdown there is a greater likelihood that more of the Bank’s customers or counterparties could become delinquent in respect of their loan repayments or other obligations to the Bank which in turn could result in a higher level of non-performing loans allowance for impairment losses and write-offs; * the increased regulation and supervision by the financial services industry in response to the financial crisis in certain jurisdictions where the Bank operates may restrict its business flexibility and increase its compliance costs; * the value of the Bank’s investments in the equity and debt securities issued by overseas governments and financial institutions may significantly decline; * the Bank’s ability to raise additional capital on favourable terms or at all could be adversely affected; and * trade and capital flows may further contract as a result of protectionist measures being introduced in certain markets which could cause a further slowdown in economies and adversely affect the Bank’s business prospects.– 34 –The Bank faces increasingly intense competition in China’s banking industry and competition from other investment and financing channels.The banking industry in China is becoming increasingly competitive. The Bank faces competition in all of the Bank’s principal areas of business from commercial banks where the Bank has operations. On 1 July 2013 the General Office of the State Council of the PRC issued Guidance Letter regarding FinancialSupport for Promoting Economic Restructuring and Transformation (《国务院办公厅关于金融支持经济结构调整和转型升级的指导意见》) (the “Guidance Letter”). The Guidance Letter among other things encourages investment by private-sector capital in financial institutions and the establishment of privately-owned banks. The Guidance Letter provides a policy direction to the increasing involvement of private-sector capital in the financial industry in China. The Bank may face increasing competition from privately-owned banks in the future.The Bank competes with competitors for substantially the same loan deposit and fee- and commission- based products and services customers. Such competition may materially and adversely affect the Bank’s business and future prospects by for example reducing the Bank’s market share in its principal products and services reducing its fee and commission income affecting the growth of its loan or deposit portfolios and their related products and services and increasing competition for soliciting senior management talent and qualified professional personnel.In addition the Bank may face competition from direct corporate financing such as the issuance of securities in the domestic and international capital markets. The domestic securities markets have experienced and are expected to continue to experience expansion and growth. If a substantial number of the Bank’s customers choose alternative ways of financing to fund their capital needs this may adversely affect the Bank’s interest income which could in turn materially and adversely affect its business financial condition and results of operations.In addition to competition from other banks and financial institutions the Bank also faces competition from other forms of investment alternatives in China. In recent years financial disintermediation which involves the movement of funds by investors from intermediary financial institutions such as savings and deposit-taking banks to direct investments has increased in China. The Bank’s deposit customers may elect to convert their funds into stocks bonds and wealth management products which may result in a decrease in the Bank’s customer deposits therefore further affecting the level of funds available to us for the Bank’s lending business to generate net interest income. Meanwhile financial disintermediation may result in a decrease in the enterprise demand for loans which could materially and adversely affect the Bank’s business financial condition and results of operations.The PRC regulators have implemented measures relating to lending to SMEs and the Bank may be subject to future regulatory changes.The former CBRC and CBIRC have promulgated a series of measures including the Guidance on IssuesRelevant to Establishing Special Agencies for Small Business Lending by Banks (《关于银行建立小企业金融服务专营机构的指导意见》) and Notice on Further Supporting Commercial Banks’ Improvement of Financial Services to Small Enterprises (《关于支持商业银行进一步改进小企业金融服务的通知》) to encourage banking institutions to implement the PRC government’s macroeconomic policies and in particular to proactively support continued healthy economic growth by increasing lending activities to SMEs while effectively controlling risk.– 35 –However SMEs are more vulnerable to fluctuation in the macro-economy as compared to large enterprises due to relatively limited capital management or other resources required to cope with the adverse impact of major economic or regulatory changes. In addition SMEs may not be able to provide reliable information necessary for the Bank to assess the credit and interest rate risks involved. In the absence of accurate assessment of the relevant credit and interest rate risks the non-performing loans of the Bank may be significantly increased if its SME clients are affected by economic or regulatory changes which could materially and adversely affect the Group’s business results of operations and financial condition.There can be no assurance that the policies laws and regulations governing the PRC banking industry in particular those relating to lending to SMEs will not change in the future or that any such changes will not materially and adversely affect the Bank’s business financial condition and results of operations.The rapid growth of the banking industry in China may not be sustainable.The banking industry in China has grown significantly in recent years. However it is uncertain whether the banking industry in China can sustain its current levels of growth. A slowdown in the growth of the PRC economy other unfavourable macroeconomic development trends in China and other parts of the world could materially and adversely affect the banking industry in China.The PRC economy is at a transitional period due to changes in economic growth rate structural adjustment and adaptation of previously implemented stimulating policies. As a result the PRC banking industry is facing challenges in risk management and it is not clear how certain trends and events such as the pace of China’s economic growth China’s implementation of its commitments to WTO accession the development of the domestic capital and insurance markets and the ongoing reform of the social welfare system will affect China’s banking industry. In addition there can be no assurance that the banking industry in China is free from systemic risks. Consequently there can be no assurance that the growth and development of China’s banking industry will be sustainable.In addition the PRC banking industry has historically accumulated a high level of non-performing loans.Although the PRC government has promulgated measures to dispose of the non-performing loans of the large commercial banks and certain other commercial banks and to recapitalise these banks there is no assurance that the banking industry in the PRC is free from systemic risks. In addition the PRC government introduced a stimulus package in recent years which sought to boost China’s economy by stimulating domestic spending and demand which led to a rapid increase in bank loans. However this rapid increase may have resulted from loans being made to less-qualified customers and the amount of non-performing loans in the PRC banking industry may gradually rise. Consequently there is no assurance that the development and growth of the PRC banking industry will be sustainable. In particular a slowdown in the economic growth in the PRC may lead to an increased level of non-performing loans in the PRC banking industry and may reduce the PRC banking industry’s ability to reduce the level of non-performing loans quickly.The effectiveness of the Bank’s credit risk management is affected by the quality and scope of information available in the PRC.National credit information databases developed by the PBOC have been operational only since 2006. In addition limitations on the availability of information and the developing information infrastructure in the PRC means that national credit information databases are generally under-developed and are not able to provide complete credit information on many of the Bank’s credit applicants. Therefore the Bank’s assessment of the credit risk associated with a particular customer may not be based on complete accurate or reliable information. As a result the Bank’s ability to effectively manage its credit risk may be affected which may adversely affect its business financial condition and results of operations.– 36 –Certain facts and statistics and information relating to the Bank are derived from publications not independently verified by the Bank the Dealers or any of their respective directors employees representatives affiliates or advisers.Certain facts and statistics in this Offering Circular relating to the PRC its economy and its banking industry are derived from various official and publicly available sources generally believed to be reliable.While the Bank has taken reasonable care to ensure that the facts and statistics or information relating to it presented are accurately extracted from such sources such facts statistics and information have not been independently verified by the Bank the Dealers or any of their respective directors employees representatives affiliates or advisers and therefore none of them makes any representation as to the accuracy of such facts and statistics or information which may not be consistent with other information compiled within or outside the PRC and may not be complete or up-to-date.Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice or other reasons the statistics herein may be inaccurate or may not be comparable from period to period or to statistics produced for other economies and should not be unduly relied upon.Noteholders shall pay attention to the characteristics of the PRC legal system.The Bank is organised under the laws of the PRC. The PRC legal system is based on written statutes. The PRC government has promulgated laws and regulations dealing with such economic matters as the issuance and trading of securities shareholder rights foreign investment corporate organisation and governance commerce taxation and trade. However many of these laws and regulations continue to evolve and the interpretation and enforcement of these laws and regulations may also be evolving. In addition there is only a limited volume of published court decisions which may be cited for reference but such cases have limited precedent value as they are not binding on subsequent cases. These characteristics relating to PRC laws and regulations shall be taken into consideration by the Noteholders when seeking legal remedies and protections in the PRC.RISKS RELATING TO THE NOTES ISSUED UNDER THE PROGRAMME Claims by the Noteholders are structurally/effectively subordinated to other debt.The Notes are unsecured obligations of the Bank and payments under the Notes are structurally or effectively subordinated to all secured debt of the Bank to the extent of the value of the assets securing such debt and to the debt and other liabilities of the Bank’s subsidiary companies. The effect of this subordination is that in the event of a bankruptcy liquidation dissolution reorganisation or similar proceeding involving the Bank the assets of the affected entity could not be used to pay Noteholders until after: * all secured claims against the affected entity have been fully paid; and * if the affected entity is the Bank’s subsidiary all other claims against such subsidiary including trade payables have been fully paid.Failure by the Bank to meet its environmental social and governance (“ESG”) or corporate social responsibility (“CSR”) targets may have an adverse effect on the Bank’s performance.The Bank takes its corporate social responsibilities seriously and persists in financial improvement and financial excellence fully integrates the ESG concept into its daily operation and management and works with stakeholders to create an inclusive sustainable and resilient future. In line with its philosophy the Bank has issued several series of ESG related notes (the “ESG Notes”) under the Programme.– 37 –In respect of the Bank’s ESG Notes and green finance credit and loans the Bank may have agreed to obligations relating to reporting and disclosure environmental and social targets and specified use of proceeds. Furthermore the Bank also publishes its CSR reports annually which set out the Bank’s implementation strategies targets and goals and proposed business processes and standards with respect to ESG and CSR. Any failure by the Bank to meet any of the targets strategies goals processes and standards mentioned above or any failure by the Bank to satisfy investor or other stakeholder expectations or standards in the execution of its ESG strategies may affect the value and/or trading of the ESG Notes and more widely affect the Bank’s current and future business performance results of operations and reputation. These may in turn negatively affect the Bank’s ability to service the Notes and to satisfy its other obligations under the Notes.Potential investors should not place undue reliance on the financial information incorporated by reference that is not audited.This Offering Circular incorporates the following information published by the Bank from time to time after the date of this Offering Circular a copy of which can be found on the website of the HKSE: (i) the most recently published unaudited but reviewed interim consolidated financial statements of the Bank as at and for the six months ending on 30 June of each financial year together with any review reports prepared in connection therewith (the “Interim Financial Information”); and (ii) the most recently published unaudited and unreviewed quarterly consolidated financial statements of the Bank as at and for the three months ending on 31 March and as at and for the nine months ending on 30 September of each financial year (the “Quarterly Financial Information”) in each case prepared in accordance with the IFRSs.The Interim Financial Information has been reviewed but has not been and will not be audited by the Bank’s auditors. The Quarterly Financial Information has not been and will not be audited or reviewed by the Bank’s auditors. The Interim Financial Information and the Quarterly Financial Information may not provide the same quality of information associated with information that has been subject to an audit.Potential investors should exercise caution when using such data to evaluate the Bank’s financial condition and results of operations. The interim financial information should not be taken as an indication of the expected financial condition or results of operations of the Bank for the relevant full financial year.The Notes are unsecured obligations of the Issuer.The Notes are the unsecured obligations of the Issuer. As the Issuer may be a branch of the Bank the repayment of the Notes may be adversely affected if: * the Bank enters into bankruptcy liquidation reorganisation or other winding-up proceedings; * there is a default in payment under the Bank’s future secured indebtedness or other unsecured indebtedness; or * there is an acceleration of any of the Bank’s indebtedness.If any of these events were to occur the Bank’s assets may not be sufficient to pay amounts due under the Notes.The Notes may not be a suitable investment for all investors.Each potential investor in any Notes must determine the suitability of that investment in light of its own circumstances. In particular each potential investor should: * have sufficient knowledge and experience to make a meaningful evaluation of the relevant Notes the merits and risks of investing in the relevant Notes and the information contained or incorporated by reference in this Offering Circular or any applicable supplement; – 38 –* have access to and knowledge of appropriate analytical tools to evaluate in the context of its particular financial situation an investment in the relevant Notes and the impact such investment will have on its overall investment portfolio; * have sufficient financial resources and liquidity to bear all of the risks of an investment in the relevant Notes including where principal or interest is payable in one or more currencies or where the currency for principal or interest payments is different from the potential investor’s currency; * understand thoroughly the terms of the relevant Notes and be familiar with the behaviour of any relevant indices and financial markets; and * be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic interest rate and other factors that may affect its investment and its ability to bear the applicable risks.Some Notes may be complex financial instruments and such instruments may be purchased as a way to reduce risk or enhance yield with an understood measured appropriate addition of risk to the purchaser’s overall portfolios. A potential investor should not invest in Notes which are complex financial instruments unless it has the expertise (either alone or with the help of a financial adviser) to evaluate how the Notes will perform under changing conditions the resulting effects on the value of such Notes and the impact this investment will have on the potential investor’s overall investment portfolio.Additionally the investment activities of certain investors are subject to legal investment laws and regulations or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) Notes are legal investments for it (ii) Notes can be used as collateral for various types of borrowing and (iii) other restrictions apply to its purchase of any Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules.The Terms and Conditions of the Notes contain provisions which may permit their modification without the consent of all investors.The Terms and Conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.The Agency Agreement may be modified without the consent of Noteholders.The Terms and Conditions of the Notes also provide that the Fiscal Agent may without the consent of Noteholders agree to any modification of the Agency Agreement which is not materially prejudicial to the interests of the Noteholders is of a formal minor or technical nature or is made to correct a manifest error as described in Condition 11(b).A change in English law which governs the Notes may adversely affect Noteholders.The Terms and Conditions of the Notes are governed by English law in effect as at the date of issue of the relevant Notes. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of issue of the relevant Notes.– 39 –The interpretation of the NDRC Administrative Measures may involve significant uncertainty which may adversely affect the enforceability and/or effective performance of the Notes. Any failure to complete the relevant examination and/registration under the NDRC Administrative Measures within the prescribed time frames may have adverse consequences for the relevant Issuer and/or the investors of the Notes.Pursuant to the NDRC Administrative Measures the Bank is required to (i) file or cause to be filed with the NDRC the requisite information and documents within ten PRC business days after each foreign debt issuance and the expiration of the Certificate with respect to the relevant Notes (being those that have a tenor of more than a year) in accordance with the NDRC Administrative Measures (ii) file or cause to be filed with the NDRC the requisite information and documents within five PRC business days before the end of January and the end of July each year and (iii) file or cause to be filed the requisite information and documents upon the occurrence of any material event that may affect the enterprise’s due performance of its debt obligations. The NDRC Administrative Measures mentions some legal consequences of non-compliance with the pre-issue registration requirement. For example if the enterprise borrows a foreign debt in violation of the NDRC Administrative Measures the examination and registration authority shall take disciplinary actions such as holding an interview and giving a public warning against the relevant enterprise and its principal person-in-charge depending on the seriousness of the circumstances and if intermediary agency knows or should have known that an enterprise is borrowing a foreign debt in violation of the provisions of the NDRC Administrative Measures but still provides the relevant intermediary services to the enterprise the examination and registration authority shall circulate a notification of violation of regulations and consult the relevant department on punishing the relevant intermediary agency and relevant liable persons in accordance with the applicable laws and regulations.In the worst case scenario if pre-issue registration is required but not complied with it might become unlawful for the relevant Issuer to perform or comply with any of its obligations under the relevant Notes and the relevant Notes might be subject to the enforcement as provided in Condition 10 (Events of Default). Potential investors of the Notes are advised to exercise due caution when making their investment decisions.Similarly the NDRC Administrative Measures mentions some legal consequences of non-compliance with the post-issue notification requirement. Failure to comply with the NDRC post-issue and continuing filing obligations (such as post-issue filing pre-issuance approval expiration filing periodical filing and major event filing etc.) under Articles 24 and 26 of the NDRC Administrative Measures may result in the relevant entities being ordered to make corrections within a time limit and in the case of aggravating circumstances or in the case that such corrections are not made within the prescribed time limit relevant entities and their main person-in-charge will be warned. The aforesaid regulatory violations committed by enterprises shall be publicised on the “Credit China” website and the national enterprise credit information publicity system among others.The Bank undertakes to file or cause to be filed with the NDRC within the relevant prescribed timeframes after the relevant Issue Date the requisite information and documents in respect of the relevant Notes in accordance with the NDRC Administrative Measures and any implementation rules or policies as issued by the NDRC from time to time.However the NDRC Administrative Measures is new and its implementation may involve uncertainty. The administration and enforcement of the NDRC Administrative Measures may be subject to executive and policy discretion of the NDRC. While the NDRC Administrative Measures has set out the legal consequences for debtors and involved professional parties in cases of non-compliance of the NDRC Administrative Measures the NDRC Administrative Measures is silent on whether any such non- compliance would affect the validity and enforceability of the Notes. There is no assurance that the failure to comply with the NDRC Administrative Measures would not result in adverse consequences on the relevant Issuer’s or the Bank’s ability to perform in accordance with the Terms and Conditions of the Notes or the enforceability of the Notes.– 40 –Gains on the transfer of the Notes may become subject to income taxes under PRC tax laws.Under the PRC Enterprise Income Tax Law (《中华人民共和国企业所得税法》) which took effect on 1 January 2008 and amended on 24 February 2017 and 29 December 2018 and its implementation rules any gains realised on the transfer of Notes by non-resident enterprise investors may be subject to enterprise income tax if such gains are regarded as income derived from sources within the PRC. While the PRC Enterprise Income Tax Law establishes such capital gain tax rate for non-resident enterprises with no establishment or place of business within the PRC and such although with establishment or place of business within the PRC gaining the income derived from or accrued in the PRC of no de facto relationship with its establishment or place of business at 20% of the gross proceeds its implementation rules have reduced the rate to 10%. In accordance with the PRC Individual Income Tax Law and its implementation regulations which took effect on 1 January 2019 any capital gain realised by an individual holder who has no domicile and does not stay within the PRC or who has no domicile but has stayed within the PRC for less than 183 days cumulatively within a tax year from transfer of the Notes may be regarded as being derived from sources within the PRC and thus be subject to PRC tax of up to 20%. Furthermore any individual who has a domicile within the PRC or has no domicile but stayed in the PRC for 183 days or more cumulatively within a tax year may be regarded as being derived from sources within or outside the PRC will be subject to PRC income tax of up to 20%. There remains uncertainty as to whether the gains realised from the transfer of the Notes would be treated as income derived from sources within the PRC and thus be subject to the PRC Enterprise Income Tax and Individual Income Tax. This will depend on how the PRC tax authorities interpret apply or enforce the PRC Enterprise Income Tax Law and Individual Income Tax Law and their relevant implementation rules. According to the arrangement between the PRC and Hong Kong SAR residents of Hong Kong SAR including enterprise investors and individual investors will not be subject to PRC tax on any capital gains derived from a sale or exchange of the Notes if such capital gains are not connected with an office or establishment that the Noteholders have in the PRC and all the other relevant conditions are satisfied.Therefore if an investor as a non-resident enterprise or non-resident individual is required to pay PRC income tax on interest or gains on the transfer of the Notes the value of relevant Noteholder’s investment in the Notes may be materially and adversely affected.The bankruptcy laws of the PRC may differ from those of other jurisdictions with which the Noteholders are familiar.The Bank was incorporated under the laws of the PRC. Any bankruptcy proceeding relating to the Bank would likely involve PRC bankruptcy laws the procedural and substantive provisions of which may differ from comparable provisions of the local insolvency laws of jurisdictions with which the Noteholders are familiar.Additional procedures may be required to be taken to hear English law governed matters in the Hong Kong courts. There is also no assurance that the PRC courts will recognise and enforce judgments of the Hong Kong courts in respect of English law matters.The Notes and the Deed of Covenant are governed by English law whereas parties to these documents have submitted to the exclusive jurisdiction of the Hong Kong courts. In order to hear English law governed matters Hong Kong courts may require certain additional procedures to be taken.The Bank is a company incorporated under the laws of the PRC and a substantial majority of its businesses assets and operations are located in the PRC. In addition a substantial majority of the Bank’s directors supervisors and executive officers reside in the PRC and substantially all of their assets are – 41 –located in the PRC. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgements of courts with the United States the United Kingdom Japan and many other countries.On 18 January 2019 the Supreme People’s Court and the Department of Justice of the Hong Kong Special Administrative Region jointly promulgated the Arrangements on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters between the Courts of the Mainland and Hong Kong Special Administrative Region (关于内地与香港特别行政区法院相互认可和执行民商事案件判决的安排) (the “2019 Arrangement”) which became effective on 29 January 2024. The 2019 Arrangement facilitates the mutual recognition and enforcement of court judgments between the mainland and Hong Kong and covers matters which are considered to be of a “civil and commercial” nature under both Hong Kong and mainland law. Non-judicial proceedings and judicial proceedings relating to administrative or regulatory matters are excluded. Subject to the provisions in the 2019 Arrangement judgments in civil and commercial matters of the courts of the mainland and Hong Kong are expected to be mutually recognisable and enforceable.While it is expected that the PRC courts will recognise and enforce a judgment given by Hong Kong courts there can be no assurance that the PRC courts will do so for all such judgments as there is no established practice in this area. The holders of the Notes are deemed to have submitted to the exclusive jurisdiction of the Hong Kong courts and thus the Noteholders’ ability to initiate a claim outside of Hong Kong will be limited.The Notes may be represented by Global Notes or Global Certificate and holders of a beneficial interest in a Global Note or Global Certificate must rely on the procedures of the relevant Clearing System(s).Notes issued under the Programme may be represented by one or more Global Notes or Global Certificates. Such Global Notes or Global Certificates will be deposited with a common depositary for Euroclear and Clearstream or lodged with the CMU (each of Euroclear Clearstream and the CMU a “Clearing System”). Except in the circumstances described in the relevant Global Note or Global Certificate investors will not be entitled to receive Definitive Notes. The relevant Clearing System(s) will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by one or more Global Notes or Global Certificate investors will be able to trade their beneficial interests only through the Clearing Systems and the Issuer will discharge its payment obligations under the Notes by making payments to the common depositary for Euroclear and Clearstream or to the relevant paying agent in the case of the CMU as the case may be for distribution to their account holders. A holder of a beneficial interest in a Global Note or Global Certificate must rely on the procedures of the relevant Clearing System(s) to receive payments under the relevant Notes. The Issuer has no responsibility or liability for the records relating to or payments made in respect of beneficial interests in the Global Notes or Global Certificates. Holders of beneficial interests in the Global Notes or Global Certificates will not have a direct right to vote in respect of the relevant Notes. Instead such holders will be permitted to act only to the extent that they are enabled by the relevant Clearing System(s) to appoint appropriate proxies.– 42 –Noteholders should be aware that Definitive Notes which have a denomination that is not an integral multiple of the minimum denomination may be illiquid and difficult to trade.Notes may be issued with a minimum denomination. The Pricing Supplement of a Tranche of Notes may provide that for so long as the Notes are represented by a Global Note or Global Certificate and the relevant Clearing System(s) so permit the Notes will be tradable in nominal amounts (i) equal to or integral multiples of the minimum denomination and (ii) the minimum denomination plus integral multiples of an amount lower than the minimum denomination. Definitive Notes will only be issued in certain circumstances such as if the relevant Clearing System(s) is/are closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announce(s) an intention to permanently cease business. The Pricing Supplement may provide that if Definitive Notes are issued such Notes will be issued in respect of all holdings of Notes equal to or greater than the minimum denomination. However Noteholders should be aware that Definitive Notes that have a denomination that is not an integral multiple of the minimum denomination may be illiquid and difficult to trade. Definitive Notes will in no circumstances be issued to any person holding Notes in an amount lower than the minimum denomination and such Notes will be cancelled and holders will have no rights against the Issuer (including rights to receive principal or interest or to vote) in respect of such Notes.The regulation and reform of “benchmark” rates of interest and indices may adversely affect the value of Notes linked to or referencing such “benchmarks”.Interest rates and indices which are deemed to be or used as “benchmarks” (including the euro interbank offered rate (“EURIBOR”)) are the subject of recent international national and other regulatory guidance and proposals for reform. Some of these reforms are already effective whilst others are still to be implemented. These reforms may cause such benchmarks to perform differently than in the past or to disappear entirely or have other consequences which cannot be predicted. Any such consequence could have a material adverse effect on any Note linked to or referencing such a benchmark.Regulation (EU) 2016/1011 (the “EU Benchmarks Regulation”) was published in the Official Journal of the EU on 29 June 2016 and applied from 1 January 2018. The EU Benchmarks Regulation applies to the provision of benchmarks the contribution of input data to a benchmark and the use of a benchmark within the European Union. It amongst other things (i) requires benchmark administrators to be authorised or registered (or if non-EU-based to be subject to an equivalent regime or otherwise recognised or endorsed) and (ii) prevents certain uses by EU supervised entities (such as the Issuers) of benchmarks of administrators that are not authorised or registered (or if non-EU based not deemed equivalent or recognised or endorsed). Regulation (EU) 2016/1011 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (the “UK Benchmarks Regulation”) among other things applies to the provision of benchmarks and the use of a benchmark in the UK. Similarly it prohibits the use in the UK by UK supervised entities of benchmarks of administrators that are not authorised by the United Kingdom Financial Conduct Authority (“FCA”) or registered on the FCA register (or if non-UK based not deemed equivalent or recognised or endorsed).The EU Benchmarks Regulation and/or the UK Benchmarks Regulation as applicable could have a material impact on any Notes linked to a rate or index deemed to be a “benchmark” in particular if the methodology or other terms of the “benchmark” are changed in order to comply with the requirements of the EU Benchmarks Regulation and/or the UK Benchmarks Regulation as applicable. Such changes could among other things have the effect of reducing increasing or otherwise affecting the volatility of the published rate or level of the “benchmark”.– 43 –More broadly any of the international national or other proposals for reforms or the general increased regulatory scrutiny of benchmarks could increase the costs and risks of administering or otherwise participating in the setting of a benchmark and complying with any such regulations or requirements. The euro risk free-rate working group for the euro area has published a set of guiding principles and high level recommendations for fallback provisions in amongst other things new euro denominated cash products (including bonds) referencing EURIBOR. The guiding principles indicate amongst other things that continuing to reference EURIBOR in relevant contracts (without robust fallback provisions) may increase the risk to the euro area financial system. On 11 May 2021 the euro risk-free rate working group published its recommendations on EURIBOR fallback trigger events and fallback rates. The potential elimination of any benchmark or changes in the manner of administration of any benchmark could require an adjustment to the Terms and Conditions of the Notes or result in other consequences in respect of any Notes linked to such benchmark. Such factors may have the following effects on certain benchmarks: (i) discourage market participants from continuing to administer or contribute to the benchmark; (ii) trigger changes in the rules or methodologies used in the benchmark or (iii) lead to the disappearance of the “benchmark”.Any of the above changes or any other consequential changes as a result of international or national reforms or other initiatives or investigations could have a material adverse effect on the value of and return on any Notes linked to or referencing a benchmark.Where Screen Rate Determination is specified as the manner in which the Rate of Interest in respect of floating rate Notes is to be determined (other than in respect of Notes for which the Reference Rate is SOFR Benchmark) the Conditions provide that the Rate of Interest shall be determined by reference to the Relevant Screen Page (or its successor or replacement). In circumstances where such Original Reference Rate is discontinued neither the Relevant Screen Page nor any successor or replacement may be available. The Conditions provide for certain fallback arrangements in the event that a Benchmark Event occurs. Benchmark Events (as defined in Condition 5(j) (Benchmark discontinuation)) include (amongst other things) permanent discontinuation of an Original Reference Rate and the making of a public statement by the supervisor of the administrator of the Original Reference Rate that the Original Reference Rate has been or will be (or is or will be deemed by such supervisor to be) no longer representative of its relevant underlying market. If a Benchmark Event occurs the Issuer shall use all reasonable endeavours to appoint an Independent Adviser. The Independent Adviser shall endeavour to determine a Successor Rate or Alternative Reference Rate to be used in place of the Original Reference Rate. The use of any such Successor Rate or Alternative Reference Rate to determine the Rate of Interest is likely to result in Notes initially linked to or referencing the Original Reference Rate performing differently (which may include payment of a lower Rate of Interest) than they would do if the Original Reference Rate were to continue to apply in its current form.Furthermore if a Successor Rate or Alternative Reference Rate for the Original Reference Rate is determined by the Independent Adviser the Conditions provide that the Issuer may vary the Conditions as necessary to ensure the proper operation of such Successor Rate or Alternative Reference Rate without any requirement for consent or approval of the Noteholders.If a Successor Rate or Alternative Reference Rate is determined by the Independent Adviser the Conditions also provide that an Adjustment Spread will be determined by the Independent Adviser and applied to such Successor Rate or Alternative Reference Rate. The Adjustment Spread is (i) the spread formula or methodology which is formally recommended in relation to the replacement of the Original Reference Rate with the Successor Rate by any Relevant Nominating Body (which may include a relevant central bank supervisory authority or group of central banks/supervisory authorities) (ii) if no such recommendation has been made or in the case of an Alternative Reference Rate the spread formula or methodology which the Independent Adviser determines is customarily applied to the relevant Successor Rate or the Alternative Reference Rate (as the case may be) in international debt capital markets – 44 –transactions to produce an industry-accepted replacement rate for the Original Reference Rate or (iii) if no such spread is customarily applied the spread formula or methodology which the Independent Adviser or the Issuer determines is recognised or acknowledged as being the industry standard for over-the-counter derivative transactions which reference the Original Reference Rate where such rate has been replaced by the Successor Rate or the Alternative Reference Rate as the case may be. Accordingly the application of an Adjustment Spread may result in the Notes performing differently (which may include payment of a lower Rate of Interest) than they would do if the Original Reference Rate were to continue to apply in its current form.The Issuer may be unable to appoint an Independent Adviser or the Independent Adviser may not be able to determine a Successor Rate or Alternative Reference Rate in accordance with the Conditions in which case the Issuer may determine the Successor Rate or the Alternative Reference Rate and the Adjustment Spread.Where the Issuer is unable to appoint an Independent Adviser in a timely manner or is unable to determine a Successor Rate or Alternative Reference Rate before the next Interest Determination Date the Rate of Interest for the next succeeding Interest Period will be the Rate of Interest applicable as at the last preceding Interest Determination Date before the occurrence of the Benchmark Event or where the Benchmark Event occurs before the first Interest Determination Date the Rate of Interest will be the initial Rate of Interest.Where the Issuer has been unable to appoint an Independent Adviser or has failed to determine a Successor Rate or Alternative Reference Rate in respect of any given Interest Period it will continue to attempt to appoint an Independent Adviser in a timely manner before the next succeeding Interest Determination Date and/or to determine a Successor Rate or Alternative Reference Rate to apply to the next succeeding and any subsequent Interest Periods as necessary.Applying the initial Rate of Interest or the Rate of Interest applicable as at the last preceding Interest Determination Date before the occurrence of the Benchmark Event is likely to result in Notes linked to or referencing the relevant benchmark performing differently (which may include payment of a lower Rate of Interest) than they would do if the relevant benchmark were to continue to apply or if a Successor Rate or Alternative Reference Rate could be determined.If the Issuer is unable to appoint an Independent Adviser or fails to determine a Successor Rate or Alternative Reference Rate for the life of the relevant Notes the initial Rate of Interest or the Rate of Interest applicable as at the last preceding Interest Determination Date before the occurrence of the Benchmark Event will continue to apply to maturity. This will result in the floating rate Notes in effect becoming fixed rate Notes.Where ISDA Determination is specified as the manner in which the Rate of Interest in respect of floating rate Notes is to be determined the Conditions provide that the Rate of Interest in respect of the Notes shall be determined by reference to the relevant Floating Rate Option in the relevant ISDA Definitions. If there is making of a public statement by the supervisor of the administrator of the Original Reference Rate that the Original Reference Rate is or will be (or is or will be deemed by such supervisor to be) no longer representative of its relevant underlying market and a Successor Rate or Alternative Reference Rate is determined ISDA Determination will not apply. Where the Floating Rate Option specified is an “IBOR” Floating Rate Option the Rate of Interest may be determined by reference to the relevant screen rate or the rate determined on the basis of quotations from certain banks. If the relevant IBOR is permanently discontinued and the relevant screen rate or quotations from banks (as applicable) are not available the operation of these provisions may lead to uncertainty as to the Rate of Interest that would be applicable and may adversely affect the value of and return on the floating rate Notes.– 45 –Due to the uncertainty concerning the availability of a Successor Rate Alternative Reference Rate and Alternative Relevant Screen Page any determinations that may need to be made by the Independent Adviser or Issuer involves a risk that the relevant fallback provisions may not operate as intended at the relevant time. Moreover any of the above matters or any other significant change to the setting or existence of any relevant reference rate could affect the ability of the Issuer to meet its obligations under the floating rate Notes or could have a material adverse effect on the value or liquidity of and the amount payable under the floating rate Notes.Investors should consult their own independent advisers and make their own assessment about the potential risks imposed by the EU Benchmarks Regulation the UK Benchmarks Regulation or any other international or national reforms in making any investment decision with respect to any Notes linked to or referencing a benchmark.The use of Secured Overnight Financing Rate (“SOFR”) as a reference rate is subject to important limitations.The rate of interest on the floating rate Notes may be calculated on the basis of SOFR (as further described under Condition 5(b)(iii)(C) of the Conditions).In June 2017 the New York Federal Reserve’s Alternative Reference Rates Committee (the “ARRC”) announced SOFR as its recommended alternative to U.S. dollar London interbank offered rate (“LIBOR”).However the composition and characteristics of SOFR are not the same as those of LIBOR. SOFR is a broad U.S. Treasury repo-financing rate that represents overnight secured funding transactions. This means that SOFR is fundamentally different from LIBOR for two key reasons. First SOFR is a secured rate while LIBOR is an unsecured rate. Second SOFR is an overnight rate while LIBOR represents interbank funding over different maturities. As a result there can be no assurance that SOFR will perform in the same way as LIBOR would have at any time including without limitation as a result of changes in interest and yield rates in the market market volatility or global or regional economic financial political or regulatory events. For example since publication of SOFR began in April 2018 daily changes in SOFR have on occasion been more volatile than daily changes in comparable benchmark or other market rates.As SOFR is an overnight funding rate interest on SOFR-based Notes with interest periods longer than overnight will be calculated on the basis of either the arithmetic mean of SOFR over the relevant interest period or compounding SOFR during the relevant interest period. As a consequence of this calculation method the amount of interest payable on each interest payment date will only be known a short period of time prior to the relevant interest payment date. Noteholders therefore will not know in advance the interest amount which will be payable on such Notes.Although the Federal Reserve Bank of New York has published historical indicative SOFR information going back to 2014 such prepublication of historical data inherently involves assumptions estimates and approximations. Noteholders should not rely on any historical changes or trends in SOFR as an indicator of future changes in SOFR.The Federal Reserve Bank of New York notes on its publication page for SOFR that use of SOFR is subject to important limitations and disclaimers including that the Federal Reserve Bank of New York may alter the methods of calculation publication schedule rate revision practices or availability of SOFR at any time without notice. In addition SOFR is published by the Federal Reserve Bank of New York based on data received from other sources and the Issuer has no control over its determination calculation or publication. There can be no guarantee that SOFR will not be discontinued or fundamentally altered in a – 46 –manner that is materially adverse to the interests of the Noteholders. If the manner in which SOFR is calculated is changed or if SOFR is discontinued that change or discontinuance may result in a reduction or elimination of the amount of interest payable on the Notes and a reduction in the trading prices of the Notes which would negatively impact the Noteholders who could lose part of their investment.The Conditions provide for certain fallback arrangements in the event that a SOFR Benchmark Event occurs which is based on the ARRC recommended language. There is however no guarantee that the fallback arrangements will operate as intended at the relevant time or operate on terms commercially acceptable to all Noteholders. Any of the fallbacks may result in interest payments that are lower than or do not otherwise correlate over time with the payments that would have been made on the Notes if SOFR had been provided by the Federal Reserve Bank of New York in its current form. Investors should consult their own independent advisers and make their own assessment about the potential risks in making any investment decision with respect to any Notes linked to SOFR.The market continues to develop in relation to SOFR as a reference rate for Floating Rate Notes.Investors should be aware that the market continues to develop in relation to SOFR as a reference rate in the capital markets and its adoption as an alternative to U.S. dollar LIBOR. Market participants and relevant working groups are exploring alternative reference rates based on SOFR (which seek to measure the market’s forward expectation of a SOFR rate over a designated term). The market or a significant part thereof may adopt an application of SOFR that differs significantly from that set out in the Conditions.In addition the manner of adoption or application of SOFR in the bond markets may differ materially compared with the application and adoption of SOFR in other markets such as the derivatives and loan markets. Investors should carefully consider how any mismatch between the adoption of SOFR in the bond loan and derivatives markets may impact any hedging or other financial arrangements which they may put in place in connection with any acquisition holding or disposal of Notes referencing SOFR. In addition the development of SOFR as an interest reference rate for the bond markets as well as continued development of SOFR-based rates indices and averages for such markets and the market infrastructure for adopting such rates could result in reduced liquidity or increased volatility or could otherwise affect the market price of Notes referencing SOFR. Similarly if SOFR does not prove widely used in securities such as the Notes referencing SOFR investors may not be able to sell such Notes referencing SOFR at all or the trading price of the Notes referencing SOFR may be lower than those of bonds linked to indices that are more widely used.The use of SOFR as a reference rate for bonds is nascent and may be subject to change and development both in terms of the substance of the calculation and in the development and adoption of market infrastructure for the issuance and trading of bonds referencing such rates. Notes referencing SOFR may have no established trading market when issued and an established trading market may never develop or may not be very liquid which in turn may reduce the trading price of such Notes or mean that investors in such Notes may not be able to sell such Notes at all or may not be able to sell such Notes at prices that will provide them with a yield comparable to similar investments that have a developed secondary market and may consequently suffer from increased pricing volatility and market risk. Investors should consider these matters when making their investment decision with respect to Notes referencing SOFR.RISKS RELATING TO THE STRUCTURE OF A PARTICULAR ISSUE OF NOTES Unless in the case of any particular Tranche of Notes the relevant Pricing Supplement specifies otherwise in the event that the Issuer would be obliged to increase the amounts payable in respect of any Notes due to any withholding or deduction for or on account of any present or future taxes duties assessments or governmental charges of whatever nature imposed levied collected withheld or assessed by or on behalf – 47 –of Hong Kong PRC or any political subdivision thereof or any authority therein or thereof having power to tax the Issuer may redeem all outstanding Notes in accordance with the Conditions. A wide range of Notes may be issued under the Programme. A number of these Notes may have features which contain particular risks for potential investors. Set out below is a description of certain such features: Notes subject to optional redemption by the Issuer may have a lower market value than Notes that cannot be redeemed.An optional redemption feature is likely to limit the market value of Notes. During any period when the Issuer may elect to redeem Notes the market value of those Notes generally will not rise substantially above the price at which they can be redeemed. This may also be true prior to any redemption period. The Issuer may be expected to redeem Notes when its cost of borrowing is lower than the interest rate on the Notes. At such times an investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time.Index linked Notes and dual currency Notes have features that are different from Notes that are not index-linked or have a single currency.The Issuer may issue Notes with principal or interest determined by reference to an index or formula to changes in the prices of securities or commodities to movements in currency exchange rates or other factors (each a “Relevant Factor”). In addition the Issuer may issue Notes with principal or interest payable in one or more currencies which may be different from the currency in which the Notes are denominated. Potential investors should be aware that: * the market price of such Notes may be volatile; * they may receive no interest; * payment of principal or interest may occur at a different time or in a different currency than expected; * they may lose all or a substantial portion of their principal; * a Relevant Factor may be subject to significant fluctuations that may not correlate with changes in interest rates currencies or other indices; * if a Relevant Factor is applied to Notes in conjunction with a multiplier greater than one or contains some other leverage factor the effect of changes in the Relevant Factor on principal or interest payable will likely be magnified; and * the timing of changes in a Relevant Factor may affect the actual yield to investors even if the average level is consistent with their expectations. In general the earlier the change in the Relevant Factor the greater the effect on yield.The historical experience of an index should not be viewed as an indication of the future performance of such index during the term of any index linked Notes. Accordingly each potential investor should consult its own financial and legal advisers about the risk entailed by an investment in any index linked Notes and the suitability of such Notes in light of its particular circumstances.– 48 –Failure by an investor to pay a subsequent instalment of partly-paid Notes may result in an investor losing all of its investment.The Issuer may issue Notes where the issue price is payable in more than one instalment. Failure to pay any subsequent instalment could result in an investor losing all of its investment.The market price of variable rate Notes with a multiplier or other leverage factor may be volatile.Notes with variable interest rates can be volatile securities. If they are structured to include multipliers or other leverage factors or caps or floors or any combination of those features or other similar related features their market values may be even more volatile than those for securities that do not include those features.Inverse floating rate Notes are typically more volatile than conventional floating rate debt.Inverse floating rate Notes have an interest rate equal to a fixed rate minus a rate based upon a reference rate such as the EURIBOR. The market values of such Notes are typically more volatile than market values of other conventional floating rate debt securities based on the same reference rate (and with otherwise comparable terms). Inverse floating rate Notes are more volatile because an increase in the reference rate not only decreases the interest rate of the Notes but may also reflect an increase in prevailing interest rates which further adversely affects the market value of these Notes.Notes carrying an interest rate which may be converted from fixed to floating interest rates and vice-versa may have lower market values than other Notes.Fixed or floating rate Notes may bear interest at a rate that the Issuer may elect to convert from a fixed rate to a floating rate or from a floating rate to a fixed rate. The Issuer’s ability to convert the interest rate will affect the secondary market and the market value of such Notes since the Issuer may be expected to convert the rate when it is likely to produce a lower overall cost of borrowing. If the Issuer converts from a fixed rate to a floating rate the spread on the fixed or floating rate Notes may be less favourable than the then prevailing spreads on comparable floating rate Notes tied to the same reference rate. In addition the new floating rate at any time may be lower than the rates on other Notes. If the Issuer converts from a floating rate to a fixed rate the fixed rate may be lower than the then prevailing rates on its Notes.The market prices of Notes issued at a substantial discount or premium tend to fluctuate more in relation to general changes in interest rates than do prices for conventional interest-bearing securities.The market values of securities issued at a substantial discount or premium to their nominal amount tend to fluctuate more in relation to general changes in interest rates than do prices for conventional interest-bearing securities. Generally the longer the remaining term of the securities the greater the price volatility as compared to conventional interest-bearing securities with comparable maturities.Investors may lose part or all of their investment in any Index-Linked Notes issued.If in the case of a particular Tranche of Notes the relevant Pricing Supplement specifies that the Notes are Index Linked Notes or variable redemption amount Notes there is a risk that the investor may lose the value of its entire investment or part of it.– 49 –Credit ratings may not reflect all risks.One or more independent credit rating agencies may assign credit ratings to an issue of Notes. The ratings may not reflect the potential impact of all risks related to structure market and additional factors discussed above and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy sell or hold securities and may be revised or withdrawn by the rating agency at any time.RISKS RELATING TO THE MARKET GENERALLY Set out below is a brief description of certain market risks including liquidity risk exchange rate risk interest rate risk and credit risk: Notes issued under the Programme have no current active trading market and may trade at a discount to their initial offering price and/or with limited liquidity.Notes issued under the Programme will be new securities which may not be widely distributed and for which there is currently no active trading market (unless in the case of any particular Tranche such Tranche is to be consolidated with and form a single series with a Tranche of Notes which is already issued). There can be no assurance as to the liquidity of the Notes or that an active trading market will develop. The liquidity of the Notes could be affected by various factors and in particular if a limited number of investors subscribes for a significant portion of the Notes. Such investors may include the Issuer and entities affiliated with the Issuer. If the Notes are traded after their initial issuance they may trade at a discount to their initial offering price depending upon prevailing interest rates the market for similar securities general economic conditions and the financial condition of the Issuer. If the Notes are trading at a discount investors may not be able as receive a favourable price for their Notes and in some circumstances investors may not be able to sell their Notes at all or at their fair market value. Although an application may be made for the Notes issued under the Programme to be admitted to listing on the HKSE or such other stock exchange(s) there is no assurance that such application will be accepted that any particular Tranche of Notes will be so admitted or that an active trading market will develop. In addition the market for investment grade and crossover grade debt has been subject to disruptions that have caused volatility in prices of securities similar to the Notes that may be issued under the Programme.Accordingly there is no assurance as to the development or liquidity of any trading market or that disruptions will not occur for any particular Tranche of Notes.This is particularly the case for Notes that are especially sensitive to interest rate currency or market risks designed for specific investment objectives or strategies or have been structured to meet the investment requirements of limited categories of investors. These types of Notes generally would have a more limited secondary market and more price volatility than conventional debt securities. Illiquidity may have an adverse effect on the market value of the Notes.Exchange rate risks and exchange controls may result in investors receiving less interest or principal than expected.The Issuer will pay principal and interest on the Notes in the currency specified in the relevant Pricing Supplement (the “Specified Currency”). This presents certain risks relating to currency conversions if aninvestor’s financial activities are denominated principally in a currency or currency unit (the “Investor’sCurrency”) other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Inventor’s Currency relative to – 50 –the Specified Currency would decrease (i) the Investor’s Currency equivalent yield on the Notes (ii) the Investor’s Currency equivalent value of the principal payable on the Notes and the Investor’s Currency equivalent market value of the Notes.Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result investors may receive less interest or principal than expected or no interest or principal.Changes in market interest rates may adversely affect the value of fixed rate Notes.Investment in fixed rate Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of fixed rate Notes.Legal investment considerations may restrict certain investments.The investment activities of certain investors are subject to legal investment laws and regulations or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (i) the Notes are legal investments for it (ii) the Notes can be used as collateral for various types of borrowing and (iii) other restrictions apply to its purchase or pledge of any Notes. Investors should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of the Notes under any applicable risk-based capital or similar rules.RISKS RELATING TO RENMINBI-DENOMINATED NOTES There is only limited availability of Renminbi outside the PRC which may affect the liquidity of the Renminbi Notes and the Bank’s ability to source Renminbi outside the PRC to service the Renminbi Notes.As a result of the restrictions imposed by the PRC government on cross-border Renminbi fund flows the availability of Renminbi outside the PRC is limited. While the PBOC has entered into agreements on the clearing of Renminbi business (the “Settlement Arrangements”) with financial institutions (each a “Renminbi Clearing Bank”) in a number of financial centres and cities including but not limited to Hong Kong London Frankfurt and Singapore has established the Cross-Border Inter-Bank Payments System to facilitate cross-border Renminbi settlement and is in the process of establishing Renminbi clearing and settlement mechanisms in several other jurisdictions (the “Settlement Arrangements”) the current size of Renminbi-denominated financial assets outside the PRC remains limited.There are restrictions imposed by the PBOC on Renminbi business participating banks in respect of cross-border Renminbi settlement such as those relating to direct transactions with PRC enterprises.Furthermore Renminbi business participating banks do not have direct Renminbi liquidity support from the PBOC although the PBOC has gradually allowed participating banks to access the PRC’s onshore inter-bank market for the purchase and sale of Renminbi. The Renminbi Clearing Banks only have limited access to onshore liquidity support from the PBOC to square open positions of participating banks for limited types of transactions and are not obliged to square for participating banks any open positions resulting from other foreign exchange transactions or conversion services. In such cases where the participating banks cannot source sufficient Renminbi through the above channels the participating banks will need to source Renminbi from the offshore market to square such open positions.– 51 –Although it is expected that the offshore Renminbi market will continue to grow in depth and size its growth is subject to many constraints as a result of PRC laws and regulations on foreign exchange. There is no assurance that new PRC regulations will not be promulgated or the Settlement Arrangements will not be terminated or amended in the future which will have the effect of restricting availability of Renminbi outside the PRC. The limited availability of Renminbi outside the PRC may affect the liquidity of the Renminbi Notes. To the extent the Issuer is required to source Renminbi outside the PRC to service the Renminbi Notes there is no assurance that the Issuer will be able to source such Renminbi on satisfactory terms if at all.Renminbi is not freely convertible and there are significant restrictions on the remittance of Renminbi into and out of the PRC which may adversely affect the liquidity of Renminbi Notes.Renminbi is not freely convertible at present. The PRC government continues to regulate conversion between Renminbi and foreign currencies including the Hong Kong dollar despite significant reduction in control by it in recent years over trade transactions involving the import and export of goods and services as well as other frequent routine foreign exchange transactions. These transactions are known as current account items. However remittance of Renminbi into and out of the PRC for settlement of capital account items such as capital contributions debt financing and securities investment is generally only permitted upon obtaining specific approvals from or completing specific registrations or filing with the relevant authorities on a case-by-case basis and subject to a strict monitoring system. Regulations in the PRC on the remittance of Renminbi into and out of the PRC for settlement of capital account items are being adjusted from time to time to match the policies of the PRC government.Although the Renminbi was added to the Special Drawing Rights basket created by the International Monetary Fund in 2016 and the PBOC and the Ministry of Commerce of the PRC have implemented policies for further improving accessibility to Renminbi to settle cross-border transactions in foreign currencies there is no assurance that the PRC government will continue to gradually liberalise control over cross-border remittance of Renminbi in the future that any pilot schemes for Renminbi cross-border utilisation will not be discontinued or that new regulations in the PRC will not be promulgated in the future which have the effect of restricting or eliminating the remittance of Renminbi into or outside the PRC. In the event that any regulatory restrictions inhibit the ability of the Issuer to repatriate funds outside the PRC to meet its obligations under the Renminbi Notes the Issuer will need to source Renminbi offshore to finance such obligations under the relevant Renminbi Notes and its ability to do so will be subject to the overall availability of Renminbi outside the PRC.In addition holders of beneficial interests in Renminbi Notes may be required to provide certifications and other information (including Renminbi account information) in order to allow such holder to receive payments in Renminbi in accordance with the Renminbi clearing and settlement system for participating banks in Hong Kong.Payments with respect to the Renminbi Notes may be made only in the manner designated in the Renminbi Notes.All payments to investors in respect of Renminbi Notes will be made solely (i) for so long as such Notes are represented by Global Notes or Global Certificates by transfer to a Renminbi bank account maintained in Hong Kong in accordance with prevailing rules and procedures of the relevant clearing system or (ii) for so long as such Notes are in definitive form by transfer to a Renminbi bank account maintained in Hong Kong in accordance with the prevailing rules and regulations. The Issuer cannot be required to make payment by any other means (including in any other currency or in bank notes by cheque or draft or by transfer to a bank account in the PRC).– 52 –Investment in the Renminbi Notes is subject to exchange rate risks.The value of Renminbi against the U.S. dollar and other foreign currencies fluctuates from time to time and is affected by changes in the PRC and international political and economic conditions as well as other factors. In August 2015 the PBOC changed the way it calculates the mid-point price of Renminbi against the U.S. dollar requiring the market-makers who submit for the PBOC’s reference rates to consider the previous day’s closing spot rate foreign-exchange demand and supply as well as changes in major currency rates. This change and other changes such as widening the trading band that may be implemented may increase volatility in the value of the Renminbi against foreign currencies. The Issuer will make all payments of interest and principal with respect to the Renminbi Notes in Renminbi unless otherwise specified. As a result the value of these Renminbi payments may vary with the changes in the prevailing exchange rates in the marketplace. If an investor measures its investment returns by reference to a currency other than Renminbi an investment in the Renminbi Notes entails foreign exchange related risks including possible significant changes in the value of Renminbi relative to the currency by reference to which an investor measures its investment returns. Depreciation of Renminbi against such currency could cause a decrease in the effective yield of the Renminbi Notes below their stated coupon rates and could result in a loss when the return on the Renminbi Notes is translated into such currency. Accordingly the value of the investment made by a holder of the Renminbi Notes in that foreign currency will decline.There may be PRC tax consequences with respect to investment in the Renminbi Notes.In considering whether to invest in the Renminbi Notes investors should consult their individual tax advisers with regard to the application of PRC tax laws to their particular situation as well as any tax consequences arising under the laws of any other tax jurisdictions. The value of the holder’s investment in the Renminbi Notes may be materially and adversely affected if the holder is required to pay PRC tax with respect to acquiring holding or disposing of and receiving payments under those Renminbi Notes.Investment in the Renminbi Notes is subject to interest rate risks.The value of Renminbi payments under Renminbi Notes may be susceptible to interest rate fluctuations occurring within and outside the PRC including PRC Renminbi repo rates and/or the Shanghai inter-bank offered rate. The PRC government has gradually liberalised its regulation of interest rates in recent years.Further liberalisation may increase interest rate volatility. In addition the interest rate for Renminbi in markets outside the PRC may significantly deviate from the interest rate for Renminbi in the PRC as a result of foreign exchange controls imposed by PRC law and regulations and prevailing market conditions.The Renminbi Notes may carry a fixed interest rate. Consequently the trading price of such Notes will vary with the fluctuations in the Renminbi interest rates. If holders of Renminbi Notes propose to sell their Notes before their maturity they may receive an offer lower than the amount they have invested.– 53 –TERMS AND CONDITIONS OF THE NOTES The following is the text of the terms and conditions that save for the words in italics and subject to completion and amendment and as supplemented or varied in accordance with the provisions of the relevant Pricing Supplement shall be applicable to the Notes in definitive form (if any) issued in exchange for the Global Note(s) or the Global Certificate representing each Series. Either (i) the full text of these terms and conditions together with the relevant provisions of the Pricing Supplement or (ii) these terms and conditions as so completed amended supplemented or varied (and subject to simplification by the deletion of non-applicable provisions) shall be endorsed on such Bearer Notes or on the Certificates relating to such Registered Notes. All capitalised terms that are not defined in these Conditions will have the meanings given to them in the relevant Pricing Supplement. Those definitions will be endorsed on the definitive Notes or Certificates as the case may be. References in these Conditions to “Notes” are to the Notes of one Series only not to all Notes that may be issued under the Programme.The Notes are part of a Series (as defined below) of Notes issued by China Merchants Bank Co. Ltd. (the “Bank”) or the relevant branch as specified hereon (the “Issuer”) and are issued pursuant to the fifth amended and restated agency agreement dated 5 June 2023 (as amended restated or supplemented as at the Issue Date the “Agency Agreement”) between the Bank The Hongkong and Shanghai Banking Corporation Limited as fiscal agent and the other agents named in it and with the benefit of an amended and restated deed of covenant dated 5 June 2023 (as amended restated or supplemented as at the Issue Date the “Deed of Covenant”) executed by the Bank in relation to the Notes. The fiscal agent the CMU lodging and paying agent the other paying agents the registrars the transfer agents and the calculation agent(s) for the time being (if any) are referred to below respectively as the “Fiscal Agent” the “CMULodging and Paying Agent” the “Paying Agent” (which expression shall include the Fiscal Agent and the CMU Lodging and Paying Agent) the “Registrars” the “Transfer Agents” and the “CalculationAgent(s)” and collectively the “Agents”. For the purposes of these terms and conditions (these “Conditions”) all references to the Fiscal Agent shall with respect to a Series of Notes to be held in the CMU be deemed to be a reference to the CMU Lodging and Paying Agent and all such references shall be construed accordingly. The Noteholders (as defined below) the holders of the interest coupons (the “Coupons”) relating to interest bearing Notes in bearer form and where applicable in the case of such Notes talons for further Coupons (the “Talons”) (the “Couponholders”) and the holders of the receipts for the payment of instalments of principal (the “Receipts”) relating to Notes in bearer form of which the principal is payable in instalments are deemed to have notice of all of the provisions of the Agency Agreement applicable to them.As used in these Conditions “Tranche” means Notes which are identical in all respects.Copies of the Agency Agreement and the Deed of Covenant are available for inspection upon prior written request and proof of holdings and identity or electronically via e-mail written request to hkcorporate.trust.queries@hsbc.com.hk during normal business hours (being 9:00 a.m. to 3:00 p.m. local time on weekdays (excluding public holidays)) at the specified offices of each of the Paying Agents the Registrars and the Transfer Agents. 1. FORM DENOMINATION AND TITLE The Notes are issued in bearer form (“Bearer Notes”) or in registered form (“Registered Notes”) in each case in the Specified Denomination(s) shown hereon. Notes sold in reliance on Rule 144A under the U.S. Securities Act of 1933 (the “Securities Act”) will be in minimum denominations of U.S.$250000 (or its equivalent in other currencies) and integral multiples of U.S.$1000 (or its equivalent in other currencies) in excess thereof subject to compliance with all legal and/or regulatory requirements applicable to the relevant currency.– 54 –This Note is a Fixed Rate Note a Floating Rate Note a Zero Coupon Note an Index Linked InterestNote an Index Linked Redemption Note (together with an Index Linked Interest Note an “IndexLinked Note”) an Instalment Note a Dual Currency Note or a Partly Paid Note a combination of any of the foregoing or any other kind of Note depending upon the Interest and Redemption/Payment Basis shown hereon.Bearer Notes are serially numbered and are issued with Coupons (and where appropriate a Talon) attached save in the case of Zero Coupon Notes in which case references to interest (other than in relation to interest due after the Maturity Date) Coupons and Talons in these Conditions are not applicable. Instalment Notes are issued with one or more Receipts attached.Registered Notes will be represented by either: (i) individual Certificates in registered form (“Individual Certificates”); or (ii) one or more unrestricted global certificates (“Unrestricted Global Certificate(s)”) in the case of Registered Notes sold outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act (“Unrestricted Notes”) and/or one or more restricted global certificates (“Restricted Global Certificates” together with Individual Certificates and Unrestricted Global Certificates “Certificates”) in the case of Registered Notes sold to “qualified institutional buyers” as defined in and in reliance on Rule 144A under the Securities Act (“Restricted Notes”).Title to the Bearer Notes and the Receipts Coupons and Talons shall pass by delivery. Title to the Registered Notes shall pass by registration in the relevant register that the Issuer shall procure to be kept by the relevant Registrar in accordance with the provisions of the Agency Agreement (the “Register”). Except as ordered by a court of competent jurisdiction or as required by law the holder (as defined below) of any Note Receipt Coupon or Talon shall be deemed to be and may be treated as its absolute owner for all purposes whether or not it is overdue and regardless of any notice of ownership trust or an interest in it any writing on it (or on the Certificate representing it) or its theft or loss (or that of the relevant Certificate) and no person shall be liable for so treating the holder.In these Conditions “Noteholder” means the bearer of any Bearer Note and the Receipts relating to it or the person in whose name a Registered Note is registered (as the case may be) “holder” (in relation to a Note Receipt Coupon or Talon) means the bearer of any Bearer Note Receipt Coupon or Talon or the person in whose name a Registered Note is registered (as the case may be) and capitalised terms have the meanings given to them hereon the absence of any such meaning indicating that such term is not applicable to the Notes. 2. NO EXCHANGE OF NOTES AND TRANSFERS OF REGISTERED NOTES (a) No Exchange of Notes Registered Notes may not be exchanged for Bearer Notes. Bearer Notes of one Specified Denomination may not be exchanged for Bearer Notes of another Specified Denomination.Bearer Notes may not be exchanged for Registered Notes.– 55 –(b) Transfer of Registered Notes Subject to Conditions 2(f) and 2(g) one or more Registered Notes may be transferred upon the surrender (at the specified office of the relevant Registrar or any Transfer Agent) of the Certificate representing such Registered Notes to be transferred together with the form of transfer endorsed on such Certificate (or another form of transfer substantially in the same form and containing the same representations and certifications (if any) unless otherwise agreed by the Issuer) duly completed and executed and any other evidence as the relevant Registrar or Transfer Agent may reasonably require. In the case of a transfer of part only of a holding of Registered Notes represented by one Certificate a new Certificate shall be issued to the transferee in respect of the part transferred and a further new Certificate in respect of the balance of the holding not transferred shall be issued to the transferor. All transfers of Notes and entries on the relevant Register will be made subject to the detailed regulations concerning transfers of Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the relevant Registrar and the Noteholders. A copy of the current regulations will be made available by the relevant Registrar to any Noteholder upon request.Transfers of interests in the Notes evidenced by Global Certificates will be effected in accordance with the rules of the relevant clearing systems.(c) Exercise of Options or Partial Redemption in Respect of Registered Notes In the case of an exercise of an Issuer’s or Noteholders’ option in respect of or a partial redemption of a holding of Registered Notes represented by a single Certificate a new Certificate shall be issued to the holder to reflect the exercise of such option or in respect of the balance of the holding not redeemed. In the case of a partial exercise of an option resulting in Registered Notes of the same holding having different terms separate Certificates shall be issued in respect of those Notes of that holding that have the same terms. New Certificates shall only be issued against surrender of the existing Certificates to the relevant Registrar or any Transfer Agent. In the case of a transfer of Registered Notes to a person who is already a holder of Registered Notes a new Certificate representing the enlarged holding shall only be issued against surrender of the Certificate representing the existing holding.(d) Delivery of New Certificates Each new Certificate to be issued pursuant to Condition 2(b) or Condition 2(c) shall be available for delivery within five business days of receipt of a duly completed form of transfer or Exercise Notice (as defined in Condition 6(e)) and surrender of the Certificate for exchange.Delivery of the new Certificate(s) shall be made at the specified office of the Transfer Agent or of the relevant Registrar (as the case may be) to whom delivery or surrender of such form of transfer Exercise Notice or Certificate shall have been made or at the option of the holder making such delivery or surrender as aforesaid and as specified in the form of transfer Exercise Notice or otherwise in writing be mailed by uninsured post at the risk of the holder entitled to the new Certificate to such address as may be so specified unless such holder requests otherwise and pays in advance to the relevant Agent (as defined in the Agency Agreement) the costs of such other method of delivery and/or such insurance as it may specify. In this Condition 2(d) “business day” means a day other than a Saturday or Sunday on which banks are open for business in the place of the specified office of the relevant Transfer Agent or the relevant Registrar (as the case may be).– 56 –(e) Transfer Free of Charge Transfers of Notes and Certificates on registration transfer partial redemption or exercise of an option shall be effected without charge by or on behalf of the Issuer the Registrars or the Transfer Agents but upon payment of any tax or other governmental charges that may be imposed in relation to it (or the giving of such indemnity as the relevant Registrar or the relevant Transfer Agent may require).(f) Closed Periods No Noteholder may require the transfer of a Registered Note to be registered (i) during the period of 15 days ending on (and including) the due date for redemption of or payment of any Instalment Amount in respect of that Note (ii) during the period of 15 days before any date on which Notes may be called for redemption by the Issuer at its option pursuant to Condition 6(d) (iii) after any such Note has been called for redemption or (iv) during the period of 15 days ending on (and including) any Record Date.(g) Regulations Concerning Transfers and Registration All transfers of Registered Notes and entries on the relevant Register are subject to the detailed regulations concerning the transfer of Registered Notes scheduled to the Agency Agreement.The regulations may be changed by the Issuer with the prior written approval of the Registrars.A copy of the current regulations will be mailed (free of charge) by the Registrars to any Noteholder who requests in writing a copy of such regulations. 3. STATUS The Notes and the Receipts and the Coupons relating to them constitute direct unconditional unsubordinated and unsecured obligations of the Bank and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Notes and the Receipts and the Coupons relating to them shall save for such exceptions as may be provided by applicable legislation at all times rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of the Issuer present and future. 4. NEGATIVE PLEDGE (a) So long as any Note remains outstanding (as defined in the Agency Agreement) the Bank will not and will ensure that none of its Subsidiaries will create or have outstanding any mortgage charge lien pledge or other security interest upon the whole or any part of its present or future undertaking assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness or to secure any guarantee or indemnity in respect of any Relevant Indebtedness without at the same time or prior thereto according to the Notes the same security as is created or subsisting to secure any such Relevant Indebtedness guarantee or indemnity or such other security as shall be approved by an Extraordinary Resolution (as defined in the Agency Agreement) of the Noteholders.(b) NDRC Filings: Where the NDRC Administrative Measures applies to the Tranche of Notes to be issued so long as any such Note remains outstanding the Issuer undertakes to file or cause to be filed with the NDRC the requisite information and documents in connection with such Tranche of Notes within the relevant prescribed timeframes in accordance with the NDRC Administrative Measures (each a “NDRC Filing” and together the “NDRC Filings”).– 57 –The Agents shall have no obligation to monitor and/or ensure or assist with the completion of the NDRC Filings on or before the relevant deadline referred above or to verify the accuracy validity and/or genuineness of or to translate or arrange for translation into English of any documents in relation to or in connection with the NDRC Filings or to notify the Noteholders of the completion of the NDRC Filings and shall not be liable to the Noteholders or any other person for not doing so.In this Condition 4: “NDRC” means the National Development and Reform Commission of the PRC or its local counterparts; “NDRC Administrative Measures” means the Administrative Measures for the Examination and Registration of Medium- and Long-term Foreign Debts of Enterprises (企业中长期外债审 核登记管理办法(国家发展和改革委员会令第 56号)) issued by the NDRC and which came into effect on 10 February 2023 (as supplemented amended or replaced from time to time) and any implementation rules reports certificates approvals or guidelines as issued by the NDRC from time to time; “Relevant Indebtedness” means any indebtedness which is in the form of or represented or evidenced by bonds notes debentures loan stock or other securities which for the time being are or are intended to be or capable of being quoted listed or dealt in or traded on any stock exchange or over-the-counter or other securities market outside mainland China (for the avoidance of doubt “mainland China” shall not include the Hong Kong and Macau Special Administration Regions or Taiwan); and “Subsidiary” means any entity whose financial statements at any time are required by law or in accordance with generally accepted accounting principles to be fully consolidated with those of the Bank. 5. INTEREST AND OTHER CALCULATIONS (a) Interest on Fixed Rate Notes Each Fixed Rate Note bears interest on its outstanding nominal amount from (and including) the Interest Commencement Date at the rate per annum (expressed as a percentage) equal to the Rate of Interest such interest being payable in arrear on each Interest Payment Date. The amount of interest payable shall be determined in accordance with Condition 5(h).(b) Interest on Floating Rate Notes and Index Linked Interest Notes (i) Interest Payment Dates Each Floating Rate Note and Index Linked Interest Note bears interest on its outstanding nominal amount from (and including) the Interest Commencement Date at the rate per annum (expressed as a percentage) equal to the Rate of Interest such interest being payable in arrear on each Interest Payment Date. The amount of interest payable shall be determined in accordance with Condition 5(h). Such Interest Payment Date(s) is/are either shown hereon as Specified Interest Payment Dates or if no Specified Interest Payment Date(s) is/are shown hereon Interest Payment Date shall mean each date which falls the number of months or other period shown hereon as the Interest Period after the preceding Interest Payment Date or in the case of the first Interest Payment Date after the Interest Commencement Date.– 58 –(ii) Business Day Convention If any date referred to in these Conditions that is specified to be subject to adjustment in accordance with a Business Day Convention would otherwise fall on a day that is not a Business Day then if the Business Day Convention specified is (A) the Floating Rate Business Day Convention such date shall be postponed to the next day that is a Business Day unless it would thereby fall into the next calendar month in which event (x) such date shall be brought forward to the immediately preceding Business Day and (y) each subsequent such date shall be the last Business Day of the month in which such date would have fallen had it not been subject to adjustment (B) the Following Business Day Convention such date shall be postponed to the next day that is a Business Day (C) the Modified Following Business Day Convention such date shall be postponed to the next day that is a Business Day unless it would thereby fall into the next calendar month in which event such date shall be brought forward to the immediately preceding Business Day or (D) the Preceding Business Day Convention such date shall be brought forward to the immediately preceding Business Day.(iii) Rate of Interest for Floating Rate Notes The Rate of Interest in respect of Floating Rate Notes for each Interest Accrual Period shall be determined in the manner specified hereon and the provisions below relating to either ISDA Determination or Screen Rate Determination shall apply depending upon which is specified hereon. (A) ISDA Determination for Floating Rate Notes Where ISDA Determination is specified hereon as the manner in which the Rate of Interest is to be determined the Rate of Interest for each Interest Accrual Period shall be determined by the Calculation Agent as a rate equal to the relevant ISDA Rate. For the purposes of this sub-paragraph (A) “ISDA Rate” for an Interest Accrual Period means a rate equal to the Floating Rate (as defined in the relevant ISDA Definitions) that would be determined by the Calculation Agent under a Swap Transaction under the terms of an agreement incorporating the ISDA Definitions and under which: (x) if it is specified hereon either “2006 ISDA Definitions” or “2021 ISDADefinitions” as the applicable ISDA Definitions: (1) the Floating Rate Option (as defined in the relevant ISDA Definitions) is as specified hereon; (2) the Designated Maturity (as defined in the relevant ISDA Definitions) if applicable is a period specified hereon; (3) the relevant Reset Date (as defined in the relevant ISDA Definitions) has the meaning given to it in the ISDA Definitions unless otherwise specified hereon; – 59 –(4) if the specified Floating Rate Option is an Overnight Floating Rate Option (as defined in the relevant ISDA Definitions) Compounding is specified to be applicable hereon and: a. if Compounding with Lookback is specified as the Compounding Method hereon then (a) Compounding with Lookback is the Overnight Rate Compounding Method (as defined in the relevant ISDA Definitions) and (b) Lookback is the number of Applicable Business Days (as defined in the relevant ISDA Definitions) specified hereon; b. if Compounding with Observation Period Shift is specified as the Compounding Method hereon then (a) Compounding with Observation Period Shift is the Overnight Rate Compounding Method (b) Observation Period Shift is the number of Observation Period Shift Business Days (as defined in the relevant ISDA Definitions) specified hereon and (c) Observation Period Shift Additional Business Days (as defined in the relevant ISDA Definitions) if applicable are the days specified hereon; or c. if Compounding with Lockout is specified as the Compounding Method hereon then (a) Compounding with Lockout is the Overnight Rate Compounding Method (b) Lockout is the number of Lockout Period Business Days (as defined in the relevant ISDA Definitions) specified hereon and (c) Lockout Period Business Days if applicable are the days specified hereon; and (5) if the specified Floating Rate Option is an Index Floating Rate Option (as defined in the relevant ISDA Definitions) and Index Provisions are specified to be applicable hereon the Compounded Index Method with Observation Period Shift (as defined in the relevant ISDA Definitions) shall be applicable and (a) Observation Period Shift is the number of Observation Period Shift Business Days (as defined in the relevant ISDA Definitions) specified hereon and (b) Observation Period Shift Additional Business Days (as defined in the relevant ISDA Definitions) if applicable are the days specified hereon; (y) references in the relevant ISDA Definitions to: (1) “Confirmation” shall be deemed to be references to the relevant Pricing Supplement; (2) “Calculation Period” shall be deemed to be references to the relevant Interest Accrual Period; (3) “Termination Date” shall be deemed to be references to the Maturity Date; and (4) “Effective Date” shall be deemed to be references to the Interest Commencement Date; and – 60 –(z) if “2021 ISDA Definitions” is specified as applicable hereon: (1) “Administrator/Benchmark Event” shall be disapplied; and (2) if the Temporary Non-Publication Fallback in respect of any specifiedFloating Rate Option is specified to be “Temporary Non-PublicationFallback – Alternative Rate” in the Floating Rate Matrix of the 2021ISDA Definitions the reference to “Calculation Agent AlternativeRate Determination” in the definition of “Temporary Non-Publication Fallback – Alternative Rate” shall be replaced by “Temporary Non-Publication Fallback – Previous Day’s Rate”. (B) Screen Rate Determination for Floating Rate Notes not referencing SOFR Benchmark (x) Where Screen Rate Determination is specified hereon as the manner in which the Rate of Interest is to be determined (other than in respect of Notes for which the Reference Rate is SOFR Benchmark) the Rate of Interest for each Interest Accrual Period will subject as provided below be either: (1) the offered quotation; or (2) the arithmetic mean of the offered quotations (expressed as a percentage rate per annum) for the Reference Rate which appears or appear as the case may be on the Relevant Screen Page as at either 11.00 a.m. (Brussels time in the case of EURIBOR or Hong Kong time in the case of HIBOR) or in the case of CNH HIBOR 11.15 a.m. (Hong Kong time) or if at or around that time it is notified that the fixing will be published at 2.30 p.m. (Hong Kong time) then as at 2.30 p.m. (Hong Kong time) on the Interest Determination Date in question as determined by the Calculation Agent. If five or more of such offered quotations are available on the Relevant Screen Page the highest (or if there is more than one such highest quotation one only of such quotations) and the lowest (or if there is more than one such lowest quotation one only of such quotations) shall be disregarded by the Calculation Agent for the purpose of determining the arithmetic mean of such offered quotations. If the Rate of Interest cannot be determined in accordance with the foregoing provisions of this paragraph the Rate of Interest shall be determined as at the last preceding Interest Determination Date (though substituting where a different Margin or Maximum or Minimum Rate of Interest is to be applied to the relevant Interest Accrual Period from that which applied to the last preceding Interest Accrual Period the Margin or Maximum or Minimum Rate of Interest relating to the relevant Interest Accrual Period in place of the Margin or Maximum or Minimum Rate of Interest relating to that last preceding Interest Accrual Period) provided that if the Reference Rate from time to time in respect of Floating Rate Notes is specified hereon as being other than EURIBOR HIBOR or CNH HIBOR the Rate of Interest in respect of such Notes will be determined as provided hereon.– 61 –(C) Screen Rate Determination for Floating Rate Notes referencing SOFR Benchmark Where Screen Rate Determination is specified hereon as the manner in which the Rate of Interest is to be determined where the Reference Rate is SOFR Benchmark the Rate of Interest for each Interest Accrual Period will subject as provided below be equal to the relevant SOFR Benchmark as determined by the Calculation Agent on the relevant Interest Determination Date.The “SOFR Benchmark” will be determined based on Simple SOFR Average Compounded SOFR Average or SOFR Compounded Index (as specified hereon) as follows (subject in each case to Condition 5(k)): (x) If Simple SOFR Average (“Simple SOFR Average”) is specified hereon as the manner in which the SOFR Benchmark will be determined the SOFR Benchmark for each Interest Accrual Period shall be the arithmetic mean of the SOFR reference rates for each U.S. Government Securities Business Day during such Interest Accrual Period as calculated by the Calculation Agent and where if applicable and as specified hereon the SOFR reference rate on the SOFR Rate Cut-Off Date shall be used for the U.S. Government Securities Business Days in the relevant Interest Accrual Period from (and including) the SOFR Rate Cut-Off Date to (but excluding) the last day of that Interest Accrual Period.(y) If Compounded SOFR Average (“Compounded SOFR Average”) is specified hereon as the manner in which the SOFR Benchmark will be determined the SOFR Benchmark for each Interest Accrual Period shall be equal to the compounded average of daily SOFR reference rates for each day during the relevant Interest Accrual Period (where SOFR Observation Lag SOFR Payment Delay or SOFR Lockout is specified hereon to determine Compounded SOFR Average) or SOFR Observation Period (where SOFR Observation Shift is specified hereon to determine Compounded SOFR Average).Compounded SOFR Average shall be calculated by the Calculation Agent in accordance with one of the formulas referenced below depending upon which is specified as applicable hereon: (i) SOFR Observation Lag: SOFR –×USBD × 360 1+?1× 360 – 62 –with the resulting percentage being rounded if necessary to the nearest one hundred-thousandth of a percentage point with 0.000005% being rounded upwards (e.g. 9.876541% (or 0.09876541) being rounded down to 9.87654% (or 0.0987654) and 9.876545% (or 0.09876545) being rounded up to 9.87655% (or 0.0987655)) and where: “SOFRi-xUSBD” for any U.S. Government Securities Business Day(i) in the relevant Interest Accrual Period is equal to the SOFR reference rate for the U.S. Government Securities Business Day falling the number of Lookback Days prior to that U.S. Government Securities Business Day(i); “Lookback Days” means such number of U.S. Government Securities Business Days as specified hereon; “d” means the number of calendar days in the relevant Interest Accrual Period; “do” for any Interest Accrual Period means the number of U.S.Government Securities Business Days in the relevant Interest Accrual Period; “i” means a series of whole numbers ascending from one to do representing each relevant U.S. Government Securities Business Day in chronological order from (and including) the first U.S. Government Securities Business Day in the relevant Interest Accrual Period (each a “U.S. Government Securities Business Day(i)”); and “ni” for any U.S. Government Securities Business Day(i) in the relevant Interest Accrual Period means the number of calendar days from (and including) such U.S. Government Securities Business Day(i) up to (but excluding) the following U.S. Government Securities Business Day.(ii) SOFR Observation Shift: SOFR × 360 1+?1× 360 with the resulting percentage being rounded if necessary to the nearest one hundred-thousandth of a percentage point with 0.000005% being rounded upwards (e.g. 9.876541% (or 0.09876541) being rounded down to 9.87654% (or 0.0987654) and 9.876545% (or 0.09876545) being rounded up to 9.87655% (or 0.0987655)) and where: “SOFRi” for any U.S. Government Securities Business Day(i) in the relevant SOFR Observation Period is equal to the SOFR reference rate for that U.S. Government Securities Business Day(i); “SOFR Observation Period” means in respect of each Interest Accrual Period the period from (and including) the date falling the number of SOFR Observation Shift Days prior to the first day of the relevant Interest Accrual Period to (but excluding) the date falling the number of SOFR Observation Shift Days prior to the Interest Period Date for such Interest Accrual Period; – 63 –“SOFR Observation Shift Days” means the number of U.S.Government Securities Business Days as specified hereon; “d” means the number of calendar days in the relevant SOFR Observation Period; “do” for any SOFR Observation Period means the number of U.S.Government Securities Business Days in the relevant SOFR Observation Period; “i” means a series of whole numbers ascending from one to do representing each U.S. Government Securities Business Day in chronological order from (and including) the first U.S. Government Securities Business Day in the relevant SOFR Observation Period (each a “U.S. Government Securities Business Day(i)”); and “ni” for any U.S. Government Securities Business Day(i) in the relevant SOFR Observation Period means the number of calendar days from (and including) such U.S. Government Securities Business Day(i) up to (but excluding) the following U.S. Government Securities Business Day.(iii) SOFR Payment Delay: SOFR × 360 1+?1× 360 with the resulting percentage being rounded if necessary to the nearest one hundred-thousandth of a percentage point with 0.000005% being rounded upwards (e.g. 9.876541% (or 0.09876541) being rounded down to 9.87654% (or 0.0987654) and 9.876545% (or 0.09876545) being rounded up to 9.87655% (or 0.0987655)) and where: “SOFRi” for any U.S. Government Securities Business Day(i) in the relevant Interest Accrual Period is equal to the SOFR reference rate for that U.S. Government Securities Business Day(i); “Interest Payment Date” shall be the number of Interest Payment Delay Days following each Interest Period Date; provided that the Interest Payment Date with respect to the final Interest Accrual Period will be the Maturity Date or the relevant date for redemption as applicable; “Interest Payment Delay Days” means the number of Business Days as specified hereon; “d” means the number of calendar days in the relevant Interest Accrual Period; “do” for any Interest Accrual Period means the number of U.S.Government Securities Business Days in the relevant Interest Accrual Period; – 64 –“i” means a series of whole numbers ascending from one to do representing each relevant U.S. Government Securities Business Day in chronological order from (and including) the first U.S. Government Securities Business Day in the relevant Interest Accrual Period (each a “U.S. Government Securities Business Day(i)”); and “ni” for any U.S. Government Securities Business Day(i) in the relevant Interest Accrual Period means the number of calendar days from (and including) such U.S. Government Securities Business Day(i) up to (but excluding) the following U.S. Government Securities Business Day.For the purposes of calculating Compounded SOFR Average with respect to the final Interest Accrual Period where SOFR Payment Delay is specified hereon the SOFR reference rate for each U.S. Government Securities Business Day in the period from (and including) the SOFR Rate Cut-Off Date to (but excluding) the Maturity Date or the relevant date for redemption as applicable shall be the SOFR reference rate in respect of such SOFR Rate Cut-Off Date.(iv) SOFR Lockout: SOFR × 360 1+?1× 360 with the resulting percentage being rounded if necessary to the nearest one hundred-thousandth of a percentage point with 0.000005% being rounded upwards (e.g. 9.876541% (or 0.09876541) being rounded down to 9.87654% (or 0.0987654) and 9.876545% (or 0.09876545) being rounded up to 9.87655% (or 0.0987655)) and where: “SOFRi” for any U.S. Government Securities Business Day(i) in the relevant Interest Accrual Period is equal to the SOFR reference rate for that U.S. Government Securities Business Day(i) except that the SOFR reference rate for any U.S. Government Securities Business Day(i) in respect of the period from (and including) the SOFR Rate Cut-Off Date to (but excluding) the Interest Period Date for such Interest Accrual Period shall be the SOFR reference rate in respect of such SOFR Rate Cut-Off Date; “d” means the number of calendar days in the relevant Interest Accrual Period; “do” for any Interest Accrual Period means the number of U.S.Government Securities Business Days in the relevant Interest Accrual Period; – 65 –“i” means a series of whole numbers ascending from one to do representing each relevant U.S. Government Securities Business Day from (and including) the first U.S. Government Securities Business Dayin the relevant Interest Accrual Period (each a “U.S. GovernmentSecurities Business Day(i)”); and “ni” for any U.S. Government Securities Business Day(i) in the relevant Interest Accrual Period means the number of calendar days from (and including) such U.S. Government Securities Business Day(i) up to (but excluding) the following U.S. Government Securities Business Day.The following defined terms shall have the meanings set out below for purpose of Conditions 5(b)(iii)(C)(x) and 5(b)(iii)(C)(y): “Bloomberg Screen SOFRRATE Page” means the Bloomberg screen designated “SOFRRATE” or any successor page or service.“Reuters Page USDSOFR=” means the Reuters page designated “USDSOFR=” or any successor page or service.“SOFR” means with respect to any U.S. Government Securities Business Day the reference rate determined by the Calculation Agent in accordance with the following provision: (i) the Secured Overnight Financing Rate published at the SOFR Determination Time as such reference rate is reported on the Bloomberg Screen SOFRRATE Page; the Secured Overnight Financing Rate published at the SOFR Determination Time as such reference rate is reported on the Reuters Page USDSOFR=; or the Secured Overnight Financing Rate published at the SOFR Determination Time on the SOFR Administrator’s Website; (ii) if the reference rate specified in (i) above does not appear and a SOFR Benchmark Transition Event and its related SOFR Benchmark Replacement Date have not occurred the SOFR reference rate shall be the reference rate published on the SOFR Administrator’s Website for the first preceding U.S. Government Securities Business Day for which SOFR was published on the SOFR Administrator’s Website; or (iii) if the reference rate specified in (i) above does not appear and a SOFR Benchmark Transition Event and its related SOFR Benchmark Replacement Date have occurred the provisions set forth in Condition 5(k) shall apply. – 66 –“SOFR Determination Time” means approximately 3:00 p.m. (New York City time) on the immediately following the relevant U.S. Government Securities Business Day.(z) If SOFR Compounded Index (“SOFR Compounded Index”) is specified as applicable hereon the SOFR Benchmark for each Interest Accrual Period shall be equal to the compounded average of daily SOFR reference rates for each day during the relevant SOFR Observation Period as calculated by the Calculation Agent as follows: SOFR IndexEnd 360 SOFR Index ? 1 ×Start dc with the resulting percentage being rounded if necessary to the nearest one hundred-thousandth of a percentage point with 0.000005% being rounded upwards (e.g. 9.876541% (or 0.09876541) being rounded down to 9.87654% (or 0.0987654) and 9.876545% (or 0.09876545) being rounded up to 9.87655% (or 0.0987655)) and where: “SOFR Index” with respect to any U.S. Government Securities Business Day means: (a) the SOFR Index value as published on the SOFR Administrator’s Website on or about 3:00 p.m. (New York time) on such U.S.Government Securities Business Day (the “SOFR Index DeterminationTime”); provided that in the event that the value originally published by the SOFR Administrator on or about 3:00 p.m. (New York time) on any U.S. Government Securities Business Day is subsequently corrected and such corrected value is published by the SOFR Administrator on the original date of publication then such corrected value instead of the value that was originally published shall be deemed the SOFR Index value as of the SOFR Index Determination Time in relation to such U.S.Government Securities Business Day; and (b) if a SOFR Index value does not so appear as specified in (a) above of this definition then: (i) if a Benchmark Event (as defined in Condition 5(k)) and its related Benchmark Replacement Date (as defined in Condition 5(k)) has not occurred with respect to SOFR then SOFR Compounded Indexshall be the rate determined pursuant to the “SOFR IndexUnavailable” provisions in Condition 5(b)(iii)(D); or (ii) if a Benchmark Event and its related Benchmark Replacement Date has occurred with respect to SOFR then SOFR Compounded Index shall be the rate determined pursuant to Condition 5(k).“SOFR IndexStart” means in respect of an Interest Accrual Period the SOFR Index value on the date which is the number of U.S. Government Securities Business Days specified hereon preceding the first date of such Interest Accrual Period; – 67 –“SOFR IndexEnd” means in respect of an Interest Accrual Period the SOFR Index value on the date which is the number of U.S. Government Securities Business Days specified hereon preceding the Interest Period Date relating to such Interest Accrual Period (or in the final Interest Accrual Period the Maturity Date); “dc” means the number of calendar days in the relevant SOFR Observation Period; “SOFR Observation Shift Days” means the number of U.S. Government Securities Business Days as specified hereon; and “SOFR Observation Period” means in respect of an Interest Accrual Period the period from (and including) the date which is the number of SOFR Observation Shift Days preceding the first date of such Interest Accrual Period (and in respect of the first Interest Accrual Period the number of SOFR Observation Shift Days preceding the Issue Date) to but excluding the date which is the number of SOFR Observation Shift Days preceding the Interest Period Date for such Interest Accrual Period (or in the final Interest Accrual Period the Maturity Date).The following defined terms shall have the meanings set out below for purpose of this Condition 5(b)(iii)(C): “SOFR Administrator” means the Federal Reserve Bank of New York or any successor administrator of the SOFR Index value and Secured Overnight Financing Rate.“SOFR Administrator’s Website” means the website of the SOFR Administrator (currently being https://apps.newyorkfed.org/markets/autorates/sofr-avg-ind) or any successor source.“SOFR Benchmark Replacement Date” means the Benchmark Replacement Date with respect to the then current SOFR Benchmark.“SOFR Benchmark Transition Event” means the occurrence of a Benchmark Event with respect to the then current SOFR Benchmark.“SOFR Rate Cut-Off Date” has the meaning specified hereon.“U.S. Government Securities Business Day” or “USBD” means any day except for a Saturday a Sunday or a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in U.S. government securities.– 68 –(D) SOFR Index Unavailable If a SOFR Index value is not published on the relevant Interest Determination Date and a Benchmark Event (as defined in Condition 5(k)) and its related Benchmark Replacement Date (as defined in Condition 5(k)) has not occurred with respect to SOFR then the SOFR Index shall be calculated in accordance with the Compounded SOFR formula and the related definitions as set out below in this Condition 5(b)(iii)(D): “Compounded SOFR” means for the applicable Interest Accrual Period for which the SOFR Index is not available the rate of return on a daily compounded interest investment during the relevant Observation Period (with the daily SOFR reference rate as the reference rate for the calculation of interest) and calculated by the Calculation Agent in accordance with the following formula and the resulting percentage will be rounded if necessary to the nearest one hundred-thousandth of a percentage point 0.000005% being rounded upwards (e.g. 9.876541% (or 0.09876541) being rounded down to 9.87654% (or 0.0987654) and 9.876545% (or 0.09876545) being rounded up to 9.87655% (or 0.0987655)): SOFR × 360 1+?1× 360 where: “dc” means the number of calendar days in the relevant Observation Period; “do” means the number of U.S. Government Securities Business Days in the relevant Observation Period; “i” means a series of whole numbers from one to do each representing the relevant U.S. Government Securities Business Days in chronological order from (and including) the first U.S. Government Securities Business Day in the relevant Observation Period (each a “U.S. Government Securities Business Day(i)”); “ni” for any U.S. Government Securities Business Day(i) in the relevant Observation Period means the number of calendar days from (and including) such U.S. Government Securities Business Day(i) up to (but excluding) the following U.S. Government Securities Business Day(i); “SOFRi” for any U.S. Government Securities Business Day(i) in the relevant Observation Period is equal to the SOFR reference rate in respect of that U.S.Government Securities Business Day(i); “Bloomberg Screen SOFRRATE Page” means the Bloomberg screen designated “SOFRRATE” or any successor page or service; – 69 –“Observation Period” means in respect of each Interest Accrual Period the period from (and including) the date falling a number of U.S. Government Securities Business Days equal to the Observation Shift Days preceding the first date in such Interest Accrual Period to (but excluding) the date falling a number of U.S.Government Securities Business Days equal to the number of Observation Shift Days preceding the Interest Period Date for such Interest Accrual Period; “Observation Shift Days” means the number of U.S. Government Securities Business Days as specified hereon; “Reuters Page USDSOFR=” means the Reuters page designated “USDSOFR=” or any successor page or service; “SOFR” means with respect to any U.S. Government Securities Business Day: (a) the Secured Overnight Financing Rate published at the SOFR Determination Time as such rate is reported on the Bloomberg Screen SOFRRATE Page; the Secured Overnight Financing Rate published at the SOFR Determination Time as such rate is reported on the Reuters Page USDSOFR=; or the Secured Overnight Financing Rate that appears at the SOFR Determination Time on the SOFR Administrator’s Website; or (b) if the rate specified in (a) above does not appear the SOFR published on the SOFR Administrator’s Website for the first preceding U.S. Government Securities Business Day for which SOFR was published on the SOFR Administrator’s Website; “SOFR Administrator” means the Federal Reserve Bank of New York or any successor administrator of the SOFR Index value and Secured Overnight Financing Rate; “SOFR Administrator’s Website” means the website of the SOFR Administrator (currently being https://apps.newyorkfed.org/markets/autorates/sofr-avg-ind) or any successor source; “SOFR Determination Time” means on or about 3:00 p.m. (New York City time) on the SOFR Administrator’s Website on the immediately following U.S.Government Securities Business Day; and “U.S. Government Securities Business Day” means any day other than a Saturday a Sunday or a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in U.S. government securities.(iv) Rate of Interest for Index Linked Interest Notes The Rate of Interest in respect of Index Linked Interest Notes for each Interest Accrual Period shall be determined by the Calculation Agent in the manner specified hereon and interest will accrue by reference to an Index or Formula as specified hereon.– 70 –(c) Zero Coupon Notes Where a Note the Interest Basis of which is specified to be Zero Coupon is repayable prior to the Maturity Date and is not paid when due the amount due and payable prior to the Maturity Date shall be the Early Redemption Amount of such Note. As from the Maturity Date the Rate of Interest for any overdue principal of such a Note shall be a rate per annum (expressed as a percentage) equal to the Amortisation Yield (as described in Condition 6(b)(i)).(d) Dual Currency Notes In the case of Dual Currency Notes if the rate or amount of interest falls to be determined by reference to a Rate of Exchange or a method of calculating Rate of Exchange the rate or amount of interest payable shall be determined by the Calculation Agent in the manner specified hereon.(e) Partly Paid Notes In the case of Partly Paid Notes (other than Partly Paid Notes which are Zero Coupon Notes) interest will accrue as aforesaid on the paid-up nominal amount of such Notes and otherwise as specified hereon.(f) Accrual of Interest Interest shall cease to accrue on each Note on the due date for redemption unless upon due presentation payment is improperly withheld or refused in which event interest shall continue to accrue (both before and after judgment) at the Rate of Interest in the manner provided in this Condition 5 to the Relevant Date (as defined in Condition 8).(g) Margin Maximum/Minimum Rates of Interest Instalment Amounts and Redemption Amounts and Rounding (i) If any Margin is specified hereon (either (x) generally or (y) in relation to one or more Interest Accrual Periods) an adjustment shall be made to all Rates of Interest in the case of (x) or the Rates of Interest for the specified Interest Accrual Periods in the case of (y) calculated in accordance with Condition 5(b) above by adding (if a positive number) or subtracting the absolute value (if a negative number) of such Margin subject always to the next paragraph.(ii) If any Maximum Rate of Interest Minimum Rate of Interest Instalment Amount or Redemption Amount is specified hereon then any Rate of Interest Instalment Amount or Redemption Amount shall be subject to such maximum or minimum as the case may be.(iii) For the purposes of any calculations required pursuant to these Conditions (unless otherwise specified) (x) all percentages resulting from such calculations shall be rounded if necessary to the nearest one hundred-thousandth of a percentage point (with 0.000005 of a percentage point being rounded up) (y) all figures shall be rounded to seven significant figures (provided that if the eighth significant figure is a 5 or greater the seventh significant figure shall be rounded up) and (z) all currency amounts that fall due and payable shall be rounded to the nearest unit of such currency (with half a unit being rounded up) save in the case of yen which shall be rounded down to the nearest yen. For these purposes “unit” means the lowest amount of such currency that is available as legal tender in the country of such currency.– 71 –(h) Calculations The amount of interest payable per Calculation Amount in respect of any Note for any Interest Accrual Period shall be equal to the product of the Rate of Interest the Calculation Amount specified hereon and the Day Count Fraction for such Interest Accrual Period unless an Interest Amount (or a formula for its calculation) is applicable to such Interest Accrual Period in which case the amount of interest payable per Calculation Amount in respect of such Note for such Interest Accrual Period shall equal such Interest Amount (or be calculated in accordance with such formula). Where any Interest Period comprises two or more Interest Accrual Periods the amount of interest payable per Calculation Amount in respect of such Interest Period shall be the sum of the Interest Amounts payable in respect of each of those Interest Accrual Periods. In respect of any other period for which interest is required to be calculated the provisions above shall apply save that the Day Count Fraction shall be for the period for which interest is required to be calculated.(i) Determination and Publication of Rates of Interest Interest Amounts Final Redemption Amounts Early Redemption Amounts Optional Redemption Amounts and Instalment Amounts The Calculation Agent shall as soon as practicable on such date as the Calculation Agent may be required to calculate any rate or amount obtain any quotation or make any determination or calculation determine such rate and calculate the Interest Amounts for the relevant Interest Accrual Period calculate the Final Redemption Amount Early Redemption Amount Optional Redemption Amount or Instalment Amount obtain such quotation or make such determination or calculation as the case may be and cause the Rate of Interest and the Interest Amounts for each Interest Accrual Period and the relevant Interest Payment Date and if required to be calculated the Final Redemption Amount Early Redemption Amount Optional Redemption Amount or any Instalment Amount to be notified to the Fiscal Agent the Issuer each of the Paying Agents the Noteholders any other Calculation Agent appointed in respect of the Notes that is to make a further calculation upon receipt of such information and if the Notes are listed on a stock exchange and the rules of such exchange or other relevant authority so require such exchange or other relevant authority as soon as possible after their determination but in no event later than (i) the commencement of the relevant Interest Period if determined prior to such time in the case of notification to such exchange of a Rate of Interest and Interest Amount or (ii) in all other cases the fourth Business Day after such determination. Where any Interest Payment Date or Interest Period Date is subject to adjustment pursuant to Condition 5(b)(ii) the Interest Amounts and the Interest Payment Date so published may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without notice in the event of an extension or shortening of the Interest Period. If the Notes become due and payable under Condition 10 the accrued interest and the Rate of Interest payable in respect of the Notes shall nevertheless continue to be calculated as previously in accordance with this Condition 5 but no publication of the Rate of Interest or the Interest Amount so calculated need be made. The determination of any rate or amount the obtaining of each quotation and the making of each determination or calculation by the Calculation Agent(s) shall (in the absence of manifest error) be final and binding upon all parties.– 72 –(j) Benchmark Discontinuation for Floating Rate Notes not referencing SOFR Benchmark Where the Original Reference Rate is not SOFR Benchmark in addition to and notwithstanding the provisions above in Condition 5(b)(iii) if the Issuer determines that a Benchmark Event has occurred in relation to an Original Reference Rate when any Rate of Interest (or the relevant component part thereof) remains to be determined by reference to such Original Reference Rate then the following provisions shall apply: (i) the Issuer shall use all reasonable endeavours to appoint as soon as reasonably practicable an Independent Adviser to determine (acting in a reasonable manner) no later than five Business Days prior to the relevant Interest Determination Date relating to the next succeeding Interest Accrual Period (the “IA Determination Cut-off Date”) a Successor Rate or alternatively if there is no Successor Rate an Alternative Reference Rate an Adjustment Spread and any Benchmark Amendments for purposes of determining the Rate of Interest (or the relevant component part thereof) applicable to the Notes; (ii) if the Issuer (acting in a reasonable manner) is unable to appoint an Independent Adviser or the Independent Adviser appointed by it fails to determine a Successor Rate or an Alternative Reference Rate prior to the IA Determination Cut-off Date the Issuer (acting in a reasonable manner) may determine (i) a Successor Rate or if there is no Successor Rate an Alternative Reference Rate and (ii) in either case an Adjustment Spread and/or any Benchmark Amendments in accordance with this Condition 5(j); (iii) if a Successor Rate or failing which an Alternative Reference Rate (as applicable) and in either case an Adjustment Spread is determined in accordance with the preceding provisions such Successor Rate or failing which an Alternative Reference Rate (as applicable) and in either case an Adjustment Spread shall be the Reference Rate for each of the future Interest Accrual Periods (subject to the subsequent operation of and to adjustment as provided in this Condition 5(j)); provided however that if Condition 5(j)(ii) applies and the Issuer (acting in a reasonable manner) is unable to or does not determine a Successor Rate or an Alternative Reference Rate and in either case an Adjustment Spread prior to the relevant Interest Determination Date the Rate of Interest applicable to the next succeeding Interest Accrual Period shall be equal to the Rate of Interest last determined in relation to the Notes in respect of the preceding Interest Accrual Period (or alternatively if there has not been a first Interest Payment Date the Rate of Interest shall be the initial Rate of Interest) (subject where applicable to substituting the Margin that applied to such preceding Interest Accrual Period for the Margin that is to be applied to the relevant Interest Accrual Period); for the avoidance of doubt the proviso in this Condition 5(j)(iii) shall apply to the relevant Interest Accrual Period only and any subsequent Interest Accrual Periods are subject to the subsequent operation of and to adjustment as provided in this Condition 5(j); (iv) if the Independent Adviser or the Issuer (acting in a reasonable manner) determines a Successor Rate or failing which an Alternative Reference Rate (as applicable) and in either case an Adjustment Spread in accordance with the above provisions the Independent Adviser or the Issuer (acting in good faith and in a commercially reasonable manner) (as applicable) may also specify changes to these Conditions including but not limited to the Day Count Fraction Relevant Screen Page Business Day Convention business days Interest Determination Date and/or the definition of Reference Rate applicable to the Notes and the method for determining the fallback rate in relation to the Notes (such amendments the “Benchmark Amendments”) if such changes are – 73 –necessary to ensure the proper operation of such Successor Rate Alternative Reference Rate and/or Adjustment Spread (as applicable). The Independent Adviser (in consultation with the Issuer) or the Issuer (acting in a reasonable manner) (as applicable) shall determine an Adjustment Spread to be applied to the Successor Rate or the Alternative Reference Rate (as applicable) and agreed as operationally practicable by the Calculation Agent. For the avoidance of doubt the Fiscal Agent shall subject to receipt by the Fiscal Agent of a certificate signed by a duly authorised signatory of the Issuer at the direction and expense of the Issuer and without consent or approval of the Noteholders effect such consequential amendments to the Agency Agreement and these Conditions as may be required in order to give effect to this Condition 5(j). Noteholder or Couponholder consent shall not be required in connection with effecting the Successor Rate or Alternative Reference Rate (as applicable) the Adjustment Spread or the Benchmark Amendments or such other changes including for the execution of any documents or other steps by the Fiscal Agent (if required). The Fiscal Agent shall not be bound by or be obliged to give effect to any Benchmark Amendments Successor Rate Alternative Reference Rate Adjustment Spread or such other changes if in the reasonable opinion of the Fiscal Agent the same would not be operable or would impose more onerous obligations upon it or expose it to any additional duties responsibilities or liabilities or reduce or amend in an adverse manner the rights and/or the protective provisions afforded to it in these Conditions and/or the Agency Agreement. In connection with any such variation in accordance with this Condition 5(j)(iv) the Issuer shall comply with the rules of any stock exchange on which the Notes are for the time being listed or admitted to trading; and (v) the Issuer shall within five Business Days following the determination of any Successor Rate or Alternative Reference Rate (as applicable) Adjustment Spread or Benchmark Amendments give notice thereof to the Fiscal Agent the Calculation Agent and the Noteholders which shall specify the effective date(s) for such Successor Rate or Alternative Reference Rate (as applicable) Adjustment Spread or Benchmark Amendments provided that the determination of any Successor Rate or Alternative Reference Rate Adjustment Spread or Benchmark Amendments shall be made in accordance with applicable law. Neither the Agents nor the Calculation Agent shall be responsible or liable for any determinations decisions or elections made by the Issuer or the Independent Adviser with respect to any Benchmark Amendments or any other changes and shall be entitled to rely conclusively on any certifications provided to it in this regard.(k) Benchmark discontinuation for Floating Rate Notes referencing SOFR Benchmark The following provisions shall apply if Benchmark Event (SOFR) is specified as applicable hereon: (i) Benchmark Replacement If the Issuer or its designee determines on or prior to the relevant Reference Time that a Benchmark Event and its related Benchmark Replacement Date have occurred with respect to the then current Benchmark the Benchmark Replacement will replace the then current Benchmark for all purposes relating to the Notes in respect of all determinations on such date and for all determinations on all subsequent dates.– 74 –(ii) Benchmark Replacement Conforming Changes In connection with the implementation of a Benchmark Replacement the Issuer or its designee will have the right to make Benchmark Replacement Conforming Changes from time to time. For the avoidance of doubt any of the Agents shall at the direction and expense of the Issuer effect such consequential amendments to the Agency Agreement and these Conditions as may be required to give effect to this Condition 5(k).Noteholders’ or Couponholders’ consent shall not be required in connection with effecting any such changes including the execution of any documents or any steps to be taken by any of the Agents (if required). Further none of the Agents shall be responsible or liable for any determinations decisions or elections made by the Issuer or its designee with respect to any Benchmark Replacement or any other changes and shall be entitled to rely conclusively on any certifications provided to each of them in this regard. The Fiscal Agent shall not be bound by or be obliged to give effect to any Benchmark Replacement Conforming Changes or such other amendments if in the opinion of the Fiscal Agent the same would not be operable or would impose more onerous obligations upon it or expose it to any additional duties responsibilities or liabilities or reduce or amend the rights and/or the protective provisions afforded to it in these Conditions and/or the Agency Agreement and/or any documents to which it is a party in any way.(iii) Decisions and Determinations Any determination decision or election that may be made by the Issuer or its designee pursuant to this Condition 5(k) including any determination with respect to a tenor rate or adjustment or of the occurrence or non-occurrence of an event circumstance or date and any decision to take or refrain from taking any action or any selection (i) will be conclusive and binding absent manifest error (ii) will be made in the sole discretion of the Issuer or its designee as applicable and (iii) notwithstanding anything to the contrary in the documentation relating to the Notes shall become effective without consent from the holders of the Notes or any other party. Neither the Agents nor the Calculation Agent shall be responsible or liable for any determinations decisions or elections made by the Issuer or its designee pursuant to this Condition 5(k) or any other changes and shall be entitled to rely conclusively on any certifications provided to it in this regard. The Issuer shall within 5 Business Days following the determination made pursuant to this Condition 5(k) give notice thereof to the Fiscal Agent the Calculation Agent and the Noteholders which shall specify the effective date(s) for such determination.(iv) The following defined terms shall have the meanings set out below for purpose of Conditions 5(b)(iii)(C) and 5(k): “Benchmark” means initially the relevant SOFR Benchmark specified hereon; provided that if the Issuer or its designee determines on or prior to the Reference Time that a Benchmark Event and its related Benchmark Replacement Date have occurred with respect to the relevant SOFR Benchmark (including any daily published component used in the calculation thereof) or the then current Benchmark then “Benchmark” means the applicable Benchmark Replacement.– 75 –“Benchmark Event” means the occurrence of one or more of the following events with respect to the then current Benchmark (including any daily published component used in the calculation thereof): (a) a public statement or publication of information by or on behalf of the administrator of the Benchmark (or such component) announcing that such administrator has ceased or will cease to provide the Benchmark (or such component) permanently or indefinitely provided that at the time of such statement or publication there is no successor administrator that will continue to provide the Benchmark (or such component); or (b) a public statement or publication of information by the regulatory supervisor for the administrator of the Benchmark (or such component) the central bank for the currency of the Benchmark (or such component) an insolvency official with jurisdiction over the administrator for the Benchmark (or such component) a resolution authority with jurisdiction over the administrator for the Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for the Benchmark which states that the administrator of the Benchmark (or such component) has ceased or will cease to provide the Benchmark (or such component) permanently or indefinitely provided that at the time of such statement or publication there is no successor administrator that will continue to provide the Benchmark (or such component); or (c) a public statement or publication of information by the regulatory supervisor for the administrator of the Benchmark announcing that the Benchmark is no longer representative; The occurrence of a Benchmark Event shall be determined by the Issuer or its designees and promptly notified to the Agents and the Calculation Agent. For the avoidance of doubt neither the Agents nor the Calculation Agent shall have any responsibility for making such determination.“Benchmark Replacement” means the first alternative set forth in the order below that can be determined by the Issuer or its designee as of the Benchmark Replacement Date: (a) the sum of: (A) the alternate reference rate that has been selected or recommended by the Relevant Governmental Body as the replacement for the then current Benchmark (including any daily published component used in the calculation thereof); and (B) the Benchmark Replacement Adjustment; or (b) the sum of: (A) the ISDA Fallback Rate; and (B) the Benchmark Replacement Adjustment; or – 76 –(c) the sum of: (A) the alternate reference rate that has been selected by the Issuer or its designee as the replacement for the then current Benchmark (including any daily published component used in the calculation thereof) giving due consideration to any industry-accepted reference rate as a replacement for the then current Benchmark (including any daily published component used in the calculation thereof) for U.S. dollar-denominated Floating Rate Notes at such time; and (B) the Benchmark Replacement Adjustment. “Benchmark Replacement Adjustment” means the first alternative set forth in the order below that can be determined by the Issuer or its designee as of the Benchmark Replacement Date: (a) the spread adjustment or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero) that has been selected or recommended by the Relevant Governmental Body for the applicable Unadjusted Benchmark Replacement; or (b) if the applicable Unadjusted Benchmark Replacement is equivalent to the ISDA Fallback Rate the ISDA Fallback Adjustment; or (c) the spread adjustment (which may be a positive or negative value or zero) that has been selected by the Issuer or its designee giving due consideration to any industry-accepted spread adjustment or method for calculating or determining such spread adjustment for the replacement of the then current Benchmark (including any daily published component used in the calculation thereof) with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated Floating Rate Notes at such time.“Benchmark Replacement Conforming Changes” means with respect to any Benchmark Replacement any technical administrative or operational changes (including changes to the timing and frequency of determining rates and making payments of interest rounding of amounts or tenors and other administrative matters) that the Issuer or its designee decides may be appropriate to reflect the adoption of such Benchmark Replacement in a manner substantially consistent with market practice (or if the Issuer or its designee decides that adoption of any portion of such market practice is not administratively feasible or if the Issuer or its designee determines that no market practice for use of the Benchmark Replacement exists in such other manner as the Issuer or its designee determines is reasonably necessary).“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then current Benchmark (including any daily published component used in the calculation thereof): (a) in the case of sub-paragraph (a) or (b) of the definition of “Benchmark Event” the later of: (A) the date of the public statement or publication of information referenced therein; and – 77 –(B) the date on which the administrator of the Benchmark permanently or indefinitely ceases to provide the Benchmark (or such component); or (b) in the case of sub-paragraph (c) of the definition of “Benchmark Event” the date of the public statement or publication of information referenced therein.For the avoidance of doubt if the event giving rise to the Benchmark Replacement Date occurs on the same day as but earlier than the Reference Time in respect of any determination the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination.“designee” means a designee as selected and separately appointed by the Issuer in writing.“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association Inc. or any successor thereto as amended or supplemented from time to time or any successor definitional booklet for interest rate derivatives published from time to time including the 2021 ISDA Interest Rate Derivatives Definitions (as amended or supplemented from time to time).“ISDA Fallback Adjustment” means the spread adjustment (which may be a positive or negative value or zero) that would apply for derivatives transactions referencing the ISDA Definitions to be determined upon the occurrence of an index cessation event with respect to the Benchmark.“ISDA Fallback Rate” means the rate that would apply for derivatives transactions referencing the ISDA Definitions to be effective upon the occurrence of an index cessation date with respect to the Benchmark (including any daily published component used in the calculation thereof) for the applicable tenor excluding the applicable ISDA Fallback Adjustment.“Reference Time” with respect to any determination of the Benchmark means (1) if the Benchmark is the SOFR Benchmark the SOFR Determination Time (where Simple SOFR Average or Compounded SOFR Average is specified hereon) or SOFR Index Determination Time (where SOFR Compounded Index is specified hereon); or (2) if the Benchmark is not the SOFR Benchmark the time determined by the Issuer or its designee after giving effect to the Benchmark Replacement Conforming Changes.“Relevant Governmental Body” means the Federal Reserve Board and/or the Federal Reserve Bank of New York or a committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto.“Unadjusted Benchmark Replacement” means the Benchmark Replacement excluding the Benchmark Replacement Adjustment.– 78 –(l) Definitions In these Conditions unless the context otherwise requires the following defined terms shall have the meanings set out below: “Adjustment Spread” means a spread (which may be positive negative or zero) or formula or methodology for calculating a spread which the Independent Adviser (in consultation with the Issuer) or the Issuer (acting in a reasonable manner) (as applicable) determines is required to be applied to the Successor Rate or the Alternative Reference Rate (as applicable) which: (i) in the case of a Successor Rate is formally recommended in relation to the replacement of the Original Reference Rate with the Successor Rate by any Relevant Nominating Body; or (ii) in the case of a Successor Rate for which no such recommendation has been made or in the case of an Alternative Reference Rate the Independent Adviser (in consultation with the Issuer) or the Issuer (acting in a reasonable manner) (as applicable) determines is recognised or acknowledged as being in customary market usage in international debt capital markets transactions to produce an industry accepted replacement rate for the Original Reference Rate where such rate has been replaced by the Successor Rate or the Alternative Reference Rate (as applicable); or (iii) if no such customary market usage is recognised or acknowledged the Independent Adviser (in consultation with the Issuer) or the Issuer (acting in a reasonable manner) determines is recognised or acknowledged as being the industry standard for over-the- counter derivative transactions which reference the Original Reference Rate where such rate has been replaced by the Successor Rate or the Alternative Reference Rate (as the case may be).“Alternative Reference Rate” means the rate that the Independent Adviser or the Issuer (as applicable) determines has replaced the Original Reference Rate in customary market usage in the international debt capital markets for the purposes of determining rates of interest in respect of bonds denominated in the Specified Currency and of a comparable duration to the relevant Interest Accrual Period.“Benchmark Event” for the purposes of Condition 5(j) means: (i) the Original Reference Rate ceasing to be published for a period of at least five Business Days or ceasing to exist; or (ii) a public statement by the administrator of the Original Reference Rate that it has ceased or that it will cease publishing the Original Reference Rate permanently or indefinitely (in circumstances where no successor administrator has been appointed that will continue publication of the Original Reference Rate); or (iii) a public statement by the supervisor of the administrator of the Original Reference Rate that the Original Reference Rate has been or will be permanently or indefinitely discontinued; or (iv) a public statement by the supervisor of the administrator of the Original Reference Rate that means the Original Reference Rate will be prohibited from being used or that its use will be subject to restrictions or adverse consequences; or – 79 –(v) the making of a public statement by the supervisor of the administrator of the Original Reference Rate that the Original Reference Rate is or will be (or is or will be deemed by such supervisor to be) no longer representative of its relevant underlying market; or (vi) it has become unlawful for any Paying Agent the Calculation Agent the Issuer or other party to calculate any payments due to be made to any Noteholder using the Original Reference Rate; provided that in the case of (ii) and (iii) above the Benchmark Event shall occur on the date of the cessation of publication of the Original Reference Rate or the discontinuation of the Original Reference Rate in the case of (iv) above the Benchmark Event shall occur on the date of the prohibition of use of the Original Reference Rate and in the case of paragraph (v) above on the date with effect from which the Original Reference Rate will no longer be (or will be deemed by the relevant supervisor to no longer be) representative of its relevant underlying market and which is specified in the relevant public statement and in each case not the date of the relevant public statement.The occurrence of a Benchmark Event shall be determined by the Issuer and promptly notified to the Fiscal Agent and the Calculation Agent. For the avoidance of doubt the Agents shall not have any responsibility for making such determination.“Business Day” means: (i) in the case of Notes denominated in a currency other than euro and Renminbi a day (other than a Saturday Sunday or a public holiday) on which commercial banks and foreign exchange markets settle payments in the principal financial centre for such currency; and/or (ii) in the case of Notes denominated in euro a day on which the T2 is operating (a “TARGET Business Day”); and/or (iii) in the case of Notes denominated in Renminbi a day (other than a Saturday Sunday or public holiday) on which commercial banks in Hong Kong are generally open for business and settlement of Renminbi payments in Hong Kong; and/or (iv) in the case of Notes denominated in a currency and/or one or more Business Centres a day (other than a Saturday or a Sunday) on which commercial banks and foreign exchange markets settle payments in such currency in the Business Centre(s) or if no currency is indicated generally in each of the Business Centres.“Day Count Fraction” means in respect of the calculation of an amount of interest on any Note for any period of time (from and including the first day of such period to but excluding the last) (whether or not constituting an Interest Period or an Interest Accrual Period the “Calculation Period”): (i) if “Actual/Actual” or “Actual/Actual – ISDA” is specified hereon the actual number of days in the Calculation Period divided by 365 (or if any portion of that Calculation Period falls in a leap year the sum of (A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365); – 80 –(ii) if “Actual/365 (Fixed)” is specified hereon the actual number of days in the Calculation Period divided by 365; (iii) if “Actual/365 (Sterling)” is specified hereon the actual number of days in the Calculation Period divided by 365 or in the case of an Interest Payment Date falling in a leap year 366; (iv) if “Actual/360” is specified hereon the actual number of days in the Calculation Period divided by 360; (v) if “30/360” “360/360” or “Bond Basis” is specified hereon the number of days in the Calculation Period divided by 360 calculated on a formula basis as follows: [360 × (Y2 – Y1)] + [30 × (M2 – M1)] + (D2 – D )Day Count Fraction = 1 360 where: “Y1” is the year expressed as a number in which the first day of the Calculation Period falls; “Y2” is the year expressed as a number in which the day immediately following the last day included in the Calculation Period falls; “M1” is the calendar month expressed as a number in which the first day of the Calculation Period falls; “M2” is the calendar month expressed as a number in which the day immediately following the last day included in the Calculation Period falls; “D1” is the first calendar day expressed as a number of the Calculation Period unless such number would be 31 in which case D1 will be 30; and “D2” is the calendar day expressed as a number immediately following the last day included in the Calculation Period unless such number would be 31 and D1 is greater than 29 in which case D2 will be 30; (vi) if “30E/360” or “Eurobond Basis” is specified hereon the number of days in the Calculation Period divided by 360 calculated on a formula basis as follows: [360 × (Y2 – Y1)] + [30 × (M2 – M1)] + (D2 – DDay Count Fraction = 1 ) 360 where: “Y1” is the year expressed as a number in which the first day of the Calculation Period falls; “Y2” is the year expressed as a number in which the day immediately following the last day included in the Calculation Period falls; “M1” is the calendar month expressed as a number in which the first day of the Calculation Period falls; – 81 –“M2” is the calendar month expressed as a number in which the day immediately following the last day included in the Calculation Period falls; “D1” is the first calendar day expressed as a number of the Calculation Period unless such number would be 31 in which case D1 will be 30; and “D2” is the calendar day expressed as a number immediately following the last day included in the Calculation Period unless such number would be 31 in which case D2 will be 30; (vii) if “30E/360 (ISDA)” is specified hereon the number of days in the Calculation Period divided by 360 calculated on a formula basis as follows: [360 × (Y2 – Y1)] + [30 × (M2 – M1)] + (D2 – D1)Day Count Fraction = 360 where: “Y1” is the year expressed as a number in which the first day of the Calculation Period falls; “Y2” is the year expressed as a number in which the day immediately following the last day included in the Calculation Period falls; “M1” is the calendar month expressed as a number in which the first day of the Calculation Period falls; “M2” is the calendar month expressed as a number in which the day immediately following the last day included in the Calculation Period falls; “D1” is the first calendar day expressed as a number of the Calculation Period unless (i) that day is the last day of February or (ii) such number would be 31 in which case D1 will be 30; and “D2” is the calendar day expressed as a number immediately following the last day included in the Calculation Period unless (i) that day is the last day of February but not the Maturity Date or (ii) such number would be 31 in which case D2 will be 30; (viii) if “Actual/Actual-ICMA” is specified hereon (a) if the Calculation Period is equal to or shorter than the Determination Period during which it falls the number of days in the Calculation Period divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Periods normally ending in any year; and (b) if the Calculation Period is longer than one Determination Period the sum of: (x) the number of days in such Calculation Period falling in the Determination Period in which it begins divided by the product of (1) the number of days in such Determination Period and (2) the number of Determination Periods normally ending in any year; and (y) the number of days in such Calculation Period falling in the next Determination Period divided by the product of (1) the number of days in such Determination Period and (2) the number of Determination Periods normally ending in any year – 82 –where: “Determination Period” means the period from and including a Determination Date in any year to but excluding the next Determination Date; and “Determination Date” means the date(s) specified as such hereon or if none is so specified the Interest Payment Date(s).“Euro-zone” means the region comprised of member states of the European Union that adopt the single currency in accordance with the Treaty establishing the European Community as amended.“Independent Adviser” means an independent financial institution of international repute or other independent financial adviser of recognised standing and with appropriate expertise in each case appointed by the Issuer at its own expense under Condition 5(j)(i).“Interest Accrual Period” means the period beginning on and including the Interest Commencement Date and ending on but excluding the first Interest Period Date and each successive period beginning on and including an Interest Period Date and ending on but excluding the next succeeding Interest Period Date.“Interest Amount” means: (i) in respect of an Interest Accrual Period the amount of interest payable per Calculation Amount for that Interest Accrual Period and which in the case of Fixed Rate Notes and unless otherwise specified hereon shall mean the Fixed Coupon Amount or Broken Amount specified hereon as being payable on the Interest Payment Date ending the Interest Period of which such Interest Accrual Period forms part; and (ii) in respect of any other period the amount of interest payable per Calculation Amount for that period.“Interest Commencement Date” means the Issue Date or such other date as may be specified hereon.“Interest Determination Date” means with respect to a Rate of Interest and Interest Accrual Period the date specified as such hereon or if none is so specified (i) the first day of such Interest Accrual Period if the Specified Currency is Sterling or Hong Kong dollars or Renminbi other than where the Specified Currency is Renminbi and the Reference Rate is CNH HIBOR or (ii) the day falling two Business Days in London for the Specified Currency prior to the first day of such Interest Accrual Period if the Specified Currency is neither Sterling nor euro nor Hong Kong dollars nor Renminbi or (iii) the day falling two TARGET Business Days prior to the first day of such Interest Accrual Period if the Specified Currency is euro or (iv) the day falling two Business Days in Hong Kong prior to the first day of such Interest Accrual Period if the Specified Currency is Renminbi and the Reference Rate is CNH HIBOR.“Interest Period” means the period beginning on and including the Interest Commencement Date and ending on but excluding the first Interest Payment Date and each successive period beginning on and including an Interest Payment Date and ending on but excluding the next succeeding Interest Payment Date unless specified hereon.– 83 –“Interest Period Date” means each Interest Payment Date unless otherwise specified hereon.“ISDA Definitions” means (i) if “2006 ISDA Definitions” is specified hereon the 2006 ISDA Definitions as published by the International Swaps and Derivatives Association Inc.(“ISDA”) as amended and updated as at the Issue Date of the first Tranche of the Notes; or (ii) if “2021 ISDA Definitions” is specified hereon the latest version of the 2021 ISDA Interest Rate Derivatives Definitions including any Matrices referred to therein as published by ISDA as at the Issue Date of the first Tranche of the Notes.“Original Reference Rate” means the originally-specified Reference Rate used to determine the Rate of Interest (or any component part thereof) on the Notes.“Rate of Interest” means the rate of interest payable from time to time in respect of this Note and that is either specified or calculated in accordance with the provisions hereon.“Reference Rate” means the rate specified as such hereon.“Relevant Nominating Body” means in respect of a reference rate: (i) the central bank for the currency to which the reference rate relates or any central bank or other supervisory authority which is responsible for supervising the administrator of the reference rate; or (ii) any working group or committee sponsored by chaired or co-chaired by or constituted at the request of (a) the central bank for the currency to which the reference rate relates (b) any central bank or other supervisory authority which is responsible for supervising the administrator of the reference rate (c) a group of the aforementioned central banks or other supervisory authorities or (d) the Financial Stability Board or any part thereof.“Relevant Screen Page” means such page section caption column or other part of a particular information service as may be specified hereon (or any successor or replacement page section caption column or other part of a particular information service).“Specified Currency” means the currency specified as such hereon or if none is specified the currency in which the Notes are denominated.“Successor Rate” means the rate that the Independent Adviser or the Issuer (as applicable) determines is a successor to or replacement of the Original Reference Rate which is formally recommended by any Relevant Nominating Body.“T2” means the real time gross settlement system operated by the Eurosystem or any successor system.– 84 –(m) Calculation Agent The Issuer shall procure that there shall at all times be one or more Calculation Agents if provision is made for them hereon and for so long as any Note is outstanding (as defined in the Agency Agreement). Where more than one Calculation Agent is appointed in respect of the Notes references in these Conditions to the Calculation Agent shall be construed as each Calculation Agent performing its respective duties under these Conditions. If the Calculation Agent is unable or unwilling to act as such or if the Calculation Agent fails duly to establish the Rate of Interest for an Interest Accrual Period or to calculate any Interest Amount Instalment Amount Final Redemption Amount Early Redemption Amount or Optional Redemption Amount as the case may be or to comply with any other requirement it shall notify the Issuer thereof and the Calculation Agent shall be under no obligation to make such calculation or determination and (in the absence of such gross negligence willful default or fraud) shall not incur any liability for not doing so and the Issuer shall (with written notice to the Fiscal Agent) appoint a leading bank or financial institution engaged in the interbank market (or if appropriate money swap or over-the-counter index options market) that is most closely connected with the calculation or determination to be made by the Calculation Agent to act as such in its place. The Calculation Agent may not resign its duties without a successor having been appointed as aforesaid. 6. REDEMPTION PURCHASE AND OPTIONS (a) Redemption by Instalments and Final Redemption (i) Unless previously redeemed purchased and cancelled as provided in this Condition 6 each Note that provides for Instalment Dates and Instalment Amounts shall be partially redeemed on each Instalment Date at the related Instalment Amount specified hereon. The outstanding nominal amount of each such Note shall be reduced by the Instalment Amount (or if such Instalment Amount is calculated by reference to a proportion of the nominal amount of such Note such proportion) for all purposes with effect from the related Instalment Date unless payment of the Instalment Amount is improperly withheld or refused in which case such amount shall remain outstanding until the Relevant Date relating to such Instalment Amount.(ii) Unless previously redeemed purchased and cancelled as provided below each Note shall be finally redeemed on the Maturity Date specified hereon at its Final Redemption Amount (which unless otherwise provided is its nominal amount) or in the case of a Note falling within paragraph (i) above its final Instalment Amount.(b) Early Redemption (i) Zero Coupon Notes (A) The Early Redemption Amount payable in respect of any Zero Coupon Note the Early Redemption Amount of which is not linked to an index and/or a formula upon redemption of such Note pursuant to Condition 6(c) Condition 6(d) or Condition 6(e) or upon it becoming due and payable as provided in Condition 10 shall be the Amortised Face Amount (calculated as provided below) of such Note unless otherwise specified hereon.– 85 –(B) Subject to the provisions of sub-paragraph (C) below the Amortised Face Amount of any such Note shall be the scheduled Final Redemption Amount of such Note on the Maturity Date discounted at a rate per annum (expressed as a percentage) equal to the Amortisation Yield (which if none is shown hereon shall be such rate as would produce an Amortised Face Amount equal to the issue price of the Notes if they were discounted back to their issue price on the Issue Date) compounded annually. (C) If the Early Redemption Amount payable in respect of any such Note upon its redemption pursuant to Condition 6(c) Condition 6(d) or Condition 6(e) or upon it becoming due and payable as provided in Condition 10 is not paid when due the Early Redemption Amount due and payable in respect of such Note shall be the Amortised Face Amount of such Note as defined in sub-paragraph (B) above except that such sub-paragraph shall have effect as though the date on which the Note becomes due and payable were the Relevant Date. The calculation of the Amortised Face Amount in accordance with this sub-paragraph shall continue to be made (both before and after judgment) until the Relevant Date unless the Relevant Date falls on or after the Maturity Date in which case the amount due and payable shall be the scheduled Final Redemption Amount of such Note on the Maturity Date together with any interest that may accrue in accordance with Condition 5(c).Where such calculation is to be made for a period of less than one year it shall be made on the basis of the Day Count Fraction shown hereon.(ii) Other Notes The Early Redemption Amount payable in respect of any Note (other than Notes described in (i) above) upon redemption of such Note pursuant to Condition 6(c) Condition 6(d) or Condition 6(e) or upon it becoming due and payable as provided in Condition 10 shall be the Final Redemption Amount unless otherwise specified hereon.(c) Redemption for Taxation Reasons The Notes may be redeemed at the option of the Issuer in whole but not in part on any Interest Payment Date (if this Note is either a Floating Rate Note or an Index Linked Interest Note) or at any time (if this Note is neither a Floating Rate Note nor an Index Linked Interest Note) on giving not less than 30 nor more than 60 days’ notice to the Noteholders (which notice shall be irrevocable) and the Fiscal Agent at their Early Redemption Amount (as described in Condition 6(b) above) (together with interest accrued to the date fixed for redemption) if (i) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 8 as a result of any change in or amendment to the laws or regulations of the Relevant Jurisdictions (as defined in Condition 8) or any change in the application or official interpretation of such laws or regulations which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the Notes and (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of the Notes then due. Prior to the publication of any notice of redemption pursuant to this Condition 6(c) the Issuer shall deliver to the Fiscal Agent a certificate signed by two Directors of the Issuer stating that the Issuer is entitled to effect such redemption and – 86 –setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred and an opinion of independent legal advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment.(d) Redemption at the Option of the Issuer If Call Option is specified hereon the Issuer may on giving not less than 30 nor more than 60 days’ irrevocable notice to the Noteholders (which notice shall be irrevocable) and the Fiscal Agent (or such other notice period as may be specified hereon) redeem all or if so provided some of the Notes on any Optional Redemption Date. Any such redemption of Notes shall be at their Optional Redemption Amount specified hereon (which may be the Early Redemption Amount (as described in Condition 6(b) above)) together with interest accrued to the date fixed for redemption. Any such redemption or exercise must relate to Notes of a nominal amount at least equal to the Minimum Redemption Amount to be redeemed specified hereon and no greater than the Maximum Redemption Amount to be redeemed specified hereon.All Notes in respect of which any such notice is given shall be redeemed on the date specified in such notice in accordance with this Condition 6(d).In the case of a partial redemption the notice to Noteholders shall also contain the certificate numbers of the Bearer Notes or in the case of Registered Notes shall specify the nominal amount of Registered Notes drawn and the holder(s) of such Registered Notes to be redeemed which shall have been drawn in such place and in such manner as may be fair and reasonable in the circumstances taking account of prevailing market practices subject to compliance with any applicable laws and stock exchange or other relevant authority requirements.The Agents shall not be responsible for calculating or verifying the calculations of any amount payable under any notice of redemption nor the contents of any compliance report and shall not be liable to the Noteholders or any other person for not doing so.(e) Redemption at the Option of Noteholders If Put Option is specified hereon the Issuer shall at the option of the holder of any such Note upon the holder of such Note giving not less than 30 nor more than 60 days’ notice to the Issuer and the Fiscal Agent (or such other notice period as may be specified hereon) redeem such Note on the Optional Redemption Date(s) at its Optional Redemption Amount specified hereon (which may be the Early Redemption Amount (as described in Condition 6(b) above)) together with interest accrued to the date fixed for redemption.To exercise such option the holder must deposit (in the case of Bearer Notes) such Note (together with all unmatured Receipts and Coupons and unexchanged Talons) with any Paying Agent or (in the case of Registered Notes) the Certificate representing such Note(s) with the relevant Registrar or any Transfer Agent at its specified office together with a duly completed option exercise notice (“Exercise Notice”) in the form obtainable from any Paying Agent the relevant Registrar or any Transfer Agent (as applicable) within the notice period. No Note or Certificate so deposited and option exercised may be withdrawn (except as provided in the Agency Agreement) without the prior consent of the Issuer.(f) Partly Paid Notes Partly Paid Notes will be redeemed whether at maturity early redemption or otherwise in accordance with the provisions of this Condition 6 and the provisions specified hereon.– 87 –(g) Purchases The Issuer and its Subsidiaries (as defined in Condition 4) may at any time purchase Notes (provided that all unmatured Receipts and Coupons and unexchanged Talons relating thereto are attached thereto or surrendered therewith) in the open market or otherwise at any price.(h) Cancellation All Notes purchased by or on behalf of the Issuer or any of its Subsidiaries may be surrendered for cancellation in the case of Bearer Notes by surrendering each such Note together with all unmatured Receipts and Coupons and all unexchanged Talons to the Fiscal Agent and in the case of Registered Notes by surrendering the Certificate representing such Notes to the relevant Registrar and in each case if so surrendered shall together with all Notes redeemed by the Issuer be cancelled forthwith (together with all unmatured Receipts and Coupons and unexchanged Talons attached thereto or surrendered therewith). Any Notes so surrendered for cancellation may not be reissued or resold and the obligations of the Issuer in respect of any such Notes shall be discharged. 7. PAYMENTS AND TALONS (a) Bearer Notes Payments of principal and interest in respect of Bearer Notes shall subject as mentioned below be made against presentation and surrender of the relevant Receipts (in the case of payments of Instalment Amounts other than on the due date for redemption and provided that the Receipt is presented for payment together with its relevant Note) Notes (in the case of all other payments of principal and in the case of interest as specified in Condition 7(f)(vi)) or Coupons (in the case of interest save as specified in Condition 7(f)(vi)) as the case may be: (i) in the case of Notes denominated in a currency other than Renminbi by transfer to an account denominated in such currency with a Bank; and (ii) in the case of Notes denominated in Renminbi by transfer to a Renminbi account maintained by or on behalf of the Noteholder with a bank in Hong Kong.In this Condition 7(a) and Condition 7(b) “Bank” means a bank in the principal financial centre for such currency or in the case of euro in a city in which banks have access to T2.Payments of principal and interest in respect of Bearer Notes held in the CMU will be made to the CMU for their distribution on the order of the holder of the Bearer Notes to the person(s) for whose account(s) interests in the relevant Bearer Note are credited as being held with the CMU in accordance with the CMU Rules (as defined in the Agency Agreement) at the relevant time and payment made in accordance thereof shall discharge the obligations of the Issuer in respect of that payment.(b) Registered Notes (i) Payments of principal (which for the purposes of this Condition 7(b) shall include final Instalment Amounts but not other Instalment Amounts) in respect of Registered Notes shall be made against presentation and surrender of the relevant Certificates at the specified office of any of the Transfer Agents or of the relevant Registrar and in the manner provided in paragraph (ii) below.– 88 –(ii) Interest (which for the purpose of this Condition 7(b) shall include all Instalment Amounts other than final Instalment Amounts) on Registered Notes shall be paid to the person shown on the relevant Register at the close of business on the fifth (in the case of Notes denominated in Renminbi) and fifteenth (in the case of Notes denominated in acurrency other than Renminbi) day before the due date for payment thereof (the “RecordDate”). Payments of interest on each Registered Note shall be made by transfer to the registered account of the Noteholder.(iii) In Condition 7(b)(ii) “registered account” means (i) in the case of Notes denominated in a currency other than Renminbi an account in the relevant currency maintained by or on behalf of the Noteholder with a Bank and (ii) in the case of Notes denominated in Renminbi the Renminbi account maintained by or on behalf of the Noteholder with a bank in Hong Kong in each case details of which appear on the relevant Register at the close of business on the Record Date.Payments of principal and interest in respect of Registered Notes held in the CMU will be made to the CMU for their distribution on the order of the holder of the Registered Notes to the person(s) for whose account(s) interests in the relevant Registered Notes are credited as being held with the CMU in accordance with the CMU Rules (as defined in the Agency Agreement) at the relevant time and payment made in accordance thereof shall discharge the obligations of the Issuer in respect of that payment.So long as the Global Certificate is held on behalf of Euroclear Bank SA/NV and Clearstream Banking S.A. or any other clearing system each payment in respect of the Global Certificate will be made to the person shown as the holder in the Register at the close of business of the relevant clearing system on the Clearing System Business Day before the due date for such payments where “Clearing System Business Day” means a weekday (Monday to Friday inclusive) except 25 December and 1 January.(c) Payments in the United States Notwithstanding the foregoing if any Bearer Notes are denominated in U.S. dollars payments in respect thereof may be made at the specified office of any Paying Agent in New York City in the same manner as aforesaid if (i) the Issuer shall have appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment of the amounts on the Notes in the manner provided above when due (ii) payment in full of such amounts at all such offices is illegal or effectively precluded by exchange controls or other similar restrictions on payment or receipt of such amounts and (iii) such payment is then permitted by United States law without involving in the opinion of the Issuer any adverse tax consequence to the Issuer.(d) Payments subject to Fiscal Laws All payments are subject in all cases to (i) any applicable fiscal or other laws regulations and directives in the place of payment but without prejudice to the provisions of Condition 8 and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the “Code”) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code any regulations or agreements thereunder any official interpretations thereof or (without prejudice to the provisions of Condition 8) any law implementing an intergovernmental approach thereto. No commission or expenses shall be charged to the Noteholders in respect of such payments.– 89 –(e) Appointment of Agents The Fiscal Agent the CMU Lodging and Paying Agent the Paying Agents the Registrars the Transfer Agents and the Calculation Agent initially appointed by the Bank and their respective specified offices are listed below. The Fiscal Agent the CMU Lodging and Paying Agent the Paying Agents the Registrars Transfer Agents and the Calculation Agent(s) act solely as agents of the Issuer and do not assume any obligation or relationship of agency or trust for or with any Noteholder or Couponholder. The Issuer reserves the right at any time to vary or terminate the appointment of the Fiscal Agent the CMU Lodging and Paying Agent any other Paying Agent the Registrars any Transfer Agent or any Calculation Agent and to appoint additional or other Paying Agents or Transfer Agents provided that the Issuer shall at all times maintain (i) a Fiscal Agent (ii) the relevant Registrar in relation to Registered Notes (iii) a Transfer Agent in relation to Registered Notes (iv) a CMU Lodging and Paying Agent in relation to Notes accepted for clearance through the CMU (v) one or more Calculation Agent(s) where these Conditions so require (vi) Paying Agents having specified offices in at least two major European cities and (vii) such other agents as may be required by any other stock exchange on which the Notes may be listed.In addition the Issuer shall forthwith appoint a Paying Agent in New York City in respect of any Bearer Notes denominated in U.S. dollars in the circumstances described in Condition 7(c) above.The Agents may rely without liability to Noteholders on a report confirmation opinion or certificate or any advice of any lawyers accountants financial advisers financial institution or any other expert whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto or in any other manner) by reference to a monetary cap methodology or otherwise. The Agents may accept and shall be entitled to rely (without further investigation or enquiry) on any such report confirmation opinion or certificate or advice and such report confirmation or certificate or advice shall be binding on the Issuer the Agents and the Noteholders.Each Noteholder shall be solely responsible for making and continuing to make its own independent appraisal and investigation into the financial condition creditworthiness condition affairs status and nature of the Issuer and the Agents shall not at any time have any responsibility for the same and each Noteholder shall not rely on the Agents in respect thereof.Notice of any such change or any change of any specified office shall promptly be given by the Issuer to the Noteholders.(f) Unmatured Coupons and Receipts and unexchanged Talons (i) Upon the due date for redemption of Bearer Notes which comprise Fixed Rate Notes (other than Dual Currency Notes or Index Linked Notes) those Notes should be surrendered for payment together with all unmatured Coupons (if any) relating thereto failing which an amount equal to the face value of each missing unmatured Coupon (or in the case of payment not being made in full that proportion of the amount of such missing unmatured Coupon that the sum of principal so paid bears to the total principal due) shall be deducted from the Final Redemption Amount Early Redemption Amount or Optional Redemption Amount as the case may be due for payment. Any amount so deducted shall be paid in the manner mentioned above against surrender of such missing Coupon within a period of 10 years from the Relevant Date for the payment of such principal (whether or not such Coupon has become void pursuant to Condition 9).– 90 –(ii) Upon the due date for redemption of any Bearer Note comprising a Floating Rate Note Dual Currency Note or Index Linked Note unmatured Coupons relating to such Note (whether or not attached) shall become void and no payment shall be made in respect of them.(iii) Upon the due date for redemption of any Bearer Note any unexchanged Talon relating to such Note (whether or not attached) shall become void and no Coupon shall be delivered in respect of such Talon.(iv) Upon the due date for redemption of any Bearer Note that is redeemable in instalments all Receipts relating to such Note having an Instalment Date falling on or after such due date (whether or not attached) shall become void and no payment shall be made in respect of them.(v) Where any Bearer Note that provides that the relative unmatured Coupons are to become void upon the due date for redemption of those Notes is presented for redemption without all unmatured Coupons and where any Bearer Note is presented for redemption without any unexchanged Talon relating to it redemption shall be made only against the provision of such indemnity as the Issuer may require.(vi) If the due date for redemption of any Note is not a due date for payment of interest interest accrued from the preceding due date for payment of interest or the Interest Commencement Date as the case may be shall only be payable against presentation (and surrender if appropriate) of the relevant Bearer Note or Certificate representing it as the case may be. Interest accrued on a Note that only bears interest after its Maturity Date shall be payable on redemption of such Note against presentation of the relevant Note or Certificate representing it as the case may be.(g) Talons On or after the Interest Payment Date for the final Coupon forming part of a Coupon sheet issued in respect of any Bearer Note the Talon forming part of such Coupon sheet may be surrendered at the specified office of the Fiscal Agent on any business day in the location of the specified office of the Fiscal Agent in exchange for a further Coupon sheet (and if necessary another Talon for a further Coupon sheet) (but excluding any Coupons that may have become void pursuant to Condition 9).(h) Non-Business Days If any date for payment in respect of any Note Receipt or Coupon is not a business day the holder shall not be entitled to payment until the next following business day nor to any interest or other sum in respect of such postponed payment. In this Condition 7 “business day” means a day (other than a Saturday Sunday or public holiday) on which banks and foreign exchange markets are open for business in the relevant place of presentation in such jurisdictions as shall be specified as “Financial Centres” hereon and: (i) (in the case of a payment in a currency other than euro and Renminbi) where payment is to be made by transfer to an account maintained with a bank in the relevant currency on which foreign exchange transactions may be carried on in the relevant currency in the principal financial centre of the country of such currency; or – 91 –(ii) (in the case of a payment in euro) which is a TARGET Business Day; or (iii) (in the case of a payment in Renminbi) on which banks and foreign exchange markets are open for business and settlement of Renminbi payments in Hong Kong. 8. TAXATION All payments of principal and interest by or on behalf of the Issuer in respect of the Notes the Receipts and the Coupons shall be made free and clear of and without withholding or deduction for any taxes duties assessments or governmental charges of whatever nature imposed levied collected withheld or assessed by or within any of the Relevant Jurisdictions unless such withholding or deduction is required by law of any of the Relevant Jurisdictions. In that event the Issuer shall pay such additional amounts as shall result in receipt by the Noteholders and the Couponholders of such amounts as would have been received by them had no such withholding or deduction been required except that no such additional amounts shall be payable with respect to any Note Receipt or Coupon: (a) held by or on behalf of a holder which is liable to such taxes duties assessments or governmental charges in respect of such Note Receipt or Coupon by reason of its having some connection with the jurisdiction by which such taxes duties assessments or charges have been imposed levied collected withheld or assessed other than the mere holding of the Note Receipt or Coupon; or (b) where (in the case of a payment of principal or interest on redemption) the relevant Certificate is surrendered for payment more than 30 days after the Relevant Date except to the extent that the relevant holder would have been entitled to such additional amounts if it had surrendered the relevant Certificate on the last day of such period of 30 days.As used in these Conditions: (a) “Relevant Date” in respect of any Note Receipt or Coupon means the date on which payment in respect of it first becomes due or (if any amount of the money payable is improperly withheld or refused) the date on which payment in full of the amount outstanding is made or (if earlier) the date falling seven days after that on which notice is duly given to the Noteholders that upon further presentation of the Note (or relevant Certificate) Receipt or Coupon being made in accordance with these Conditions such payment will be made provided that payment is in fact made upon such presentation; and (b) “Relevant Jurisdiction” means Hong Kong the PRC (as defined in Condition 10) and if the Issuer is a Relevant Branch the country where that branch is located or any political subdivision or any authority thereof or therein having power to tax or any other jurisdiction or any political subdivision or any authority thereof or therein having power to tax to which the Issuer becomes subject in respect of payments made by it of principal and interest on the Notes.References in these Conditions to (i) “principal” shall be deemed to include any premium payable in respect of the Notes all Instalment Amounts Final Redemption Amounts Early Redemption Amounts Optional Redemption Amounts Amortised Face Amounts and all other amounts in the nature of principal payable pursuant to Condition 6 or any amendment or supplement to it (ii) “interest” shall be deemed to include all Interest Amounts and all other amounts payable pursuant to Condition 5 or any amendment or supplement to it and (iii) “principal” and/or “interest” shall be deemed to include any additional amounts that may be payable under this Condition 8.– 92 –The Agents shall not be responsible or liable for paying any tax duty charges withholding or other payment referred to in this Condition 8 or for determining whether such amounts are payable or the amount thereof and none of them shall be responsible or liable for (A) determining whether the Issuer or any Noteholder or Couponholder is liable to pay any taxes duty charges withholding or other payment referred to in this Condition 8; or (B) determining the sufficiency or insufficiency of any amounts so paid. None of the Agents shall be responsible or liable any failure by the Issuer any Noteholder or any other third party to pay such tax duty charges withholding or other payment in any jurisdiction or to provide any notice or information to any Agent that would permit enable or facilitate the payment of any principal premium (if any) interest or other amount under or in respect of the Notes without deduction or withholding for or on account of any tax duty charge withholding or other payment imposed by or in any jurisdiction. 9. PRESCRIPTION Claims against the Issuer for payment in respect of the Notes Receipts and Coupons (which for this purpose shall not include Talons) shall be prescribed and become void unless made within 10 years (in the case of principal) or five years (in the case of interest) from the appropriate Relevant Date in respect of them. 10. EVENTS OF DEFAULT If any of the following events (“Events of Default”) occurs and is continuing the holder of any Note may give written notice to the Fiscal Agent at its specified office that such Note is immediately due and payable whereupon the Early Redemption Amount of such Note together (if applicable) with accrued interest to the date of payment shall become immediately due and payable unless such Event of Default shall have been remedied prior to the receipt of such notice by the Fiscal Agent: (a) Non-Payment: the Issuer fails to pay the principal of or any premium (if any) or interest on any of the Notes when due and such failure continues for a period of 7 days; or (b) Breach of Other Obligations: the Bank or the relevant Issuer does not perform or comply with any one or more of its other obligations in the Notes or the Deed of Covenant which default is incapable of remedy or if capable of remedy continues for a period of 45 days after written notice of such default shall have been given to the Fiscal Agent at its specified office by any Noteholder; or (c) Cross-Acceleration: (i) any other present or future indebtedness for monies borrowed or raised by the Bank any Relevant Branch or any of the Bank’s Subsidiaries for or in respect of moneys borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of any actual or potential default event of default or the like (howsoever described) or (ii) any such indebtedness is not paid when due or as the case may be within any originally applicable grace period or (iii) the Bank any Relevant Branch or any of the Bank’s Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee for or indemnity in respect of any moneys borrowed or raised provided that the aggregate amount of the relevant indebtedness guarantees and indemnities in respect of which one or more of the events mentioned above in this Condition 10(c) have occurred equals or exceeds U.S.$25000000 or its equivalent; or (d) Enforcement Proceedings: a distress attachment execution or other legal process is levied enforced or sued out on or against any part of the property assets or revenues of the Bank any Relevant Branch or any of the Bank’s Subsidiaries and is not discharged or stayed within 45 days; or – 93 –(e) Security Enforced: any mortgage charge pledge lien or other encumbrance present or future created or assumed by the Bank any Relevant Branch or any of the Bank’s Subsidiaries becomes enforceable and any step is taken to enforce it (including the taking of possession or the appointment of a receiver manager administrator or other similar person); or (f) Insolvency: the Bank or any of its Material Subsidiaries is (or is or could be deemed by law or a court to be) insolvent or bankrupt or unable to pay its debts stops suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of) its debts proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any of such debts or a moratorium is agreed or declared in respect of or affecting all or any part of (or of a particular type of) the debts of the Bank or any of its Material Subsidiaries; or (g) Winding-up: an order is made or an effective resolution passed for the winding-up or dissolution of the Bank or any of its Material Subsidiaries or the Bank or any of its Material Subsidiaries ceases or threatens to cease to carry on all or a material part of its business or operations except for the purpose of and followed by a reconstruction amalgamation reorganisation merger or consolidation (i) on terms approved by an Extraordinary Resolution (as defined in the Agency Agreement) of the Noteholders or (ii) in the case of a Material Subsidiary whereby the undertaking and assets of the Material Subsidiary are transferred to or otherwise vested in the Bank or another of its Material Subsidiaries; or (h) Illegality: it is or will become unlawful for the Bank or the relevant Issuer to perform or comply with any one or more of its obligations under any of the Notes or the Deed of Covenant; or (i) Analogous Events: any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in any of the foregoing paragraphs of this Condition 10.The Fiscal Agent shall not be obliged to take any steps to ascertain whether a potential Event of Default or Event of Default has occurred or to monitor the occurrence of any potential Event of Default or Event of Default and shall not be liable to the Noteholders or any other person for not doing so.In these Conditions: “Material Subsidiary” means a Subsidiary of the Bank: (a) whose gross revenue (consolidated in the case of a Subsidiary which itself has consolidated Subsidiaries) or whose gross assets (consolidated in the case of a Subsidiary which itself has consolidated Subsidiaries) or whose gross profit (consolidated in the case of Subsidiary which itself has consolidated Subsidiaries) represents not less than 5 per cent. of the consolidated gross revenue the consolidated gross assets or as the case may be the consolidated gross profit of the Bank and its Subsidiaries taken as a whole all as calculated respectively by reference to the latest audited or reviewed financial statements (consolidated or as the case may be unconsolidated) of the Subsidiary and the then latest audited or reviewed consolidated financial statements of the Bank provided that: (i) in the case of a Subsidiary acquired after the end of the financial period to which the then latest audited or reviewed consolidated financial statements of the Bank relate for the purpose of applying each of the foregoing tests the reference to the Bank’s latest audited – 94 –or reviewed consolidated financial statements shall be deemed to be a reference to such audited or reviewed financial statements as if such Subsidiary had been shown therein by reference to its then latest relevant audited or reviewed financial statements adjusted as deemed appropriate by the auditor for the time being after consultation with the Bank; (ii) if at any relevant time in relation to the Bank or any Subsidiary no financial statements are prepared and audited its gross revenue gross assets and gross profit (consolidated if applicable) shall be determined on the basis of pro forma consolidated financial statements (consolidated if applicable) prepared for this purpose; and (iii) if the financial statements of any Subsidiary (not being a Subsidiary referred to in proviso (i) above) are not consolidated with those of the Bank then the determination of whether or not such Subsidiary is a Material Subsidiary shall be based on a pro forma consolidation of its financial statements (consolidated if appropriate) with the consolidated financial statements (determined on the basis of the foregoing) of the Bank; or (b) to which is transferred all or substantially all of the business undertaking and assets of another Subsidiary which immediately prior to such transfer is a Material Subsidiary whereupon (i) in the case of a transfer by a Material Subsidiary the transferor Material Subsidiary shall immediately cease to be a Material Subsidiary and (ii) the transferee Subsidiary shall immediately become a Material Subsidiary provided that on or after the date on which the relevant financial statements for the financial period current at the date of such transfer are published whether such transferor Subsidiary or such transferee Subsidiary is or is not a Material Subsidiary shall be determined pursuant to the provisions of sub-paragraph (a) above; “person” means any individual company corporation firm partnership joint venture association organisation state or agency of a state or other entity whether or not having separate legal personality; and “Subsidiary” shall have the meaning set out in Condition 4 above. 11. MEETING OF NOTEHOLDERS AND MODIFICATIONS (a) Meetings of Noteholders The Agency Agreement contains provisions for convening meetings of Noteholders (including by way of conference call or by use of a videoconference platform) to consider any matter affecting their interests including the sanctioning by Extraordinary Resolution (as defined in the Agency Agreement) of a modification of any of these Conditions. Such a meeting may be convened by Noteholders holding not less than 10 per cent. in nominal amount of the Notes for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution shall be two or more persons holding or representing a clear majority in nominal amount of the Notes for the time being outstanding or at any adjourned meeting two or more persons being or representing Noteholders whatever the nominal amount of the Notes held or represented unless the business of such meeting includes consideration of proposals inter alia (i) to amend the dates of maturity or redemption of the Notes any Instalment Date or any date for payment of interest or Interest Amounts on the Notes (ii) to reduce or cancel the nominal amount of or any Instalment Amount of or any premium payable on redemption of the Notes (iii) to reduce the rate or rates of interest in respect of the Notes or to vary the method or basis – 95 –of calculating the rate or rates or amount of interest or the basis for calculating any Interest Amount in respect of the Notes (iv) if a Minimum Rate of Interest and/or a Maximum Rate of Interest Instalment Amount or Redemption Amount is shown hereon to reduce any such Minimum Rate of Interest and/or Maximum Rate of Interest (v) to vary any method of or basis for calculating the Final Redemption Amount the Early Redemption Amount or the Optional Redemption Amount including the method of calculating the Amortised Face Amount or (vi) to vary the currency or currencies of payment or denomination of the Notes in which case the necessary quorum shall be two or more persons holding or representing not less than 75 per cent. or at any adjourned meeting not less than 25 per cent. of the nominal amount of the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on Noteholders (whether or not they were present at the meeting at which such resolution was passed) and on all Couponholders.The Agency Agreement provides that a resolution (x) in writing signed by or on behalf of the Noteholders of not less than 90 per cent. in nominal amount of the Notes outstanding or (y) passed by Electronic Consent (as defined in the Agency Agreement) shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form each signed by or on behalf of one or more Noteholders.These Conditions may be amended modified or varied in relation to any Series of Notes by the terms of the relevant Pricing Supplement in relation to such Series.(b) Modification of Agency Agreement The parties to the Agency Agreement may agree to modify any provision thereof but the Issuer shall not agree without the consent of the Noteholders to any such modification unless it is of a formal minor or technical nature it is made to correct a manifest error or it is in the opinion of such parties not materially prejudicial to the interests of the Noteholders. 12. REPLACEMENT OF NOTES CERTIFICATES RECEIPTS COUPONS AND TALONS If a Note Certificate Receipt Coupon or Talon is lost stolen mutilated defaced or destroyed it may be replaced subject to applicable laws regulations and stock exchange or other relevant authority regulations at the specified office of the Fiscal Agent (in the case of Bearer Notes Receipts Coupons or Talons) and of the relevant Registrar (in the case of Certificates) or such other Paying Agent or Transfer Agent as the case may be as may from time to time be designated by the Issuer for the purpose and notice of whose designation is given to Noteholders in each case on payment by the claimant of the fees and costs incurred in connection therewith and on such terms as to evidence security and indemnity (which may provide inter alia that if the allegedly lost stolen or destroyed Note Certificate Receipt Coupon or Talon is subsequently presented for payment or as the case may be for exchange for further Coupons there shall be paid to the Issuer on demand the amount payable by the Issuer in respect of such Notes Certificates Receipts Coupons or further Coupons) and otherwise as the Issuer may require. Mutilated or defaced Notes Certificates Receipts Coupons or Talons must be surrendered before replacements will be issued.– 96 –13. FURTHER ISSUES The Issuer may from time to time without the consent of the Noteholders or Couponholders create and issue further notes having the same terms and conditions as the Notes (so that for the avoidance of doubt references in these Conditions to “Issue Date” shall be to the first issue date of the Notes) and so that the same shall be consolidated and form a single series with such Notes and references in these Conditions to “Notes” shall be construed accordingly. 14. NOTICES Notices required to be given to the Noteholders pursuant to these Conditions shall be (i) (in the case of holders of Registered Notes) mailed to them at their respective addresses in the relevant Register and deemed to have been given on the fourth weekday (being a day other than a Saturday or a Sunday) after the date of mailing or (ii) published in a daily newspaper of general circulation in Hong Kong (which is expected to be the South China Morning Post in Hong Kong). If any such publication is not practicable notice shall be validly given if published in another leading daily English language newspaper with general circulation in Asia. Any such notice shall be deemed to have been given on the date of such publication or if published more than once or on different dates on the date of the first publication as provided above. Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the holders of Bearer Notes in accordance with this Condition 14.So long as the Global Note or as the case may be the Global Certificate is held in its entirely on behalf of Euroclear Bank SA/NV and Clearstream Banking S.A. any notice to the Noteholders shall be validly given by the delivery of the relevant notice to Euroclear Bank SA/NV and Clearstream Banking S.A. for communication by the relevant clearing system to entitled accountholders in substitution for notification as required by the Conditions and shall be deemed to have been given on the date of delivery to such clearing system.So long as the Global Note or as the case may be the Global Certificate is deposited with a sub-custodian for the CMU notices to Noteholders represented by the Global Note or as the case may be the Global Certificate may be given by delivery of the relevant notice to the CMU for communication by the CMU to entitled accountholders in substitution for notification as required by the Conditions and shall be deemed to have been given on the date of delivery to such clearing system. 15. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999. 16. GOVERNING LAW AND JURISDICTION (a) Governing Law The Notes the Receipts the Coupons and the Talons and any non-contractual obligations arising out of or in connection with them are governed by and shall be construed in accordance with English law.– 97 –(b) Jurisdiction The courts of Hong Kong are to have exclusive jurisdiction to settle any disputes that may arise out of or in connection with any Notes Receipts Coupons or Talons and accordingly any legal action or proceedings arising out of or in connection with any Notes Receipts Coupons or Talons or any non-contractual obligations arising out of or in connection with them (“Proceedings”) may be brought in such courts. The Bank and the relevant Issuer irrevocably submit to the exclusive jurisdiction of the courts of Hong Kong and waive any objection to Proceedings in such courts on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum.(c) Service of Process Each of the Bank and the relevant Issuer irrevocably agrees to receive service of process at the place of business of the Bank established in Hong Kong in accordance with the Companies Ordinance (Cap. 622) of Hong Kong at 31/F Three Exchange Square 8 Connaught Place Hong Kong in any Proceedings in Hong Kong. Such service shall be deemed completed on delivery to such process agent (whether or not it is forwarded to and received by the Bank or the relevant Issuer). If due to any reason the Bank shall cease to have a place of business in Hong Kong each of the Bank and the relevant Issuer irrevocably agrees to appoint a substitute process agent acceptable to the Agents and shall promptly notify the Agents and the Noteholders of such appointment. Nothing shall affect the right to serve process in any manner permitted by law.(d) Waiver of immunity To the extent that the Bank or a relevant Issuer may in any jurisdiction claim for itself or its assets or revenues immunity from suit execution attachment (whether in aid of execution before judgment or otherwise) or other legal process and to the extent that such immunity (whether or not claimed) may be attributed in any such jurisdiction to the Bank or the relevant Issuer or its assets or revenues each of the Bank and the relevant Issuer agrees not to claim and irrevocably waives such immunity to the full extent permitted by the laws of such jurisdiction.– 98 –SUMMARY OF PROVISIONS RELATING TO NOTES WHILE REPRESENTED BY GLOBAL NOTES OR GLOBAL CERTIFICATES INITIAL ISSUE OF NOTES Notes may be issued in bearer form or in registered form. Registered Notes will not be exchangeable for Bearer Notes and vice versa.Each Tranche of Bearer Notes will initially be in the form of either a Temporary Global Note or a Permanent Global Note in each case as specified in the relevant Pricing Supplement. Each Global Note will be deposited on or around the relevant issue date with a common depositary or sub-custodian for Euroclear Clearstream and/or as the case may be the CMU and/or any other relevant clearing system.Each Temporary Global Note will be exchangeable for a Permanent Global Note or if so specified in the relevant Pricing Supplement for Definitive Notes. If the TEFRA D Rules are specified in the relevant Pricing Supplement as applicable certification as to non-U.S. beneficial ownership will be a condition precedent to any exchange of an interest in a Temporary Global Note or receipt of any payment of interest in respect of a Temporary Global Note. Each Permanent Global Note will be exchangeable for Definitive Notes in accordance with its terms. Definitive Notes will if interest-bearing have Coupons attached and if appropriate a Talon for further Coupons.Registered Notes will be represented by registered Certificates one definitive Certificate being issued in respect of each Noteholder’s entire holding of Registered Notes of one Series or (a) in the case of Notes issued in reliance on Category 3 of Regulation S of the Securities Act a Temporary Global Certificate or (b) in the case of all other Notes a Permanent Global Certificate in respect of the Notes. Interests in Temporary Global Certificates will be exchangeable for interests in a Permanent Global Certificate only after the date falling at least 40 days after the completion of the distribution of the Notes of the relevantSeries and upon certification as to non-U.S. beneficial ownership. Registered Notes sold in an “offshoretransaction” within the meaning of Regulation S will initially be represented by an Unrestricted Global Certificate. Registered Notes sold in the United States to QIBs within the meaning of Rule 144A will initially be represented by a Restricted Global Certificate.Global Notes and Global Certificates may be delivered on or prior to the original issue date of the Tranche to a common depositary for Euroclear and Clearstream (the “Common Depositary”) or a sub-custodian for the HKMA as operator of the CMU.Notes that are initially deposited with the Common Depositary may also be credited to the accounts of subscribers with (if indicated in the relevant Pricing Supplement) other clearing systems through direct or indirect accounts with Euroclear and Clearstream held by such other clearing systems. Conversely Notes that are initially deposited with any other clearing system may similarly be credited to the accounts of subscribers with Euroclear Clearstream or other clearing systems.RELATIONSHIP OF ACCOUNTHOLDERS WITH CLEARING SYSTEMS Save as provided in the following paragraph each of the persons shown in the records of Euroclear Clearstream or any other clearing system as the holder of a Note represented by a Global Note or a Global Certificate must look solely to Euroclear Clearstream or such clearing system (as the case may be) for his share of each payment made by the Issuer to the bearer of such Global Note or the holder of the underlying Registered Notes as the case may be and in relation to all other rights arising under the Global Notes or Global Certificates subject to and in accordance with the respective rules and procedures of Euroclear Clearstream or such clearing system (as the case may be). Such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are represented by such Global Note or Global Certificate and such obligations of the Issuer will be discharged by payment to the bearer of such Global Note or the holder of the underlying Registered Notes as the case may be in respect of each amount so paid.– 99 –If a Global Note or a Global Certificate is lodged with a sub-custodian for or registered with the CMU the person(s) for whose account(s) interests in such Global Note or Global Certificate are credited as being held in the CMU in accordance with the CMU Rules shall be the only person(s) entitled (or in the case of Registered Notes directed or deemed by the CMU as entitled) to receive payments in respect of Notes represented by such Global Note or Global Certificate and the Issuer will be discharged by payment to or to the order of such person(s) for whose account(s) interests in such Global Note or Global Certificate are credited as being held in the CMU in respect of each amount so paid. Each of the persons shown in the records of the CMU as the beneficial holder of a particular nominal amount of Notes represented by such Global Note or Global Certificate must look solely to the CMU for his share of each payment so made by the Issuer in respect of such Global Note or Global Certificate.EXCHANGE Temporary Global Notes Each Temporary Global Note will be exchangeable free of charge to the holder on or after its Exchange Date: (i) if the relevant Pricing Supplement indicates that such Global Note is issued in compliance with theTEFRA C Rules or in a transaction to which TEFRA is not applicable (as to which see “Summaryof the Programme – Selling Restrictions”) in whole but not in part for the Definitive Notes defined and described below; and (ii) otherwise in whole or in part upon certification as to non-U.S. beneficial ownership in the form set out in the Agency Agreement for interests in a Permanent Global Note or if so provided in the relevant Pricing Supplement for Definitive Notes.The CMU may require that any such exchange for a Permanent Global Note is made in whole and not in part and in such event no such exchange will be effected until all relevant account holders (as set out in a CMU Issue Position Report (as defined in the rules of the CMU) or any other relevant notification supplied to the CMU Lodging and Paying Agent by the CMU) have so certified.Permanent Global Notes Each Permanent Global Note will be exchangeable free of charge to the holder on or after its Exchange Date in whole but not except as provided under “Partial Exchange of Permanent Global Notes” below in part for Definitive Notes or in the case of (i) below Registered Notes: (i) if the Permanent Global Note is held on behalf of Euroclear or Clearstream or the CMU or any other clearing system (an “Alternative Clearing System”) and any such clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays statutory or otherwise) or announces an intention permanently to cease business or in fact does so; or (ii) if principal in respect of any Notes is not paid when due by the holder giving notice to the Fiscal Agent (or in the case of Notes lodged with the CMU the CMU Lodging and Paying Agent) of its election for such exchange.– 100 –In the event that a Global Note is exchanged for Definitive Notes such Definitive Notes shall be issued in Specified Denomination(s) only. A Noteholder who holds a principal amount of less than the minimum Specified Denomination will not receive a Definitive Note in respect of such holding and would need to purchase a principal amount of Notes such that it holds an amount equal to one or more Specified Denominations.Temporary Global Certificates Interests in a Temporary Global Certificate will be exchangeable after its Exchange Date upon certification of non-U.S. person beneficial ownership for beneficial interests in the related Permanent Global Certificate deposited on its Issue Date with and registered in the name of a nominee for the Common Depositary for Euroclear and Clearstream. For transfers of Notes represented by Temporary Global Certificates which are Unrestricted Global Certificates or Restricted Global Certificates please refer to “Permanent Global Certificates – Unrestricted Global Certificates” or “Permanent GlobalCertificates – Restricted Global Certificates” in this section.Permanent Global Certificates The following will apply in respect of transfers of Notes held in Euroclear or Clearstream or the CMU or an Alternative Clearing System. These provisions will not prevent the trading of interests in the Notes within a clearing system whilst they are held on behalf of such clearing system but will limit the circumstances in which the Notes may be withdrawn from the relevant clearing system.Transfers of the holding of Notes represented by any Global Certificate pursuant to Condition 2 may only be made in part: (i) if the relevant clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays statutory or otherwise) or announces an intention permanently to cease business or does in fact do so; or (ii) if principal in respect of any Notes is not paid when due; provided that in the case of the first transfer of part of a holding pursuant to (i) or (ii) above the Registered Holder has given the Registrar not less than 30 days’ notice at its specified office of the Registered Holder’s intention to effect such transfer. Individual Certificates issued in exchange for a beneficial interest in a Restricted Global Certificate shall bear the legend applicable to such Notes as set out in “Transfer Restrictions”.Partial Exchange of Permanent Global Notes For so long as a Permanent Global Note is held on behalf of a clearing system and the rules of that clearing system permit such Permanent Global Note will be exchangeable in part on one or more occasions for Definitive Notes (i) if principal in respect of any Notes is not paid when due or (ii) if so provided in and in accordance with the Conditions (which will be set out in the relevant Pricing Supplement) relating to Partly Paid Notes.– 101 –Delivery of Notes On or after any due date for exchange the holder of a Global Note may surrender such Global Note or in the case of a partial exchange present it for endorsement to or to the order of the Fiscal Agent (or in the case of Notes lodged with the CMU the CMU Lodging and Paying Agent). In exchange for any Global Note or the part thereof to be exchanged the Issuer will (i) in the case of a Temporary Global Note exchangeable for a Permanent Global Note deliver or procure the delivery of a Permanent Global Note in an aggregate nominal amount equal to that of the whole or that part of a Temporary Global Note that is being exchanged or in the case of a subsequent exchange endorse or procure the endorsement of a Permanent Global Note to reflect such exchange or (ii) in the case of a Global Note exchangeable for Definitive Notes or Registered Notes deliver or procure the delivery of an equal aggregate nominal amount of duly executed and authenticated Definitive Notes and/or Certificates as the case may be.Global Notes and Definitive Notes will be delivered outside the United States and its possessions. In this Offering Circular “Definitive Notes” means in relation to any Global Note the definitive Bearer Notes for which such Global Note may be exchanged (if appropriate having attached to them all Coupons and Receipts in respect of interest or Instalment Amounts that have not already been paid on the Global Note and a Talon). Definitive Notes will be security printed and Certificates will be printed in accordance with any applicable legal and stock exchange requirements in or substantially in the form set out in the Schedules to the Agency Agreement. On exchange in full of each Permanent Global Note the Issuer will if the holder so requests procure that it is cancelled and returned to the holder together with the relevant Definitive Notes.Exchange Date “Exchange Date” means (i) in relation to an exchange of a Temporary Global Note to a Permanent Global Note or an exchange of a Temporary Global Certificate to a Global Certificate the day falling after the expiry of 40 days after its issue date or the completion of distribution of the relevant Tranche of the Notes whichever later; or (ii) in relation to an exchange of a Permanent Global Note to a Definitive Note a day falling not less than 60 days or in the case of exchange following failure to pay principal in respect of any Notes when due 30 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Fiscal Agent is located and in the cities in which the relevant clearing systems are located.AMENDMENT TO CONDITIONS The Temporary Global Notes Permanent Global Notes Temporary Global Certificates and Permanent Global Certificates contain provisions that apply to the Notes that they represent some of which modify the effect of the Conditions set out in this Offering Circular. The following is a summary of certain of those provisions: Payments No payment falling due after the Exchange Date will be made on any Global Note unless exchange for an interest in a Permanent Global Note or for Definitive Notes or Registered Notes is improperly withheld or refused. Payments on any Temporary Global Note issued in compliance with the TEFRA D Rules before the Exchange Date will only be made against presentation of certification as to non-U.S. beneficial ownership in the form set out in the Agency Agreement. All payments in respect of Notes represented by a Global Note (except with respect to Global Note held through the CMU) will be made against presentation for endorsement and if no further payment falls to be made in respect of the Notes surrender of that Global Note to or to the order of the Fiscal Agent as shall have been notified to the Noteholders for such purpose. A record of each payment so made will be endorsed on each Global Note which endorsement will be prima facie evidence that such payment has been made in respect of the Notes.– 102 –Payments if any due on any Temporary Global Certificate prior to the Exchange Date will only be made against presentation of certification as to non-U.S. beneficial ownership in the form set out in the Agency Agreement. In the case of interest falling due on or after the Exchange Date in respect of any portion of a Temporary Global Certificate in respect of which such certification of non-U.S. beneficial ownership has been delivered payment will be made only to the extent that the Issuer has failed to procure the exchange for a Permanent Global Certificate or for definitive Registered Notes as the case may be of that portion of the Temporary Global Certificate. All payments in respect of Notes represented by a Global Certificate (other than a Global Certificate held through the CMU) will be made to or to the order of the person whose name is entered on the relevant Register at the close of business on the record date which shall beon the Clearing System Business Day immediately prior to the date for payment where “Clearing SystemBusiness Day” means Monday to Friday inclusive except 25 December and 1 January.In respect of a Global Note or Global Certificate representing Notes held through the CMU any payments of principal interest (if any) or any other amounts shall be made to the person(s) for whose account(s) interests in the relevant Global Note or Global Certificate are credited (as set out in the records of the CMU) at the close of business on the Clearing System Business Day immediately prior to the date for payment and save in the case of final payment no presentation of the relevant bearer Global Note orGlobal Certificate shall be required for such purpose. For the purposes of this paragraph “ClearingSystem Business Day” means a day on which the CMU is operating and open for business.Prescription Claims against the Issuer in respect of Notes that are represented by a Permanent Global Note or a Permanent Global Certificate will become void unless it is presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest) from the appropriate Relevant Date (as defined in Condition 8).Meetings The holder of a Global Note or of the Notes represented by a Global Certificate shall (unless such Global Note or Global Certificate represents only one Note) be treated as being two persons for the purposes of any quorum requirements of a meeting of Noteholders and at any such meeting the holder of a Global Note or a Global Certificate shall be treated as having one vote in respect of each integral currency unit of the Specified Currency of the Notes.Cancellation Cancellation of any Note represented by a Global Note or Global Certificate that is required by the Conditions to be cancelled (other than upon its redemption) will be effected by reduction in the nominal amount of the relevant Global Note or Global Certificate.Purchase Notes represented by a Global Note or Global Certificate may only be purchased by the Issuer or any of its respective subsidiaries if they are purchased together with the rights to receive all future payments of interest and Instalment Amounts (if any) thereon.– 103 –The Option of the Issuer Any option of the Issuer provided for in the Conditions of any Notes while such Notes are represented by a permanent Global Note or Global Certificate shall be exercised by the Issuer giving notice to the Noteholders within the time limits set out in and containing the information required by the Conditions except that the notice shall not be required to contain the certificate numbers of Notes drawn in respect of a partial exercise of an option and accordingly no drawing of Notes shall be required. In the event that any option of the Issuer is exercised in respect of some but not all of the Notes of any Series the rights of accountholders with a clearing system in respect of the Notes will be governed by the standard procedures of Euroclear Clearstream the CMU or any other clearing system (as the case may be).Noteholders’ Options Any option of the Noteholders provided for in the Conditions of any Notes while such Notes are represented by a Global Note or Global Certificate and such Global Note or Global Certificate is held by or on behalf of a clearing system may be exercised by (i) the holder giving notice to the CMU Lodging and Paying Agent within the time limits in respect of which the option is exercised and presenting the Global Note or Global Certificate for endorsement or exercise (if required) or (ii) a holder of a book-entry interest in the Notes represented by the Global Note or Global Certificate delivering to the CMU Lodging and Paying Agent the relevant exercise notice duly completed by or on behalf of such holder (on appropriate proof of its identity and interest) in each case within the time limits specified in the Conditions and otherwise in accordance with the rules and procedures of the relevant clearing system. In the case of (ii) above deposit of the Global Note or Global Certificate with the CMU Lodging and Paying Agent together with such exercise notice shall not be required.Notices So long as any Notes are represented by a Global Note or Global Certificate and such Global Note or Global Certificate is held on behalf of (i) Euroclear and/or Clearstream or any other clearing system (except as provided in (ii) below) notices to the holders of Notes of that Series may be given by delivery of the relevant notice to that clearing system for communication by it to entitled accountholders in substitution for publication as required by the Conditions or by delivery of the relevant notice to the holder of the Global Note or Global Certificate or (ii) the CMU notices to the holders of Notes of that Series may be given by delivery of the relevant notice to the CMU in substitution for publication as required by the Conditions or by delivery of the relevant notice to the holder of the Global Note or Global Certificate and any such notice shall be deemed to have been given to the Noteholders on the day on which such notice is delivered to the CMU.PARTLY PAID NOTES The provisions relating to Partly Paid Notes are not set out in this Offering Circular but will be contained in the relevant Pricing Supplement and thereby in the Global Notes or Global Certificates. While any instalments of the subscription moneys due from the holder of Partly Paid Notes are overdue no interest in a Global Note or Global Certificate representing such Notes may be exchanged for an interest in a Permanent Global Note a Permanent Global Certificate Definitive Notes or definitive Certificates (as the case may be). If any Noteholder fails to pay any instalment due on any Partly Paid Notes within the time specified the Issuer may forfeit such Notes and shall have no further obligation to their holder in respect of them.– 104 –FORM OF PRICING SUPPLEMENT The form of Pricing Supplement that will be issued in respect of each Tranche subject only to the deletion of non-applicable provisions is set out below: [EU PRIIPs REGULATION – PROHIBITION OF SALES TO EEA RETAIL INVESTORS – The Notes are not intended to be offered sold or otherwise made available to and should not be offered sold or otherwise made available to any retail investor in the European Economic Area (“EEA”). For these purposes a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended “EU MiFID II”); [or] (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended the “EU Insurance Distribution Directive”) where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of EU MiFID II[.]/[; or (iii) not a qualified investor as defined in Regulation (EU) 2017/1129 (as amended the “Prospectus Regulation”).]5 Consequently no key information document required by Regulation (EU) No 1286/2014 (as amended the “EU PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the EU PRIIPs Regulation.] [UK PRIIPs REGULATION – PROHIBITION OF SALES TO UK RETAIL INVESTORS – The Notes are not intended to be offered sold or otherwise made available to and should not be offered sold or otherwise made available to any retail investor in the United Kingdom (“UK”). For these purposes a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (“EUWA”); [or] (ii) a customer within the meaning of the provisions of the Financial Services and Markets Act 2000 (“FSMA”) and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97 where that customer would not qualify as a professional client as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the EUWA[.]/[; or (iii) not a qualified investor as defined in Article 2 of Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the EUWA.]6 Consequently no key information document required by Regulation (EU) No 1286/2014 as it forms part of domestic law by virtue of the EUWA (the “UK PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the UK has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the UK may be unlawful under the UK PRIIPs Regulation.] [EU MiFID II product governance/Professional investors and ECPs only target market – Solely for the purposes of [the/each] manufacturer’s product approval process the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligiblecounterparties and professional clients only each as defined in [Directive 2014/65/EU (as amended “EUMiFID II”)]/[EU MiFID II]; and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. [Consider any negative target market] Any person subsequently offering selling or recommending the Notes (a “distributor”) should take into consideration the manufacturer[’s/s’] target market assessment; however a distributor subject to EU MiFID II is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturer[’s/s’] target market assessment) and determining appropriate distribution channels.] 5 Paragraph (iii) is not required where the Notes have a denomination of at least C100000 or equivalent. 6 Paragraph (iii) is not required where the Notes have a denomination of at least C100000 or equivalent. – 105 –[UK MIFIR product governance/Professional investors and ECPs only target market – Solely for the purposes of [the/each] manufacturer’s product approval process the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is only eligible counterparties as defined in the FCA Handbook Conduct of Business Sourcebook (“COBS”) and professional clients as defined in Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018 (“UK MiFIR”); and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. [Consider any negative target market] Any [person subsequently offering selling or recommending the Notes (a “distributor”)]/[distributor] should take into consideration the manufacturer[’s/s’] target market assessment; however a distributor subject to the FCA Handbook Product Intervention and Product Governance Sourcebook (the “UK MiFIR Product Governance Rules”) is responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturer[’s/s’] target market assessment) and determining appropriate distribution channels.] [Singapore Securities and Futures Act Product Classification: Solely for the purposes of its obligations pursuant to Sections 309B(1)(a) and 309B(1)(c) of the Securities and Futures Act 2001 (the “SFA”) the Issuer has determined and hereby notifies all relevant persons (as defined in Section 309A of the SFA) that the Notes are [“prescribed capital markets products”]/[capital markets products other than “prescribedcapital markets products”] (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018).]7 [Paragraph 21 of the Hong Kong SFC Code of Conduct – As paragraph 21 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission applies to this offering ofNotes prospective investors should refer to the section on “Notice to capital market intermediaries andprospective investors pursuant to paragraph 21 of the Hong Kong SFC Code of Conduct – ImportantNotice to Prospective Investors” appearing on pages [●] to [●] of the Offering Circular and CMIs (asdefined in the Offering Circular) should refer to the section on “Notice to capital market intermediariesand prospective investors pursuant to paragraph 21 of the Hong Kong SFC Code of Conduct – ImportantNotice to CMIs (including private banks)” appearing on pages [●] to [●] of the Offering Circular.] Pricing Supplement dated [●] [China Merchants Bank Co. Ltd.]/[Branch Issuer] (a joint stock company incorporated in the People’s Republic of China with limited liability) Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes] (the “Notes”) under the U.S.$5000000000 Medium Term Note Programme (the “Programme”) This document constitutes the Pricing Supplement for the Notes described herein. This document must be read in conjunction with the Offering Circular dated [●] [and the supplement to it dated [●]] ([together] the “Offering Circular”). Full information on the Issuer and the offer of the Notes is only available on the basis of the combination of this Pricing Supplement and the Offering Circular. [Copies of the Offering Circular may be obtained from [address]].Terms used herein shall be deemed to be defined as such for the purposes of the Terms and Conditions (the “Conditions”) set forth in the Offering Circular. 7 For any Notes to be offered to Singapore investors the Issuer to consider whether it needs to re-classify the Notes pursuant to Section 309B of the SFA prior to the launch of the offer.– 106 –[The following language applies where the relevant Series of Notes will be listed on the Hong Kong Stock Exchange: This document is for distribution to professional investors (as defined in Chapter 37 of the RulesGoverning the Listing of Securities on The Stock Exchange of Hong Kong Limited) (“ProfessionalInvestors”) only.Notice to Hong Kong Investors: The Issuer confirms that the Notes are intended for purchase by Professional Investors only and will be listed on The Stock Exchange of Hong Kong Limited (“HKSE”) on that basis. Accordingly the Issuer confirms that the Notes are not appropriate as an investment for retail investors in Hong Kong. Investors should carefully consider the risks involved.HKSE has not reviewed the contents of this document other than to ensure that the prescribed form disclaimer and responsibility statements and a statement limiting distribution of this document to Professional Investors only have been reproduced in this document. Listing of the Programme and the Notes on HKSE is not to be taken as an indication of the commercial merits or credit quality of the Programme the Notes or the Issuer or the Bank or the Group or quality of disclosure in this document. Hong Kong Exchanges and Clearing Limited and HKSE take no responsibility for the contents of this document make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document.This document together with the Offering Circular includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Issuer the Bank and the Group. The Issuer accepts full responsibility for the accuracy of the information contained in this document and confirms having made all reasonable enquiries that to the best of its knowledge and belief there are no other facts the omission of which would make any statement herein misleading.] 1. . . Issuer: [China Merchants Bank Co. Ltd.]/[Insert Relevant Branch] 2. . . [(i)] Series Number: [●] [(ii) Tranche Number: [●] (If fungible with an existing Series details of that Series including the date on which the Notes become fungible.)] 3. . . Specified Currency or Currencies: [●] 4. . . Aggregate Nominal Amount: [(i)] Series: [●] [(ii) Tranche: [●]] 5. . . [(i)] Issue Price: [●] per cent. of the Aggregate Nominal Amount [plus accrued interest from [insert date] (in the case of fungible issues only if applicable)] [(ii) Net proceeds: [●] (Required only for listed issues)] [(iii) Use of proceeds: [●]] 6. . . (i) Specified Denominations: [●](1) (ii) Calculation Amount(4): [●] 7. . . (i) Issue Date: [●] (ii) Interest Commencement Date: [Specify/Issue Date/Not Applicable] – 107 –8. . . Maturity Date: [Specify date (for Fixed Rate Notes) or (for Floating Rate Notes) Interest Payment Date falling in or nearest to the relevant month and year](2) 9. . . Interest Basis: [[●] per cent. Fixed Rate] [[specify reference rate] +/– [●] per cent.Floating Rate] [Zero Coupon] [Index Linked Interest] [Other (specify)] (further particulars specified below) 10. . . Redemption/Payment Basis: [Redemption at par] [Index Linked Redemption] [Dual Currency] [Partly Paid] [Instalment] [Other (specify)] 11. . . Change of Interest or Redemption/Payment [Specify details of any provision for Basis: convertibility of Notes into another interest or redemption/payment basis] 12. . . Put/Call Options: [Put Option] [Call Option] [(further particulars specified below)] [Not Applicable] 13. . . Status of the Notes: Senior Notes 14. . . Listing: [[●]/Other (specify)/None] 15. . . Method of distribution: [Syndicated/Non-syndicated] PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE 16. . . Fixed Rate Note Provisions [Applicable/Not Applicable] (If not applicable delete the remaining sub- paragraphs of this paragraph) (i) Rate[(s)] of Interest: [●] per cent. per annum [payable [annually/semi-annually/quarterly/monthly] in arrear] (ii) Interest Payment Date(s): [●] in each year(3) [adjusted in accordance with [specify Business Day Convention and any applicable Business Centre(s) for the definition of “Business Day”]/not adjusted] (iii) Fixed Coupon Amount[(s)]: [●] per Calculation Amount(4) (iv) Broken Amount: [●] per Calculation Amount payable on the Interest Payment Date falling [in/on] [●] [Insert particulars of any initial or final broken interest amounts which do not correspond with the Fixed Coupon Amount[(s)] and the Interest Payment Date(s) to which they relate] (v) Day Count Fraction (Condition 5(l)): [30/360/Actual/Actual – ICMA/ISDA/Other] (Day count fraction should be Actual/Actual- ICMA for all fixed rate issues other than those denominated in US dollars Renminbi or Hong Kong dollars unless the client requests otherwise) – 108 –(vi) Determination Date(s) (Condition 5(l)): [[●] in each year/Not Applicable]. [Insert regular interest payment dates ignoring issue date or maturity date in the case of a long or short first or last coupon](5) (vii) Other terms relating to the method of [Not Applicable/give details] calculating interest for Fixed Rate Notes: 17. . . Floating Rate Note Provisions [Applicable/Not Applicable] (If not applicable delete the remaining sub- paragraphs of this paragraph) (i) Rate[(s)] of Interest: * Manner in which the Rate(s) of [Screen Rate Determination/Screen Rate Interest is/are to be determined: Determination (SOFR Benchmark)/ISDA Determination/Other (give details)] * Margin(s): [+/–] [●] per cent. per annum (ii) Interest Period(s): [●] (iii) Specified Interest Payment Dates: [●] (iv) Interest Period Date(s): [Not Applicable/As defined in the Conditions/specify dates] (Not applicable unless different from Interest Payment Date) (v) Business Day Convention: [Floating Rate Business Day Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/Other (give details)] (vi) Business Centre(s) (Condition 5(l)): [●] (vii) Party responsible for calculating the [The Hongkong and Shanghai Banking Rate(s) of Interest and Interest Corporation Limited/Other (specify)] Amount(s): (viii) Screen Rate Determination (Condition [Applicable/Not Applicable] 5(b)(iii)(B)): * [Reference Rate: [●] * Interest Determination Date: [[●] [TARGET] Business Days in [specify city] for [specify currency] prior to [the first day in each Interest Accrual Period/each Interest Payment Date]] * Relevant Screen Page: [●]] (ix) ISDA Determination (Condition [Applicable/Not Applicable] 5(b)(iii)(A)): * ISDA Definitions: [2006 ISDA Definitions]/[2021 ISDA Definitions] * Floating Rate Option: [●] * Designated Maturity: [●] * Reset Date: [●] * Compounding: [Applicable/Not Applicable] (If not applicable delete the remaining items of this sub-paragraph) * Compounding Method: [Compounding with Lookback * Lookback: [●] Applicable Business Days] [Compounding with Observation Period Shift * Observation Period Shift: [●] Observation Period Shift Business Days * Observation Period Shift Additional Business Days: [[●]/Not Applicable]] [Compounding with Lockout * Lockout: [●] Lockout Period Business Days * Lockout Period Business Days: [[●]/Applicable Business Days]] – 109 –* Index Provisions: [Applicable/Not Applicable] (If not applicable delete the remaining items of this sub-paragraph) * Index Method: Compounded Index Method with Observation Period Shift * Observation Period Shift: [●] Observation Period Shift Business Days * Observation Period Shift Additional Business Days: [[●]/Not Applicable] (x) Screen Rate Determination (SOFR Benchmark) (Condition 5(b)(iii)(C)) * [Reference Rate: SOFR Benchmark – [Simple SOFR Average/Compounded SOFR Average/SOFR Compounded Index]] * Compounded SOFR Average [Not Applicable/SOFR Observation Method: Lag/SOFR Observation Shift/SOFR Payment Delay/SOFR Lockout – used for Compounded SOFR Average only] * SOFR IndexStart: [Not Applicable]/[[●] U.S. Government Securities Business Days preceding the first date of the relevant Interest Accrual Period – used for SOFR Compounded Index only] * SOFR IndexEnd: [Not Applicable]/[[●] U.S. Government Securities Business Days preceding the Interest Period Date relating to the relevant Interest Accrual Period (or in the final Interest Accrual Period the Maturity Date) – used for SOFR Compounded Index only] * Interest Determination Date(s): [The [●] U.S. Government Securities Business Day prior to the last day of each Interest Accrual Period – only applicable in the case of Simple SOFR Average/SOFR Observation Lag/SOFR Observation Shift/SOFR Lockout/SOFR Compounded Index] [The Interest Period Date at the end of each Interest Period provided that the Interest Determination Date with respect to the final Interest Accrual Period will be the U.S.Government Securities Business Day immediately following the relevant SOFR Rate Cut-Off Date – only applicable in the case of SOFR Payment Delay] * Lookback Days: [[●] U.S. Government Securities Business Days – used for SOFR Lag only]/[Not Applicable] * SOFR Observation Shift Days: [[●] U.S. Government Securities Business Days – used for the SOFR Observation Shift or SOFR Compounded Index only]/[Not Applicable] * SOFR Rate Cut-Off Date: [The date falling [●] Business Days prior to the end of each Interest Accrual Period the Maturity Date or the date fixed for redemption as applicable – used for Simple SOFR Average (if applicable) Compounded SOFR Average – SOFR Payment Delay or SOFR Lockout only]/[Not Applicable] * Interest Payment Delay Days: [[●] Business Days – used for SOFR Payment Delay only]/[Not Applicable] – 110 –* Observation Shift Days (Condition [[●] U.S. Government Securities Business 5(b)(iii)(D)(SOFR Index Days – used for SOFR Index Unavailable Unavailable)): only]/[Not Applicable] (xi) Minimum Rate of Interest: [●] per cent. per annum (xii) Maximum Rate of Interest: [●] per cent. per annum (xiii) Day Count Fraction (Condition 5(l)): [●] (xiv) Fallback provisions rounding [Benchmark Event/Benchmark Event provisions denominator and any other (SOFR)/specify if fallback provisions different terms relating to the method of from those set out in the Conditions] calculating interest on Floating Rate Notes if different from those set out in the Conditions: 18. . . Zero Coupon Note Provisions [Applicable/Not Applicable] (If not applicable delete the remaining sub- paragraphs of this paragraph) (i) Amortisation Yield (Condition 6(b)): [●] per cent. per annum (ii) Day Count Fraction (Condition 5(l)): [●] (iii) Any other formula/basis of determining [●] amount payable: 19. . . Index Linked Interest Note Provisions [Applicable/Not Applicable] (If not applicable delete the remaining sub- paragraphs of this paragraph) (i) Index/Formula: [Give or annex details] (ii) Party responsible for calculating the [●] Rate(s) of Interest and/or Interest Amount(s) (if not the [Agent]): (iii) Provisions for determining Coupon [●] where calculation by reference to Index and/or Formula is impossible or impracticable: (iv) Interest Period(s): [●] (v) Specified Interest Payment Dates: [●] (vi) Business Day Convention: [Floating Rate Business Day Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/Other (give details)] (vii) Business Centre(s) (Condition 5(l)): [●] (viii) Minimum Rate of Interest: [●] per cent. per annum (ix) Maximum Rate of Interest: [●] per cent. per annum (x) Day Count Fraction (Condition 5(l)): [●] 20. . . Dual Currency Note Provisions [Applicable/Not Applicable] (If not applicable delete the remaining sub- paragraphs of this paragraph) (i) Rate of Exchange/Method of calculating [Give details] Rate of Exchange: (ii) Party if any responsible for calculating [●] the Rate(s) of Interest and Interest Amount(s) (if not the [Agent]): (iii) Provisions applicable where calculation [●] by reference to Rate of Exchange impossible or impracticable: (iv) Person at whose option Specified [●] Currency(ies) is/are payable: (v) Day Count Fraction (Condition 5(l)): [●] – 111 –PROVISIONS RELATING TO REDEMPTION 21. . . Call Option [Applicable/Not Applicable] (If not applicable delete the remaining sub- paragraphs of this paragraph) (i) Optional Redemption Date(s): [●] (ii) Optional Redemption Amount(s) of each [●] per Calculation Amount Note and method if any of calculation of such amount(s): (iii) If redeemable in part: (a) Minimum Redemption Amount: [●] per Calculation Amount (b) Maximum Redemption Amount: [●] per Calculation Amount (iv) Notice period: [●] 22. . . Put Option [Applicable/Not Applicable] (If not applicable delete the remaining sub- paragraphs of this paragraph) (i) Optional Redemption Date(s): [●] (ii) Optional Redemption Amount(s) of each [●] per Calculation Amount Note and method if any of calculation of such amount(s): (iii) Notice period: [●] 23. . . Final Redemption Amount of each Note [●] per Calculation Amount 24. . . Early Redemption Amount Early Redemption Amount(s) per Calculation [●] Amount payable on redemption for taxation reasons (Condition 6(c)) or Event of Default (Condition 10) and/or the method of calculating the same (if required or if different from that set out in the Conditions): GENERAL PROVISIONS APPLICABLE TO THE NOTES 25. . . Form of Notes: [Bearer Notes/Registered Notes] [Delete as appropriate] [Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Notes in the limited circumstances specified in the Permanent Global Note] [Temporary Global Note exchangeable for Definitive Notes on [●] days’ notice] [Permanent Global Note exchangeable for Definitive Notes in the limited circumstances specified in the Permanent Global Note] [Permanent Global Note exchangeable for Definitive Notes on [●] days’ notice/at any time] [Permanent Global Certificate exchangeable for Definitive Certificates in the limited circumstances specified in the Permanent Global Certificate] [Permanent Global Certificate exchangeable for Definitive Certificates on [●] days’ notice/at any time](6)(7) – 112 –26. . . Financial Centre(s) (Condition 7(h)) or other [Not Applicable/give details. Note that this special provisions relating to payment dates: item relates to the date and place of payment and not interest period end dates to which item 16(ii) 17(vi) and 19(vii) relate] 27. . . Talons for future Coupons or Receipts to be [Yes/No. If yes give details] attached to Definitive Notes (and dates on which such Talons mature): 28. . . Details relating to Partly Paid Notes: amount [Not Applicable/give details] of each payment comprising the Issue Price and date on which each payment is to be made and consequences (if any) of failure to pay including any right of the Issuer to forfeit the Notes and interest due on late payment: 29. . . Details relating to Instalment Notes: [Not Applicable/give details] (i) Instalment Amount(s): [●] (ii) Instalment Date(s): [●] (iii) Minimum Instalment Amount: [●] (iv) Maximum Instalment Amount: [●] 30. . . Redenomination renominalisation and [Not Applicable/The provisions annexed to reconventioning provisions: this Pricing Supplement apply] 31. . . Consolidation provisions: [Not Applicable/The provisions annexed to this Pricing Supplement apply] 32. . . Other terms or special conditions: [Not Applicable/give details](7) DISTRIBUTION 33. . . (i) If syndicated names of Managers: [Not Applicable/give names] (ii) Stabilisation Manager (if any): [Not Applicable/give name] 34. . . If non-syndicated name of Dealer: [Not Applicable/give name] 35. . . U.S. Selling Restrictions [Reg. S Category 1/2/3; TEFRA D Rules/TEFRA C Rules/TEFRA Not Applicable; Rule 144A] 36. . . Prohibition of Sales to EEA Retail Investors: [Applicable/Not Applicable] (If the Notes clearly do not constitute “packaged” products “Not Applicable” should be specified. If the Notes may constitute “packaged” products and no KID will be prepared “Applicable” should be specified.) 37. . . Prohibition of Sales to UK Retail Investors: [Applicable/Not Applicable] (If the Notes clearly do not constitute “packaged” products “Not Applicable” should be specified. If the Notes may constitute “packaged” products and no KID will be prepared “Applicable” should be specified.) 38. . . Additional selling restrictions8: [Not Applicable/give details] OPERATIONAL INFORMATION 39. . . ISIN Code: [●] 40. . . Common Code: [●] 41. . . CMU Instrument Number: [●] 8 To consider if amendments to the Singapore selling restrictions for flexibility of sales to persons other than accredited investors and institutional investors are required.– 113 –42. . . CUSIP Number: [●] 43. . . Legal Entity Identifier of the Bank: [●] 44. . . Any clearing system(s) other than Euroclear [Not Applicable/give name(s) and number(s)] Clearstream the CMU and the relevant identification number(s): 45. . . Delivery: Delivery [against/free of] payment 46. . . Additional Paying Agents (if any): [●] GENERAL 47. . . The aggregate principal amount of Notes [Not Applicable/US$[●]] issued has been translated into US dollars at the rate of [●] producing a sum of (for Notes not denominated in US dollars): 48. . . In the case of Registered Notes specify the [Not Applicable/Luxembourg] location of the office of the Registrar if other than Hong Kong: 49. . . In the case of Bearer Notes specify the [Not Applicable/Hong Kong] location of the office of the Fiscal Agent if other than London: 50. . . (i) Date of corporate approval(s) for the [●] issuance of the Notes: (ii) Date of any regulatory approval for the [●] issuance of the Notes: 51. . . Rating(s): [Not Applicable]/[The Notes to be issued are [expected to be] rated [●] by [●]] A credit rating is not a recommendation to buy sell or hold securities and may be subject to revision suspension and withdrawal at any time by the relevant rating agency.Hong Kong SFC Code of Conduct 52. . . Rebates: [A rebate of [●] bps is being offered by the [Issuer] to all private banks for orders they place (other than in relation to Notes subscribed by such private banks as principal whereby it is deploying its own balance sheet for onward selling to investors) payable upon closing of this offering based on the principal amount of the Notes distributed by such private banks to investors. Private banks are deemed to be placing an order on a principal basis unless they inform the CMIs otherwise.As a result private banks placing an order on a principal basis (including those deemed as placing an order as principal) will not be entitled to and will not be paid the rebate.]/[Not Applicable] 53. . . Contact email addresses [of the Overall [Include relevant contact email addresses of Coordinators] where underlying investor the Overall Coordinators where the information in relation to omnibus orders underlying investor information should be should be sent: sent – Overall Coordinators to provide]/[Not Applicable] 54. . . [Marketing and Investor Targeting Strategy: [as indicated in the Offering Circular]/ [Provide details if different from the Offering Circular]] – 114 –[USE OF PROCEEDS Give details if different from the “Use of Proceeds” section in the Offering Circular.] [LISTING APPLICATION This Pricing Supplement comprises the final terms required to list the issue of Notes described herein pursuant to the U.S.$5000000000 Medium Term Note Programme of China Merchants Bank Co. Ltd..] [STABILISATION In connection with the issue of any Tranche of Notes one or more of the Managers named as Stabilisation Manager(s) (or persons acting on behalf of any Stabilisation Manager(s)) in this Pricing Supplement may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However stabilisation may not necessarily occur. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Notes is made and if begun may cease at any time but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilisation Manager(s) (or person(s) acting on behalf of any Stabilisation Manager(s)) in accordance with all applicable laws and rules.] [MATERIAL ADVERSE CHANGE STATEMENT [Except as disclosed in this document there/There](8) has been no significant change in the financial or trading position of the Issuer or of the Group since [insert date of last audited accounts or interim accounts (if later)] and no material adverse change in the financial position or prospects of the Issuer or of the Group since [insert date of last published annual accounts].] RESPONSIBILITY The Issuer accepts responsibility for the information contained in this Pricing Supplement.Signed on behalf of the Issuer: By: Duly authorised – 115 –Notes: (1) Notes (including Notes denominated in sterling) in respect of which the issue proceeds are to be accepted by the Issuer in the United Kingdom or whose issue otherwise constitutes a contravention of section 19 of the FSMA and which have a maturity of less than one year must have a minimum redemption value of ?100000 (or its equivalent in other currencies).If the specified denomination is expressed to be C100000 or its equivalent and multiples of a lower principal amount (for example C1000) insert the additional wording set out in the Guidance Note published by ICMA in November 2006 (or its replacement from time to time) as follows: “C100000 and integral multiples of C1000 in excess thereofup to and including C199000. No notes in definitive form will be issued with a denomination above C199000”. (2) Note that for Renminbi or Hong Kong dollar denominated Fixed Rate Notes where the Interest Payment Dates are subject to modification it will be necessary to use the second option here. (3) Note that for certain Renminbi or Hong Kong dollar denominated Fixed Rate Notes the Interest Payment Dates aresubject to modification and the following words should be added: “provided that if any Interest Payment Date fallson a day which is not a Business Day the Interest Payment Date will be the next succeeding Business Day unless it would thereby fall in the next calendar month in which event the Interest Payment Date shall be brought forward tothe immediately preceding Business Day.” (4) For Renminbi or Hong Kong dollar denominated Fixed Rate Notes where the Interest Payment Dates are subject tomodification the following alternative wording is appropriate: “Each Fixed Coupon Amount shall be calculated bymultiplying the product of the Rate of Interest and the Calculation Amount by the Day Count Fraction and rounding the resultant figure to the nearest CNY0.01 CNY0.05 in the case of Renminbi denominated Fixed Rate Notes or to the nearest HK$0.01 HK$0.005 in the case of Hong Kong dollar denominated Fixed Rate Notes being roundedupwards.” (5) Only to be completed for an issue where the Day Count Fraction is Actual/Actual-ICMA. (6) If the Global Note/Certificate is exchangeable for Definitive Notes/Certificates at the option of the holder the Notes shall be tradeable only in amounts of at least the Specified Denomination (or if more than one Specified Denomination the lowest Specified Denomination) provided in paragraph 6 and multiples thereof. (7) Only applicable if permitted by the rules of the relevant clearing system. The limited circumstances in which exchangeis permitted are set out under the section “Summary of Provisions Relating to Notes while Represented by GlobalNotes or Global Certificates – Exchange” in the Offering Circular. (8) If full terms and conditions are to be used please add the following here: “The full text of the Conditions which applyto the Notes [and which will be endorsed on the Notes in definitive form] are set out in [the Annex hereto] which Conditions replace in their entirety those appearing in the Offering Circular for the purposes of these Notes and suchConditions will prevail over any other provision to the contrary.” The first set of bracketed words is to be deleted where there is a Permanent global Note instead of Notes in definitive form. The full Conditions should be attached to and form part of the Pricing Supplement. (9) If any change is disclosed in the Pricing Supplement it may require approval by the Stock Exchange(s). Consideration should be given as to whether or not such disclosure should be made by means of a supplemental Offering Circular rather than in a Pricing Supplement.– 116 –CAPITALISATION AND INDEBTEDNESS The following table sets forth the Group’s consolidated capitalisation and indebtedness as at 31 December 2023. This table should be read in conjunction with the financial statements and the accompanying notes included in this Offering Circular.As at 31 December 2023 (in millions of RMB) Liabilities(1) Debt securities issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119193 Negotiable interbank certificates of deposit issued . . . . . . . . . . . . . . . . . . . . . . . 21443 Certificates of deposit and other debt securities issued(2). . . . . . . . . . . . . . . . . . . 34128 Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1814 Total debt securities issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176578 Equity Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25220 Other equity instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150446 – Preference shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27468 – Perpetual bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122978 Capital reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65432 Investment revaluation reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13656 Hedging reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 Surplus reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108737 General reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141481 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 518638 Proposed profit appropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49734 Exchange reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2934 Total equity attributable to equity holders of the Bank. . . . . . . . . . . . . . . . . . 1076370 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9359 – Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6521 – Perpetual debt capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2838 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1085729 Total Capitalisation(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1262307 (1) As at 31 December 2023 besides debt securities issued the Group had borrowing from central banks deposits from banks and other financial institutions placements from banks and other financial institutions financial liabilities at fair value through profit or loss derivative financial liabilities amounts sold under repurchase agreements deposits from customers salaries and welfare payable tax payable contract liabilities lease liabilities provisions deferred tax liabilities and other liabilities. (2) Other debt securities issued are notes issued by overseas subsidiaries of the Bank. (3) Total capitalisation represents the sum of debt issued and total equity. Save as disclosed in this Offering Circular there has been no material change to the Group’s consolidated capitalisation and indebtedness since 31 December 2023.– 117 –USE OF PROCEEDS Unless otherwise specified in the applicable Pricing Supplement the Group intends to use the proceeds of each issuance of Notes for the business development and to replenish liquidity.– 118 –DESCRIPTION OF THE BANK OVERVIEW The Bank was incorporated on 11 August 1987 as a joint stock company with limited liability under the Approval on Pilot Establishment of Merchants Bank (关于同意试办招商银行的批覆(银覆[1986]175号)) issued by the PBOC and with registration number She Qi Fu No. 0345 (蛇企副字0345号). Founded in 1987 with its head office in Shenzhen China the Bank mainly focuses on the market in China. The Bank’s distribution network is mainly distributed in major central cities in the Chinese mainland and some international financial centres such as Hong Kong New York London Singapore Luxembourg and Sydney. As at 31 December 2023 the Bank had 143 branches and 1781 sub-branches in mainland China two branch-level specialised institutions (a credit card centre and a capital operation centre) 2226 self-service banks 5281 cash self-service devices and 7603 visual counters. The Bank also has a Hong Kong branch a New York branch and a representative office in the United States a London branch in the United Kingdom a Singapore branch a Luxembourg branch a representative office in Taipei and a Sydney branch in Australia. As at 31 December 2023 the Bank ranked 1st among Chinese joint-stock banks in terms of the balance of deposits from retail customers (data from WIND). As at the date of this Offering Circular the Bank is the 5th largest bank in China by market capitalization (data from WIND).The growth of the Bank from a regional bank into a national commercial bank with significant asset scale and strength in China is primarily attributable to its resources and efforts. The Bank was listed on the Shanghai Stock Exchange in April 2002 and on the HKSE in September 2006.The Bank provides customers with various wholesale and retail banking products and services and maintains treasury businesses for proprietary purpose and on behalf of customers. Many innovative products and services of the Bank have been well received by the market. Retail banking services include the “All-in-one” multi- function debit card credit card account and payment settlement services classified wealth management services including the “Sunflower Wealth Management” services and private banking services retail credit services CMB APP CMB Life APP “All-in-one Net” which is a comprehensive online banking service platform and other online services. Wholesale banking services include payment and settlement wealth management investment and financing and digital services cash management sci-tech finance green finance inclusive finance retirement finance digital finance supply chain finance and cross-border finance services asset management asset custody and investment banking. The Bank continues to tap further into the living and business circles of customers to provide customers with customised intelligent and comprehensive solutions for their supply chains and investment chains.In recent years the Bank continues to deepen its strategic transformation and come up with the strategicvision of “building the best value creation bank with innovation-driven development leading model anddistinguished features” based on the internal and external situation and its own development. In line with the trend of acceleration in the construction of China’s modern industrial system the Bank consistently enhances its quality and efficiency in serving the real economy and social well-being and strives to create more value for customers employees shareholders partners and society with the aim of making greater contributions to the modernisation process with Chinese characteristics.– 119 –As at 31 December 2022 and 2023 the Group had approximately RMB10138.912 billion and RMB11028.483 billion in total assets respectively and RMB6051.459 billion and RMB6508.865 billion in total loans and advances to customers respectively. For the years ended 31 December 2022 and 2023 the Group had an operating income of RMB342.215 billion and RMB336.602 billion respectively and a net profit of RMB139.294 billion and RMB148.006 billion respectively. For the year ended 31 December 2023 the Group had a net profit attributable to shareholders of the Bank of RMB146.602 billion representing a year-on-year increase of 6.22%. Net operating income9 was RMB339.078 billion representing a year-on-year decrease of 1.64% among which the net interest income was RMB214.669 billion representing a year-on-year decrease of 1.63%. The Groups net non-interest income was RMB124.409 billion representing a year-on-year decrease of 1.66%. The return on average asset (ROAA) attributable to shareholders of the Bank and return on average equity (ROAE) attributable to ordinary shareholders of the Bank were 1.39% and 16.22% down by 0.03 percentage point and 0.84 percentage point year-on-year respectively. For the years ended 31 December 2022 and 2023 the net interest spread of the Group was 2.28% and 2.03% respectively and the net interest margin of the Group was 2.40% and 2.15% respectively. In 2022 and 2023 the Bank received a number of honours and awards from organisations both at home and abroad including: * In February 2022 on the list of “The Top 500 Banking Brands 2022” released by The Banker (UK) the Bank ranked 10th with a brand value of U.S.$24.4 billion.* In February 2022 in the selection results of the “2022 Private Banking and Wealth ManagementSurvey” released by Euromoney the Bank was once again awarded the “Best Private Bank/WealthManager Overall of PRC” which also marked the Bank’s 12th time to win such an award.* In May 2022 in the selection results of the second Annual Sustainable Finance Awards 2022 releasedby the US-based Global Finance magazine the Bank won the Award for “Outstanding Leadership inSustainability Transparency in the Asia-Pacific Region”.* In June 2022 the Bank was awarded the “Best Retail Bank in China” in “Asia Trailblazer Awards 2022” hosted by Retail Banker International. * In June 2022 at the awards ceremony for the “2022 All-Asia Executive Team” held by the US-basedInstitutional Investor Magazine the Bank championed several awards including “HonouredCompanies” “Best IR Company” and “Best ESG Company”.* In July 2022 the Bank ranked 11th in terms of Tier 1 Capital on the list of “Top 1000 World Banks 2022” released by The Banker (UK) up 3 places in terms of ranking from the previous year and remaining in top 20 for five consecutive years.* In July 2022 the Bank received the award of “Best Bank in China” at the “2022 Awards forExcellence” ceremony staged by Euromoney for the fourth consecutive year which marked the first “4 Consecutive Championships” in its awarding history.* In August 2022 the list of Fortune Global 500 was officially released on which the Bank appeared for 11 consecutive years ranking the 174th in terms of operating income. 9 Net operating income is the sum of net interest income net fee and commission income other net income as well as share of profits of joint ventures and associates.– 120 –* In August 2022 the results of the “2022 International Excellence in Retail Financial ServicesAwards” was announced by the Asian Banker Journal in which the Bank was once again awarded “The Best Wealth Management Bank in China”.* In September 2022 in the latest rating of the “2022 Market Leaders” published by Euromoney the Bank received the highest ratings in four sectors namely corporate banking corporate social responsibility (CSR) ESG and digital solutions.* In September 2022 in the selection results of the “Global Finance’s 15th Annual China Star” awards released by the US-based Global Finance magazine the Bank was honoured with four awards namely “The Best Transaction Service Bank” “The Best Corporate Social Responsibility Bank” “The Best Wealth Management Bank” and “The Best Sustainable Investment Private Bank”.* In December 2022 the Bank won “Top Three Best Employers” “Most Socially ResponsibleEmployer” and “Most Admired Employer by Women” at the awards ceremony for the “BestEmployer in China 2022” jointly organised by Zhaopin.com and Institute of Social Science Survey Peking University.* The Bank ranked 10th globally in “The Top 500 Banking Brands 2023” released by The Banker (UK) in February 2023 with a brand value of U.S.$24.536 billion.* In March 2023 the Bank was awarded the “Best Retail Bank in China” in “Asia Trailblazer Awards 2023” hosted by Retail Banker International.* In June 2023 the US-based Institutional Investor magazine released the results of the “2023 All-AsiaExecutive Team” recognising the Bank as the bank with the highest overall ranking and the most awards in the Asian region. The Bank won several awards including “Best Board of Directors” “Asia’s Most Respected Company” “Best IR Company” and “Best ESG Company”.* In July 2023 the Bank ranked 11th on the list of “Top 1000 World Banks 2023” released by The Banker (UK) ranking first in the best performing Chinese banks for three consecutive years.* In July 2023 the Bank received the award of “Best Bank in China” at the “2023 Awards forExcellence” ceremony staged by Euromoney (UK) for the fifth consecutive year marking the first “5-year championship streak” in its awarding history and was also the only Chinese bank to receive the “Awards for Excellence” in that year.* The list of Fortune Global 500 was officially released in August 2023 on which the Bank ranked 179th and making the list for 12 consecutive years. * In August 2023 the Bank was recognised as the “Best CSR Bank in China” and “Best InvestmentBank in China” at the awards ceremony for the “Best Banks in China 2023” hosted by Asiamoney.* In September 2023 in the selection of the “2023 China Star” organised by the US-based GlobalFinance magazine the Bank was honoured with three awards namely “Best Wealth ManagementProvider” “Best Corporate Governance Bank” and “Best Transaction Service Bank”.– 121 –* In November 2023 the Bank ranked among China’s Most Admired Companies by Fortune magazine.* In December 2023 the Bank won “Top 10 Best Employers 2023” “Most Socially ResponsibleEmployer” and “Most Admired Employer by Women” at the awards ceremony for the “BestEmployer in China 2023” jointly organised by Zhaopin.com and Institute of Social Science Survey Peking University and has been shortlisted in the top 10 list of “Best Employers of the Year” for 13 consecutive years.The following chart shows certain events in the Bank’s historical development. 198720022006200920132016201820202022 Established in Completed Completed Completed Completed Opening of Issued Set up Green Issued Shenzhen RMB11bn A- US$2.7bn acquisition of US$5.5bn A+H Private Banking RMB30bn Social and US$400mm China by parent share IPO H-share IPO in 100% stake in share rights Center in New financial bond Sustainability renewable China issued 1.5bn Hong Kong Hong Kong issue York Bonds energy themed Merchants shares with with ticker based Wing Issued Framework and green bond Group ticker 600036 3968 Lung Bank RMB20bn Tier issued 2 capital bond US$800mm green bond and US$300mm sustainability bond Completed Issued RMB3.5bn Published the first Completed Issued RMB11.3bn Set up Private Issued US$939mm Priced US$300mm Issued US$400mm conversion into a subordinated debt Corporate Social US$3.2bn A+H Tier 2 capital bond Banking Center in equivalent offshore sustainability three-year blue joint-stock Responsibility share rights issue and RMB1bn Singapore and bond SOFR bond (1st floating rate dollar commercial bank Issued RMB6.5bn report offshore RMB Sydney SOFR bond among bond the world’s convertible bond bond respectively CMB Wealth Chinese joint-stock first blue floating Management commercial banks) rate US Dollar Established officially came into and US$300mm bond US$5.0bn EMTN operation Carbon Neutrality Programme Themed green bond 199420042007201020142017201920212023 CORE COMPETITIVE STRENGTHS The Bank’s core competitive strengths are as follows: Leading retail finance business with unique competitive advantages The Bank is one of the earliest among its domestic peers to have prioritised the development of its retail finance business. The Bank has developed a leading position in retail finance business in recent years. By building a comprehensive business management system a healthy customer structure a coordinated system of channels and a well-organised product portfolio the Bank believes it has established its systematic advantages and secured a leading market position. It plans to continue to reinforce and enlarge its core retail businesses such as wealth management small and micro enterprise business and consumer finance.For the year ended 31 December 2023 profit before tax of retail finance business of the Group amounted to RMB99.913 billion up by 6.09% year-on-year accounting for 56.57% of the profit before tax of the Group representing a year-on-year decrease of 0.47 percentage point; net operating income amounted to RMB194.315 billion up by 1.52% year-on-year accounting for 57.31% of the net operating income of the Group representing a year-on-year increase of 1.79 percentage points.– 122 –Corporate finance business with specialised and professional operations The Bank’s corporate finance business such as cash management trade finance cross-border finance and mergers and acquisitions financing continued to achieve a rapid and steady growth and a strong performance. With respect to its M&A financing business under the unfavourable domestic and overseas situation the Bank focused on key business areas such as mixed ownership reform of state-owned enterprises private placements and mutual fund of real estate investment trusts (REITs) and continued to integrate internal and external resources. While meeting the financing needs of customers the Bank achieved rapid development in the M&A financing business and established comprehensive and in-depth cooperative relationships with a group of leading enterprises in the industry through M&A financing services. As at 31 December 2023 the Bank’s total corporate loans amounted to RMB2321.585 billion representing an increase of 10.70% as compared with the end of 2022 accounting for 37.65% of the Bank’s total loans and advances. For the year ended 31 December 2023 the Bank’s M&A financing business volume amounted to RMB193.348 billion representing a year-on-year increase of 3.71% ranking first in both book runner and lead arranger in the Asia Pacific M&A syndicate ranking published by Bloomberg.Rapidly developing cross-border finance platform With regards to its cross-border customers the Bank has overcome many unfavourable factors in domestic and overseas markets continuously improved the competitiveness of systematic operation of cross-border business under the main direction of customer operation and expansion created new advantages in cross-border services with “domestic and overseas integration” and Fintech reshaped the influence of cross-border finance brands with a new product system of “Cross-Border E Zhao Tong (跨境E招通)” and strengthened the construction of a compliant and stable foreign exchange policy and risk management system with long-termism. The Bank uses a marketing strategy that combines segmentation classification and regional management to strengthen its customer base in goods and services trade and capital account.The Bank also expands its service scope by using its advantage of offering integrated services at home and abroad to three key customer groups and situations: the global operation of Chinese firms the foreign invested companies “bringing in” and the overseas capital market.For the year ended 31 December 2023 the Bank recorded U.S.$356.887 billion (based on the latest calibre of the State Administration of Foreign Exchange) of international balance of payments for corporate customers representing an increase of 4.90% based on the same calibre as compared with 2022. In particular the balance of payments for corporate customers under trade in goods amounted to U.S.$173.814 billion representing a year-on-year increase of 9.92%.Innovative e-channels and IT platform The Bank adheres to the business development underpinned by technological innovation and continuously promotes the construction of “Digital CMB” around online data-based intelligent platform-based and ecological operation and improves the service level of “people + digitalisation” by virtue of intelligent technology so as to drive the high-quality development of the Bank with innovation. Focusing on the five major development directions of digital operation and management cutting-edge technology capabilities bank-to-business ecosystem bank-to-consumer ecosystem innovation and incubation the Bank continuously promotes the construction of new capabilities and the exploration of new models of Fintech Innovation Project Fund. During the year ended 31 December 2023 558 new projects were launched and 612 new projects were put into operation. As at 31 December 2023 the number of the Bank’s Fintech innovation projects launched and put into operation reached an aggregate of 3800 and 3062 respectively.– 123 –In terms of retail customer service in 2023 the Bank accelerated the transformation and upgrading from “online retail (线上零售)” to “digital and intelligent retail (数智零售)” constructed the intelligent wealth engine and intelligent customer service engine and consolidated our digital capabilities. CMB APP further integrated artificial intelligence intelligent customer service and remote consultancy capabilities to launch the brand new intelligent wealth assistant “Xiao Zhao (小招)” which provided one-stop wealth management services such as financial analysis product selection strategies market views and yield analysis as well as personalised and customised advisory services. As at 31 December 2023 the monthly active users (MAU) of the CMB APP and the CMB Life APP reached 117 million. For the year ended 31 December 2023 the micro-finance loans granted through online approval accounted for 66.74% of the micro-finance loans granted through all channels representing a year on year increase of 7.13 percentage points. With the upgrading of “Wealth Alpha+” platform in respect of wealth management business the Bank realised digital and intelligent operation of the whole process in investment research product selection and post-investment management and deepened the empowerment to improve the professionalism of key positions.In terms of wholesale customer service digital channel has become an important portal of customer acquisition. Based on online operation the Bank used digital tools to improve the quality and efficiency of services of relationship managers and facilitated the digital transformation as well as integrated transformation of business and finance of enterprises with products such as Treasury Management Cloud (财资管理云). For the year ended 31 December 2023 the Bank achieved list-based high-quality customer acquisition of 112600 customers representing a year-on-year increase of 28.85%; the volume of service delivered via Enterprise WeChat exceeded 17 million times. As at 31 December 2023 the percentage of financing business conducted online was 92.28% representing an increase of 10.14 percentage points as compared with the end of 2022 and the percentage of foreign exchange business conducted online was 75.34% representing an increase of 9.85 percentage points as compared with the end of 2022. As at 31 December 2023 Treasury Management Cloud (财资管理云) accumulatively served 477600 corporate customers representing an increase of 62.15% as compared with the end of 2022.In terms of risk management the Bank constructed the intelligent risk control engine and comprehensively utilised internal and external data to continuously enhance its digital risk control capability and efficiency. For the year ended 31 December 2023 the intelligent pre-warning coverage rate of on- and off-balance sheet “all businesses” reached 100%. “Libra (天秤)” guarded transaction security effectively helping customers block telecommunications fraud and the percentage of fraud and account takeover amounts by non cardholders was lowered to 0.1 in ten millionths. The corporate loans newly granted through the online risk control platform amounted to RMB303.560 billion representing a year-on-year increase of 53.58%. By applying digital processes the Bank reduced the average time taken for the granting of an inclusive finance mortgage loan from one month to 2.7 days.In terms of operation management the Bank used data to drive operation decisions so as to improve the efficiency and accuracy of management decisions. For the year ended 31 December 2023 the Bank built a strategic operation decision-making analysis platform for retail business lines and developed a mobile business intelligence a unified data reviewing portal for the Head Office and branches and a business scenario-based data ecosystem to improve the efficiency of operation analysis for all positions all businesses and all scenarios. The Bank promoted the construction of a digital platform of customer relationship management (CRM) system for wholesale business lines which linked the whole chain of operation and management of the Head Office branches and sub-branches significantly improving the digital operation and management level of corporate business. The Bank built a risk portal for risk business lines integrated various risk data inside and outside the Bank and built a rich database model library knowledge base and application functions to provide effective data and decision-making support for credit officers. The Bank realised comprehensive operation monitoring and intelligent reasoning – 124 –analysis for the Head Office branches and sub-branches via “Zi Zhai Tong (资债通)” portal of the finance and accounting business line the closed-loop management of all online pricing process via the product pricing management system and integrated the New Capital Regulation into the internal management system via the capital management system which significantly improved the efficiency of resource allocation and stimulated the enthusiasm of frontline operations through digital tools. The Bank built a digital platform for smart finance realising online and intelligent management of all financial processes and building a leading financial management system in the domestic banking industry.In terms of internal operation the Bank relieved its staff from repetitive time-consuming work by leveraging technology and consolidated experience with data to construct the intelligent operation engine and achieve a high-quality balance of experience efficiency risk and cost. For the year ended 31 December 2023 “Kaiyang Portal (开阳门户)” a new generation of open operation service platform completed the intelligent transformation and application of over 400 operation processes and the processing efficiency of key businesses increased by 27%. By leveraging the intelligent application in scenarios such as the intelligent customer service intelligent process quality inspection and the Conch RPA (Robot Process Automation) our staff were relieved from repetitive time-consuming work equivalent to a workload of over 17000 full-time individuals.In terms of digital infrastructure the Bank has entered into a more stable agile and resilient “post-cloudera”. The technology middle office strengthened component governance and accelerated the establishment and promotion of low-threshold development platform. The data middle office pushed forward the import of external data and enterprise-level data governance and application. As at 31 December 2023 the overall availability of the cloud services (being the arithmetic average of the availability of each important systemrunning on the cloud platform) exceeded 99.999% while the “Project of Full-scale Cloud Deployment ofCMB Banking System” winning the first prize of Fintech Development Award of the People’s Bank of China. The system supported on-demand application expansion with minute-level flexibility which could adjust the flexible allocation of resources according to business needs and strategies to achieve the optimal use of resources. The technology middle office had launched over 5100 components among which 1254 components passed the quality certification of the Bank representing an increase of 146.85% as compared with the end of 2022. The Bank launched 5646 applications on the low-code development platform of which the business personnel accounted for more than 53% of all developers. The data middle office introduced nearly 400 data sources and the big data services covered 60% of the employees in the Bank.The Bank grasped the definite opportunities of the large language model and actively carried out the construction and application of the large language model. On the one hand the Bank actively strengthened the construction of large models introduced large models with hundreds of billions of parameters used its own corpus to optimise train and adapt to bank-wise application scenarios and actively followed up the technological development of open-source large models. The Bank also self-developed the large models with tens of billions of parameters in professional scenarios. On the other hand we actively explored the application of large models in retail business wholesale business middle office and back office. At the same time the Bank established the large model experience platform connecting to various mainstream large models in China.Industry benchmark of high-quality servicesThe Bank has devised unique service models since its inception and established the service concept of “weare here just for you” through years of practice in the banking business. The Bank attach importance to the customer service experience proactively promote service upgrading and always keep its service quality ahead. “Good service” has been the brand for the Bank to attract customers and expand market.– 125 –Continuously enhanced brand influence The Bank built up “CMB” as an excellent financial brand by making sustained product technology innovation offering high quality services generating steady operational results and advanced management concepts. Since its inception the Bank has been enhancing its brand influence and the brand value has rapidly increased. The Bank has won wide international acclaim in recognition of its excellent performance. It ranked first in the award of “Best Performing Chinese Bank” released by The Banker (UK) for three consecutive years and achieved the first “5 Consecutive Championship” in the history of the “Best Bank in China” selection by Euromoney.Experienced management team The Bank’s senior management team is highly experienced with a proven track record of performance.With extensive management knowledge operating experience expertise and with relevant professional experience in the industry the Bank’s senior management’s capabilities have been critical to its success and their strategic vision and leadership have positioned the Bank for continued growth. The Bank believes that its management team with a proven track record in delivering sound operational and financial results is equipped with the critical knowledge and skills required to take advantage of market opportunities which are expected to continue to improve the Bank’s overall performance.BUSINESS DEVELOPMENT STRATEGIES The Bank is committed to building the best value creation bank with innovation-driven development leading model and distinguished features. In light of the advantages of retail banking which is lesscyclically relevant and the advantages of endogenous growth of capital benefiting from the “Light-modelBank” the Bank upholds the philosophy of win-win business and business for common good to grow into a value creation bank. The Bank seeks to maximise the comprehensive value of customers employees shareholders partners and the society as well as creating a new pattern of high-quality growth aiming to become a world-class commercial bank. The Bank’s strategic focus is centred on building three capacities in wealth management Fintech and risk management and also to promote the evolution of organisational culture. Based on the needs of the country and enterprises and the ability of the Bank the Bank is expected to perform its ESG responsibilities serve the real economy and meet the needs of people’s livelihood to create a new stage for high-quality growth.The Bank intends to implement the following strategies: * Enlarging wealth management business and accelerating the transformation of the business model. By adopting a customer-centric approach to business operations and focusing on the value creation chain of “volume growth – revenue growth – profit growth – value growth” the Bank aims to foster a flywheel effect by fully integrating its four major business segments: retail finance corporate finance investment banking and financial markets wealth management and asset management and will strive to deliver sustained growth in both total assets under management (“AUM”) from retail customers and the aggregate financing products to corporate customers (“FPA”).* Optimising Fintech and accelerating comprehensive digital transformation. Focusing on the goal of online data-based intelligent platform-based and ecological operation we will comprehensively promote the digital reshaping of financial infrastructure and capability system customers and channels businesses and products management and decision-making. In particular we are actively exploring the new mode of “AI + Finance” to make artificial intelligence a moreimportant part of the Bank’s intelligence and build a value creation bank through the “DigitalCMB”.– 126 –* Strengthening risk management and building a fortress-style overall risk and compliance management system. Adhering to the prudent risk management principle using Fintech as the tool and taking a prudent risk appetite as a safeguard measure we will create a “Six All” risk management system covering all risks all branches and subsidiaries all customers all assets all processes and all factors to support the operation of the value creation bank.* Pursuing the core values and building the cultural and organisational foundation for a value creation bank. Firstly we will uphold and enhance the Bank’s corporate culture focusing on entrepreneurship service quality innovation risk management compliance management excellence and people-orientation with an aim to create a vibrant and evolving cultural system.Secondly we will establish an organising team for supporting our service strategies and creating value together providing organisational support and talent foundations for a value creation bank.Thirdly we will actively implement sustainable development principles in serving the real economy actively fulfilling environmental and social responsibilities and enhancing the standard of our corporate governance.In 2023 the Bank focused on the strategic objective of “value creation bank” and adhered to the priority of stability while pursuing progress amid stability. The Bank accelerated to improve its capabilities in wealth management Fintech and risk management maintaining stable operating results and further enhancing market competitiveness so as to take solid steps on the path of high-quality development. The Bank implemented its business development strategies as follows: Firstly the Bank achieved dynamically balanced development of “Quality Profitability and Scale”.Focusing on the value creation chain of “volume growth – revenue growth – profit growth – valuegrowth” the Bank adhered to the principle of “takes quality as the foundation and profitability as prioritywhile maintaining moderate scale and reasonable structure” maintained stable asset quality leading position in risk compensation capacity steady profit growth and a relatively high level of ROAA and ROAE during 2023. The Bank’s business scale grew steadily and the customer base assets and liabilities increased in quantity and maintained in good quality. In light of the operational structure with obvious advantages retail finance business contributed to more than 55% in terms of both net operating income and profit; indicators such as proportion of demand deposits proportion of net non-interest income and others maintained a relatively good level; and customer structure and asset structure were continuously optimised.Secondly the Bank’s four major sectors achieved balanced and coordinated development. In 2023 theBank continued to promote the development of four major sectors namely “retail finance corporatefinance investment banking and financial markets wealth management and asset management” to form a business pattern of balanced and coordinated development with distinctive features strengthened and enhanced the capital-heavy business and optimised and expanded the capital-light business.* Retail finance sector: the systematic advantages of the Bank’s retail finance sector were further highlighted. Focusing on the original needs of customers in “deposit loan and remittance (存贷汇)” the Bank constantly improved the service level through the methodology of “people + digitalisation” services. As at 31 December 2023 the Bank’s retail customers reached 197 million in total representing an increase of 7.07% as compared with the end of 2022. As at 31 December 2023 the balance of total AUM from retail customers amounted to RMB13.32 trillion representing an increase of 9.88% as compared with the end of 2022. The balance of deposits from retail customers amounted to RMB3314.318 billion representing an increase of 12.13% as compared with the end of 2022. The balance of retail loans amounted to RMB3373.633 billion representing an increase of 8.49% as compared with the end of 2022. Due to continued improvement of the debit and credit card integrated customer acquisition and operating efficiency 65.72% of our credit card customers held both our debit cards and credit cards as at 31 December 2023 up by 1.62 percentage points as compared with the end of 2022.– 127 –* Corporate finance sector: the featured advantages of the Bank’s corporate finance sector were continuously strengthened. Focusing on the needs of the nation and the capabilities of the Bank the Bank built featured finance services including sci-tech finance green finance inclusive finance and intelligent manufacturing finance upgraded the customer acquisition and service model and continued to expand the breadth and depth of customer services. As at 31 December 2023 the total number of corporate customers served by the Bank reached 2820600 representing an increase of 11.66% as compared with the end of 2022. The balance of deposits from corporate customers amounted to RMB4557.243 billion representing an increase of 5.52% as compared with the end of 2022; and the balance of loans to corporate customers amounted to RMB2321.585 billion representing an increase of 10.70% as compared with the end of 2022. Among them the growth rate of loans in key areas such as sci-tech finance green finance inclusive finance and manufacturing finance was significantly higher than the overall growth rate of the loans of the Bank. As at 31 December 2023 the balance of loans extended to the sci-tech enterprises10 was RMB428.477 billion representing an increase of 44.95% as compared with the end of 2022; the balance of green loans amounted to RMB447.765 billion representing an increase of 26.00% as compared with the end of 2022; the balance of SME inclusive finance loans was RMB804.279 billion representing an increase of 18.56% as compared with the end of 2022; and the balance of loans extended to the manufacturing industry amounted to RMB555.102 billion representing an increase of 25.06% as compared with the end of 2022.* Investment banking and financial markets sector: the leading advantages of the Bank’s investment banking and financial markets sector were continuously consolidated. The Bank accelerated the transformation of its investment banking business to become a “fund originator” and continuously improved its business capabilities in terms of bond underwriting and M&A financing. As at 31 December 2023 the balance of the aggregate financing products to corporate customers (FPA) contributed by the investment banking business increased by 14.91% as compared with the beginning of the year. The self-operated investment and research systems of the financial markets business were continuously improved and the advantages of tradings on behalf of customers were further consolidated. For the year ended 31 December 2023 the Bank provided hedging services to 6285 companies with a total transaction volume of U.S.$64.783 billion in derivatives from corporate customers. With the on-going improvement of the integrated operation capability of bill business the Bank continued to enhance its bill transaction business. For the year ended 31 December 2023 the number of customers of bill business of the Bank was 159700 with a year-on-year increase of 11.38% and the volume of commercial acceptance bill discounting ranked first in the market (data from the Commercial Bank Bill Business Association).* Wealth management and asset management: the Bank’s capabilities of wealth management and asset management were constantly enhanced. The Bank continued to promote the development of extensive wealth management business. On the client side as at 31 December 2023 the number of customers holding our wealth management products reached 51379500 representing an increase of 19.13% as compared with the end of 2022 and the number of private banking customers exceeded 140000. On the product side the Bank carefully selected diversified products in the whole market for customers and enhanced the exploration of high-quality products. On the service side the Bank further promoted the “CMB TREE Asset Allocation Service System”. The number of customers11 who conducted asset allocation under the system reached 9114500 representing an increase of 10 Represents loans granted to sci-tech enterprises such as “specialised competitive distinguished and innovative (专精特新)” enterprises high-tech enterprises and technology-based SMEs by the Bank. 11 Refers to the golden card and golden sunflower card holders who have two or more types of wealth management products out of the four types of wealth management products namely trade-ready management protection-based management conservative investment and aggressive investment.– 128 –12.15% as compared with the end of 2022. The Bank continued to build the service ecosystem with partners and accompanied customers throughout their investment journey. As at 31 December 2023 152 asset management institutions have been introduced to the “Zhao Cai Hao (招财号)” an open platform of wealth management business of the Bank. The Group’s asset management subsidiaries continued to strengthen the six major capabilities of investment research asset origination risk management technology support business innovation and talent team. As at 31 December 2023 the scale of assets management business amounted to RMB4.48 trillion. The Bank accelerated the exploration of the service model of asset custody business of “service + technology + collaboration”.As at 31 December 2023 the total asset under custody of the Bank reached RMB21.12 trillion ranking first in the industry (data from the Custody Business Professional Committee under China Banking Association).Thirdly the Bank promoted the construction of digital finance and pressing ahead towards “Smart CMB(智慧招行)”. The Bank promoted the construction of digital finance around the transformation direction of “online data-based intelligent platform-based and ecological operation” thereby shifting from “Online CMB” towards “Smart CMB”. For the year ended 31 December 2023 the Bank’s information technology input amounted to RMB14.126 billion. The ratio of information technology input to the Bank’s net operating income reached 4.60%. The Bank attached great importance to the construction of digital talent pool. As at 31 December 2023 the number of R&D personnel of the Group reached 10650 accounting for 9.14% of the total number of employees of the Group. Focusing on the five major development directions of digital operation and management cutting-edge technology capabilities bank-to-business ecosystem bank-to-consumer ecosystem innovation and incubation the Bank continuously promoted the construction of new capabilities and the exploration of new models of Fintech Innovation Project Fund. For the year ended 31 December 2023 558 new projects were launched and 612 new projects were put into operation. As at 31 December 2023 the number of the Bank’s Fintech innovation projects launched and put into operation reached an aggregate of 3800 and 3062 respectively.Fourthly the Bank strives to continue building a fortress-style overall risk and compliance management system. For the year ended 31 December 2023 the Bank continued to promote the “Six All” riskmanagement system covering “all risks all branches and subsidiaries all customers all assets allprocesses and all factors” optimised the centralised system of credit granting and limit management of customers granted with large credit facility further enhanced centralised customer management established a domestic branch-based risk profile and classification system and enhanced the risk management for subsidiaries and overseas institutions. The Bank actively prevented and mitigated risks in key areas effectively and steadily disposed a number of real estate projects associated with risk promoted the prudent and differentiated management of local government financing business steadily carried out the business of small- and medium-sized financial institutions and continued to promote the collection of nonperforming loans. The Bank promoted the dynamic rebalancing of asset business optimised the “one branch one policy” list-based operation for the asset business and optimised research policies on industrial clusters advantageous industries and regional economies. The Bank comprehensively reinforced the internal control and compliance management strengthened the promotion of risk and compliance culture strengthened the construction of inspection and supervision team at branches continued to strengthen the sanction and compliance management and continuously deepened the money laundering risk management.Fifthly the Bank strives to accelerate the construction of advantages in key regions. For the year ended 31 December 2023 the Bank proactively responded to the nation’s major regional development strategy and industrial cluster development strategy and accelerated the release of development potential of the key branches among the Yangtze River Delta the Pearl River Delta Chengdu-Chongqing Region and the Western Taiwan Straits Economic Zone in combination with the regional layout and business structure ofthe Bank’s branches so as to adapt to local economic development. The Bank carried out the “deep and– 129 –intensive cultivation” centring on regional advantageous and characteristic industries as well as customer needs strengthened its core competitiveness and enhanced the operating efficiency of branches in keyregions by “promoting featured services of the Bank in key regions developing region-based strategieswithin CMB” to develop new growth engines for high-quality development. The development strategy of key regions has achieved initial results. As at 31 December 2023 the growth rates of core deposits AUM and corporate loans of 17 branches of the Bank in key regions were higher than the average level of the Bank. As at 31 December 2023 the balance of corporate loans of the above 17 branches in the key regions amounted to RMB867.679 billion representing an increase of RMB124.941 billion as compared with the end of 2022 accounting for 37.37% of the total corporate loans of the Bank. The increased loans accounted for 55.66% of the total incremental corporate loans of the Bank.Sixthly the Bank strives to comprehensively improve the level of refined management. For the year ended 31 December 2023 the Bank insisted on building a refined and standardised management system to improve the efficiency effectiveness and efficacy of value creation. By further reforming in organisational structure the Bank steadily promoted the reform of operational system of branches and adjusted and optimised the structure and management model of Head Office departments so the organisational structure became more aligned with value creation bank. The Bank also strengthened talent management promoted the development of talents across different organisational level upgraded talent exchange program enhanced the application of the “Six Can-do” mechanism (六能机制) and comprehensively strengthened the code of conduct of employees. The Bank optimised the management of asset and liability upgraded the asset and liability management system and the performance management system focusing on value creation and actively promoted the preparation for implementation of the New Capital Regulation. The Bank upgraded its service management explored the construction of an “extensive consumer protection” working pattern strengthened the protection of consumer rights focused on the traceability and rectification of key and difficult issues created new service standards for the Bank and constantly improved service quality and efficiency. Therefore the number of customer complaints was reduced by 35% year-on-year. The Bank implemented strict financial management adhered to careful planning and strengthened the closed-loop management of the whole process of costs and expenses.THE GROUP’S BUSINESS OPERATIONS The Group’s principal activities are the provision of corporate and personal banking services conducting treasury businesses and the provision of asset management and other financial services. The Group manages its businesses by divisions which are organised by a mixture of both business lines and geography. Since 2016 in order to adapt to the client and product line coordination mechanism the Group was converted into wholesale finance business and retail finance business and other business segment. The profits and losses of the treasury were allocated to two business lines proportionally. After adjustment for the main business segments of the Group the reporting for the segments was as follows: * Wholesale finance business: The financial services for corporate clients government agencies and financial institutions include loan and deposit service settlement and cash management service trade finance and offshore business investment banking business inter-bank business such as placement and repurchase asset custody business financial market business and other services.* Retail finance business: The financial services provided to retail customers include loan and deposit service bank card service wealth management services private banking and other services.* Other Business: Other business covers investment properties subsidiaries (except for CMB Wing Lung Bank Limited and CMB Financial Leasing Co. Ltd.) associates and joint ventures.– 130 –The following table sets forth the operating results of each segment of the Group for the periods indicated.For the year ended 31 December 20232022 Profit Profit before Net before Net tax by operating tax by operating Item segment Percentage income Percentage segment Percentage income Percentage (in millions of RMB) (%) (%) (%) (%) Retail finance . . . . 99913 56.57 194315 57.31 94178 57.04 191415 55.52 Wholesale finance . 72765 41.20 134625 39.70 67149 40.67 142094 41.22 Other businesses . . 3940 2.23 10138 2.99 3786 2.29 11231 3.26 Total . . . . . . . . . . 176618 100.00 339078 100.00 165113 100.00 344740 100.00 Retail Finance The Group is one of the earliest among its domestic peers to have prioritised the development of its retail finance business. By building a comprehensive business management system a healthy customer structure a coordinated system of channels and a well-organised product portfolio the Group believes it has established its systematic advantages and secured a leading market position. Meanwhile the Group believes it possesses outstanding competitive advantages in terms of certain core retail businesses such as wealth management small and micro enterprise business and consumer finance.For the year ended 31 December 2023 the profit before tax from the retail finance business of the Bank amounted to RMB97.292 billion representing an increase of 4.95% as compared with 2022. The net operating income from the retail finance business amounted to RMB190.146 billion representing an increase of 0.89% as compared with 2022 and accounting for 61.86% of the net operating income of the Bank. The net interest income from the retail finance business amounted to RMB133.766 billion representing an increase of 3.42% as compared with 2022 and accounting for 70.35% of the net operating income from retail finance; the net non-interest income from the retail finance business amounted to RMB56.380 billion representing a decrease of 4.66% as compared with 2022 while accounting for 29.65%of the net operating income from retail finance and 56.56% of the net non-interest income of the Bank. For the year ended 31 December 2023 the fee and commission income from retail wealth management business of the Bank was RMB27.007 billion representing a decrease of 8.71% as compared with 2022 and accounting for 48.80% of the net fee and commission income from retail finance; the Bank recorded a fee income of RMB19.394 billion from retail bank card business representing a decrease of 8.80% as compared with 2022.For the year ended 31 December 2023 by adhering to its core value of “being customer-centric andcreating value for customers” the Bank continued to consolidate its systematic strengths in retail finance by expanding its capital-light businesses such as wealth management and strengthening its capital-heavy business and continued to enhance its value creation capability thereby promoting the high-quality development of its retail business. Through building the “people + digitalisation” omni-channel service system strengthening the ecological construction of financial scenarios and continuously optimising the core retail finance products the Bank provided more customers with better retail finance services to actively satisfy the needs of people’s livelihood. For the year ended 31 December 2023 the retail business of the Bank maintained a good momentum of development.– 131 –Retail Customers and Total Assets Under Management for Retail Customers For the year ended 31 December 2023 in the face of the complex and volatile external situation and the increasingly fierce competition from the banks and other financial institutions the Bank proactively promoted the strategic deployment in key regions to explore growth potential and further propelled business integration to strengthen its ability to expand group finance service. The Bank intensified thecustomer base operation returned to the original needs of customers in “deposit loan and remittance (存贷汇)” banking services made full use of Fintech to push forward the innovation of retail products and refined operation and diversified the categories and offerings of products and deepened asset allocation services catering for customers’ needs. For the year ended 31 December 2023 the number of retail customers and the balance of the total AUM from retail customers of the Bank maintained stable growth.As at 31 December 2023 the Bank had 197 million retail customers (including debit and credit card customers) representing an increase of 7.07% as compared with the end of 2022 among which the number of customers in the level of Golden Sunflower and above (those with minimum daily average total assets of RMB500000 for each month) reached 4640600 representing an increase of 12.00% as compared with the end of 2022.As at 31 December 2023 the balance of total assets under management for retail customers of the Bank amounted to RMB13321.131 billion representing an increase of 9.88% as compared with the end of 2022.Among them the balance of total assets under management for the customers in the level of Golden Sunflower and above amounted to RMB10819.744 billion representing an increase of 9.66% as compared with the end of 2022. As at 31 December 2023 the balance of deposits from retail customers of the Bank amounted to RMB3314.318 billion representing an increase of 12.13% as compared with the end of 2022.For the year ended 31 December 2023 the demand deposits accounted for 58.16% of the daily average balance of deposits from retail customers of the Bank.Wealth Management The Bank launched its wealth management services in 2002 to meet the growing needs of affluent customers in China. The Bank’s Sunflower wealth management services are generally provided to the Bank’s Sunflower VIP customers. Such services include among other things dedicated one-on-one financial consulting services dedicated Sunflower wealth management centres VIP rooms and VIP counters provision of timely wealth management information and special discounts for certain of the Bank’s products and services. The Bank’s wealth management customers also enjoy other services provided by many of the Bank’s partners including among others airports hotels restaurants shopping centres and fitness club services in China.In order to better meet domestic investors’ increasingly diversified demand for wealth management the Bank endeavoured to improve the wealth management experience of customers and sharpen its brand image as a wealth management bank through creating professional wealth management research and support system developing a professional customer asset management system improving its customer management and asset allocation capabilities and establishing a comprehensive wealth management product line.– 132 –As at 31 December 2023 the Bank’s balance of retail wealth management products amounted to RMB3499.766 billion representing an increase of 11.51% as compared with the end of 2022 mainly due to the increased allocations towards stable long-term products by the Bank in line with customers’ needs resulting in an increased growth rate in the scale of wealth management products under management as compared with 2022. For the year ended 31 December 2023 the agency distribution of non-money-market mutual funds of the Bank totalled RMB296.809 billion representing a decrease of 11.42% year-on-year.The decrease was mainly due to further decline in customer risk appetite as the capital market remained under pressure. However the sales of more stable bond fund products recovered on a quarter-to-quarter basis in the second half of the year. For the year ended 31 December 2023 the Bank achieved the agency distribution of insurance premiums of RMB96.826 billion representing an increase of 33.76% year-on- year. The increase was mainly due to the fact that the Bank further seized market opportunities and increased its efforts in the allocation of regular insurance which drove an overall increase in premiums.During the year ended 31 December 2023 the Bank recorded RMB84.647 billion in agency distribution of trust schemes representing a decrease of 24.77% as compared with the year ended 31 December 2022 which was mainly due to the fact that the Bank actively adjusted its business direction under the policy background of “reform of trust business classification” and other policy backgrounds.For the year ended 31 December 2023 the Bank recorded a fee and commission income from retail wealth management business of RMB27.007 billion among which income from agency distribution of insurance policies amounted to RMB12.743 billion income from agency distribution of funds amounted to RMB5.457 billion income from agency distribution of wealth management products amounted to RMB5.291 billion income from agency distribution of trust schemes amounted to RMB3.175 billion and other income amounted to RMB341 million.For the year ended 31 December 2023 in the light of customers’ demands for stable-performing products the Bank strengthened its capability of offering professional wealth management services built an omni-channel service system based on “people + digitalisation” and helped customers achieve asset preservation and appreciation.First the Bank stepped up efforts in upgrading payment settlement customers to wealth management customers for the purpose of increasing the number of customers holding our wealth products. The Bank insisted on the scenario construction of payment settlement service and continuously improved customers’ service experience in various scenarios to promote the upgrade of customers’ needs from payment settlement towards wealth management. As at 31 December 2023 the Bank had 51379500 customers holding our wealth products representing an increase of 19.13% as compared with the end of 2022.Second the Bank increased its offering of stable products in response to changes in customers’ risk appetite. In terms of wealth management products the Bank integrated the advantageous resources of its partners offered stable products as its core offering and captured periodic investment opportunities. In terms of fund products the Bank increased its offering of short-term debt and “fixed income+” products and thus improve customers’ experience in comprehensive income. In terms of insurance products the Bank has continued to enrich its product offerings to cover major insured types such as pension health accident and property so as to satisfy customers’ needs for insurance. Furthermore the Bank continued to broaden its product categories and cooperation channels and further explored customers’ asset allocation needs providing customers of various channels and types with appropriate business strategies and products.– 133 –Third the Bank constantly optimised the “CMB TREE Asset Allocation Service System” to guide customers to make scientific asset allocation. In terms of customer service the Bank integrated its online and offline customer services to form a service model centring on asset allocation and continuous review on re-balancing service to build a virtuous operation cycle. In terms of capability enhancement the Bank provided its front-line team with systematic training to improve its abilities in communication and interaction with customers professional market analysis and judgement and asset allocation services so as to help customers form a correct investment philosophy. As at 31 December 2023 the Bank had 9114500 customers who conducted asset allocation under such system representing an increase of 12.15% as compared with the end of 2022. Fourth the Bank constantly iterated the open platform capabilities to enhance the customer’s experience with wealth management product held with the Bank. The Bank further optimised the service capabilities of “Zhao Cai Hao (招财号)” an open platform of wealth management business on CMB APP improved the operation and organisation mechanism and provided customers with better wealth services. As at 31 December 2023 “Zhao Cai Hao (招财号)” on CMB APP has onboarded in total 152 asset managementinstitutions with industrial representativeness. For the year ended 31 December 2023 “Zhao Cai Hao (招财号)” provided professional investment guidance and companion for customers on their investment journey by offering wealth information online interactions and organisation of events etc.Private Banking As at 31 December 2023 the Bank had 148842 private banking customers (retail customers of the Bank with minimum total daily average assets of RMB10 million per month) representing an increase of 10.42% as compared with the end of 2022. For the year ended 31 December 2023 the Bank continued to enhance the core capabilities of the privatebanking business continuously improved and upgraded the comprehensive service system of “individualfamily enterprise and society (人家企社)”12 in response to the evolving comprehensive needs of its clients. The Bank pursued steady progress and promoted the steady quality development of its private banking business in a prudent manner.Firstly the Bank diversified its products and services following the principle of “being customer-centric”.It focused on satisfying customers’ demand for stable products based on a clear understanding of the changes in their actual needs. Thus the Bank selected asset management institutions outperforming the entire market with the aim of continuously enriching its products portfolio and developed specific accompanying service for customers throughout their whole investment journey. Meanwhile the Bankintegrated the resources of the group members and third-party partners to deliver a “financial +non-financial” service ecosystem for customers and the enterprises behind them.Secondly the Bank embraced technology-driven innovation to achieve service upgrades. In particular it improved the exclusive APP for private banking customers to increase the proportion of online transactions built an ecosystem for private equity institutions and upgraded digital comprehensive financial services. Benefiting from the development of a digital wealth management and asset allocation system the Bank upgraded the “one-to-one” advisory asset allocation services with digital tools. It also sought to create an operation model driven by advanced technology to accurately analyse and deeply understand customers’ needs based on digital means. 12 The term “individual family enterprise and society” specifically refers to the needs of individuals families enterprises and the society.– 134 –Thirdly the Bank continued to fulfil its social responsibilities under the principle of common prosperity.Under the principle of common prosperity the Bank identified the intersection between customer service and social welfare by actively responding to the needs of customers to participate in public charity and practicing ESG principles. The Bank promoted the implementation of charitable projects through charitable trusts and other tools for example with the release of the 2023 Charity Research Report among High-Net-Worth Individuals in China (《2023年中国高净值人群慈善调研报告》) and the establishment of a philanthropy exchange platform named “Goodwill Hall (议善厅)”.Fourthly the Bank adhered to prudent operations and fortified risk management. The Bank conducted proactive risk assessment continuously improved the segmented and classified management system of its products to achieve appropriate matching between product risks and clients’ risk-return preferences empowering business development while maintaining risk control.Credit Cards The Bank’s credit cards provide multiple services and functions including traditional credit card services such as overdraft payments cash advances revolving credit instalment services and order purchases. The Bank’s dual-currency credit cards are accepted globally through the VISA MasterCard or JCB system. TheBank remained committed to the credit card business vision of being “the best provider of paymentexperience the best expert in consumer finance and the leader in diversified marketing platform in China”.The Bank continuously pushed forward management reform and built a differentiated competitive edge for CMB credit cards through comprehensive innovation.As at 31 December 2023 the Bank had issued an aggregate of 97.1181 million active credit cards representing a decrease of 5.44% as compared with the end of 2022 and there were 69.7404 million active credit card users representing a decrease of 0.37% as compared with the end of 2022 mainly due to the decrease in newly-acquired customers as the Bank placed more emphasis on high-quality customer acquisition. For the year ended 31 December 2023 the credit card transactions of the Bank amounted to RMB4814.967 billion representing a decrease of 0.44% as compared with the year ended 31 December 2022. Interest income from credit cards amounted to RMB63.515 billion representing a decrease of 0.72% as compared with the year ended 31 December 2022. Non-interest income from credit cards amounted to RMB27.228 billion representing a decrease of 3.02% as compared with the year ended 31 December 2022. In terms of risk management the Bank continued to optimise its customer structure and asset portfolio under the guidance of the operation strategy focusing on “stability and low volatility”. Additionally the Bank has further studied regional strategies with forward-looking judgement and continued to iterate various types of quantitative models to enhance its risk decision-making capability while continuously upgrading the post-loan digital operations to improve operational efficiency and collection effects. For the year ended 31 December 2023 the risk indicators for its credit card business declined indicating enhanced risk-resistant capabilities. As at 31 December 2023 the balance of non-performing credit card loans was RMB16.381 billion representing a non-performing loan ratio of credit card loans of 1.75% with a decrease of 0.02 percentage point from the end of 2022. In view of the current complicated external environment the Bank will prudently arrange various strategic deployments in the next stage continue to optimise its strategy on customer structure and asset portfolio coordinate regional business development based on specific local policies explore various ways of restructuring the balance between risk and growth under the new situation and continue to promote high quality development of its credit card business.– 135 –In terms of business development the Bank adhered to the value-oriented and innovation-driven approach to promote service and product upgrades. Firstly the transformation of customer acquisition strategies has facilitated the Bank’s high-quality customers acquisition efforts. Additionally it has constantly enriched its card product portfolio by launching green and low-carbon themed credit card in practicing the ESG concept and joined hands with Meituan and Mango TV to launch co-branded cards in satisfying the needs of young customers for online shopping and entertainment. In particular for female customers the Bank launched among others the Hello Kitty pink graffiti card and “Free Life (自由人生)” platinum credit card (Pink Version) enabling the Bank to further strengthen the connection with its customers. Secondly the Bank applied a combination of measures to boost consumption seizing the consumption hotspots of festivals and holidays and e-commerce promotions to enhance the efficiency of marketing operations.Furthermore it capitalised on the recovery of overseas transactions by launching the themed marketing campaign of “Extraordinary Overseas Tours (非常境外游)”. Thirdly the Bank continued to focus on the operation of instalment assets and enhance the operating efficiency of bill instalments and consumption instalments. Meanwhile it innovated the post-loan procedure for automobile instalment loans and enhanced service quality and efficiency through online solutions. Fourthly it deepened the digital transformation based on the credit card core system 3.0 upgrading business procedures and functions creating the “people + digitalisation” omni-channel service system and promoting the digital and intelligent transformation of customer service. In addition the Bank has further enhanced the operation of the CMB Life APP.Retail Loans The Bank provides various loan products to its retail banking customers. Since 2006 the Bank has offered personal revolving loans personal business loans and commercial mortgage loans and has developed aquite comprehensive retail loan product line including various multi-functional products such as “borrowand return at leisure” “Easy Consumption” “Easy Transfer” and “Fixed interest” to meet the needs of the Bank’s customers. The Bank was among the first banks in the PRC to use a score card to screen borrowers improving its loans process increasing operating efficiency and establishing a unified brand image.As at 31 December 2023 the balance of retail loans of the Bank amounted to RMB3373.633 billion representing an increase of 8.49% as compared with the end of 2022 and accounting for 54.71% of the Bank’s total loans and advances to customers up by 0.35 percentage point as compared with the end of 2022. Among them the balance of the Bank’s retail loans (excluding credit card loans) reached RMB2437.856 billion representing an increase of 9.55% as compared with the end of 2022 accounting for 39.53% of total loans and advances to customers of the Bank and representing an increase of 0.63 percentage point as compared with the end of 2022.As to business development for the year ended 31 December 2023 the Bank actively implemented the requirements of national policies adhered to the implementation of city-specific policies proactively adapted to the major changes in the supply and demand relationship in the real estate market and supported rigid and improving housing demands of house buyers thus achieving a healthy development of the residential mortgage loan business. Furthermore while maintaining proper risk control management and stable asset quality the Bank proactively adjusted its business structure and increased the granting of micro-finance loans and consumer loans. With respect to micro-finance loans the Bank strictly implemented various regulatory requirements enriched its product portfolio and enhanced policy adaptation to meet the diversified needs of micro-finance loan customers and expanded the coverage of micro-finance loan customers to constantly improve the quality and efficiency of micro-finance services.With respect to the consumer loan business the Bank insisted on selecting high-quality customers and continued to build on its big data risk control capabilities. The Bank carried out segmented management of customer groups with different needs stroke a balance between returns and risks and reduced operating – 136 –costs. As at 31 December 2023 the Bank recorded a balance of residential mortgage loans of RMB1376.814 billion representing a decrease of 0.22% as compared with the end of 2022. The balance of retail micro-finance loans amounted to RMB749.773 billion representing an increase of 19.08% as compared with the end of 2022. The balance of consumer loans amounted to RMB301.538 billion up by 49.11% as compared with the end of 2022. As at 31 December 2023 the Bank had 15.5772 million retail loan (excluding credit card loans) customers representing an increase of 28.31% as compared with the end of 2022. The expansion of customer base was mainly attributable to the light model of customer acquisition through online platform.In terms of risk management the Bank kept intensifying its risk control capabilities. Firstly the Bank strengthened the monitoring and prediction of market risk situations and adjusted its risk management and control strategies in a timely manner in line with changes in market conditions. Secondly the Bank prioritised the development of areas with better economic development and market potential while adhering to the selection of high-quality customer groups and preference for customers with good credit records and stable repayment sources as the main business targets and selecting premium property development projects in core zones as collaterals. Thirdly the Bank continued to strengthen its big data quantitative risk control capabilities and enhanced the digital level of risk management by leveraging Fintech actively expanded access to data sources continuously enriched data labels iteratively updated the strategic model deepening the application of quantitative risk control tools throughout the entire process of the loan to accurately identify and control risks. Through these measures the non-performance loan ratio of retail loans of the Bank remained stable. As at 31 December 2023 the balance of the Bank’s retail special-mentioned loans (excluding credit card loans) amounted to RMB17.366 billion special- mentioned loan ratio was 0.71% representing an increase of 0.09 percentage point as compared with the end of 2022. As at 31 December 2023 the balance of non-performing retail loans (excluding credit card loans) amounted to RMB14.158 billion with the nonperforming loan ratio of 0.58% representing an increase of 0.02 percentage point as compared with the end of 2022. Excluding credit card loans the mortgage and pledged loans accounted for 57.98% of the Bank’s new non-performing retail loans formed for the year ended 31 December 2023 the loan-to-value ratio of the above-mentioned mortgage and pledged loans As at 31 December 2023 was 35.12%. Given that the vast majority of such new non-performing retail loans were fully secured by collaterals the risk was within a controllable range.Wholesale Finance The Bank contributed to the development of the real economy with its integrated service concept of “investment banking and commercial banking” and transformed itself from a capital provider to a capital organiser in order to provide three-dimensional all-round and multi-level financing support to corporate clients.For the year ended 31 December 2023 the Bank achieved profit before tax from wholesale finance of RMB69.648 billion representing an increase of 11.63% as compared with the year ended 31 December 2022. The net operating income from wholesale finance of the Bank was RMB119.481 billion representing a decrease of 6.55% as compared with the year ended 31 December 2022 and accounting for 38.87% of the net operating income of the Bank. Among them net interest income of wholesale finance business amounted to RMB81.058 billion representing a decrease of 6.33% as compared with the year ended 31 December 2022 and accounting for 67.84% of the net operating income of wholesale finance business; the net non-interest income of wholesale finance business amounted to RMB38.423 billion representing a decrease of 7.00% as compared with the year ended 31 December 2022 and accounting for 32.16% of the net operating income of wholesale finance business and 38.55% of the net non-interest income of the Bank.– 137 –For the year ended 31 December 2023 the Bank captured opportunities arising from the transformation of economic growth momentum and accelerated industrial transformation. The Bank focused on the development of key finance sectors including sci-tech finance green finance inclusive finance retirement finance and digital finance etc. and continued to develop its distinctive advantages and upgraded business models to push forward the optimisation and adjustment of the customer structure and business structure of wholesale finance ultimately enhancing the quality and efficiency of serving the real economy.The Bank provided three-dimensional all-round and multi-level financing support to corporate clients with its perspective of integrating investment banking and commercial banking based on its commitment to serving customers’ needs at all times. As at 31 December 2023 the Bank’s balance of aggregate financing products to corporate customers was RMB5517.537 billion13 representing an increase of RMB429.410 billion over the beginning of the year. Among them the balance of traditional financing14 was RMB3149.757 billion representing an increase of RMB351.513 billion over the beginning of the year; the balance of non-traditional financing15 was RMB2367.780 billion representing an increase of RMB77.897 billion over the beginning of the year. The balance of non-traditional financing accounted for 42.91% of the balance of FPA representing a decrease of 2.09 percentage points over the beginning of the year.Wholesale Customers The Bank has established a corporate customer service system with segmentation and classification-based management for strategic customers institutional customers financial institution customers cross-border customers and basic customers. For the year ended 31 December 2023 the Bank continued to focus on the industry specialised operation for strategic customers of the Head Office level and branch level acquisition of high-quality corporate customers and in-depth operations of existing customers. As at 31 December 2023 the total number of corporate customers of the Bank came in at 2820600 representing an increase of 11.66% as compared with the end of 2022. The number of newly acquired corporate customers for the year ended 31 December 2023 was 481900 contributing daily average deposits of RMB172.744 billion.In terms of strategic customers the Bank optimised and upgraded its strategic customer service model by enhancing industry understanding improving capability of the industry-specialised service for strategic customers deepening industry chain and investment chain operations for strategic customers and leading to the innovation of the industrial service model. As at 31 December 2023 the Bank had 32116 strategic customers at the Head Office level with a daily average balance of deposits of RMB1071.146 billion representing an increase of 2.50% on the same calibre as compared with 2022 and the balance of loans 13 Since the scope of financing wealth management and matching transactions included in FPA were adjusted in this period the same-calibre adjustment was made to the data at the beginning of the period with the opening balance of the adjusted FPA of RMB5088.1 billion of which amount of traditional financing amounted to RMB2798.2 billion and amount of non-traditional financing amounted to RMB2289.9 billion. 14 Traditional financing comprises general corporate loans and commercial bills discounting (including transfer-out of outstanding bills) acceptance letters of credit financial guarantees and non-financial guarantees. 15 The eight compositions of non-traditional financing include: asset operation proprietary non-standardised corporate investments financing wealth management debt financing instruments with the Bank as the lead underwriter matching transactions financial leasing cross-border coordination financing and leading syndicated loans. 16 The number of strategic customers of the Head Office level is that of the group number as the strategic customers of the Head Office level served by the Bank. There was an adjustment to the list of strategic customers of the Head Office level in 2023 and the same-calibre adjustment was made to the 2022 data.– 138 –was RMB1118.486 billion representing an increase of 8.00% as compared with the beginning of the year.As at 31 December 2023 the number of strategic customers of the Bank of the branch level was 701317.The daily average balance of deposits was RMB774.371 billion representing an increase of 6.01% on the same calibre as compared with 2022 and the balance of loans was RMB407.267 billion representing an increase of 14.55% as compared with the beginning of the year.With regards to its institutional customers the Bank continued to optimise its product systems and user experience focusing on scenarios including government and industry funds local government special bonds income and expense management of fiscal funds tax payment and refund as well as convenient civil services aiming to provide differentiated services for all levels and types of institutional customers and further tap into the full potential of institutional customers through the service chain. In terms of serving national government institutions the Bank was recognised as excellent agency for all the three agency qualifications in the 2023 Central Fiscal Agency Service Assessment and continued to strengthen the multi-dimensional cooperation in terms of policies qualifications systems data and other aspects and to build a distinctive brand with digital services. In terms of serving local governments and competent authorities the Bank provided customers with a package of solutions encompassing intelligence financing and technology service system and established its reputation in the market for its integrated services. As at 31 December 2023 the Bank had 50600 institutional customers with an average daily deposit balance of RMB1077.397 billion.With regards to its financial institution customers the Bank comprehensively deepened its customer operation by constantly improving its operation system for financial institution customers enhanced its capabilities of the industry specialised operation through classified operations for specific industries and joined hands with the financial institutions customers to serve the customers which facilitated acquisition and operation of corporate customers and retail customers. At the same time the Bank cooperated with policy banks to carry out sub-loans services and implemented the decisions and arrangements related to the national inclusive finance development.With regards to cross-border customers the Bank overcame multiple challenges at home and abroad and continued to build distinctive advantages in cross-border finance. Focusing on the acquisition and operation of customers and strengthening its strategic organisation and professional empowerment theBank recorded stable growth in the cross-border business aiming to become the “principal bank forsettlement” and “first bank to inquire” for customers of cross-border transactions business. As at 31 December 2023 according to the latest statistical calibre of the State Administration of Foreign Exchange the Bank had 75601 corporate customers in respect of international balance of payments representing an increase of 14.03% on the same calibre as compared with 2022. 17 The number of strategic customers of the branch level is the corporate legal entity number of strategic customers of the branch level served by the Bank. There was an adjustment to the list of strategic customers of the branch level in 2023 and the same-calibre adjustment was made to the 2022 data. – 139 –With regard to basic customers the Bank continued to explore the “people + digitalisation” service model by optimising the centralised operation mechanism empowering the middle office of the Head Office and branches and improving the comprehensive capability of its frontline teams. The Bank also enhanced the effectiveness and experience of customer services through standardisation of offline processes online operation of customer services and digitalised customer operation and customer contact. The Bank used intelligent methods to build customer profiles and identify customer potential through big data improve customer service processes establish a closed loop of service and operation covering all processes and the full-life cycle of services and operations and enhance the breadth and efficiency of services. For the year ended 31 December 2023 the Bank served 37.0604 million times for corporate customers through various online channels. For the year ended 31 December 2023 the Bank had 1197800 corporate customers for withholding transactions representing a year-on-year increase of 11.36%. The transaction amount was RMB2.17 trillion representing a year-on-year increase of 7.96%.Corporate Customer Deposits For the year ended 31 December 2023 the Bank continued to take advantage of the business opportunities arising from capital diversion in the key sectors of the capital market enhanced the fund origination for trade settlement based on the enterprise’s operation scenarios proactively expanded low-cost deposits. As at 31 December 2023 corporate customer deposit balance was RMB4557.243 billion representing an increase of 5.52% as compared with the end of 2022. The daily average balance was RMB4532.794 billion representing an increase of 6.42% as compared with 2022. Demand deposits accounted for 57.92% of the average daily balance of corporate customers’ deposits representing a decrease of 2.63 percentage points as compared with 2022. For the year ended 31 December 2023 the average cost rate of corporate customer deposits was 1.75% representing an increase of 3 basis points as compared with 2022.Corporate Loans As at 31 December 2023 the Bank’s total corporate loans amounted to RMB2321.585 billion representing an increase of 10.70% as compared with the end of 2022 accounting for 37.65% of the Bank’s total loans and advances representing an increase of 0.99 percentage point as compared with the end of 2022. Among them the balance of medium- and long-term domestic corporate loans amounted to RMB1425.673 billion representing an increase of 7.44% as compared with the end of 2022 accounting for 63.76% of the total domestic corporate loans representing a decrease of 1.94 percentage points as compared with the end of 2022. The non-performing loan ratio of the corporate loans was 1.15% representing a decrease of 0.10 percentage point as compared with the end of 2022.As at 31 December 2023 the balance of loans to domestic national-standard large enterprises was RMB1021.981 billion representing an increase of 9.71% as compared with the end of 2022 accounting for 45.70% of the domestic corporate loans representing a decrease of 0.43 percentage point as compared with the end of 2022 and the non-performing loan ratio was 0.84% representing a decrease of 0.06 percentage point as compared with the end of 2022. The balance of loans to domestic national-standard medium- sized enterprises was RMB579.121 billion representing an increase of 4.16% as compared with the end of 2022 accounting for 25.90% of the domestic corporate loans representing a decrease of 1.63 percentage points as compared with the end of 2022 and the non-performing loan ratio was 1.91% representing a decrease of 0.15 percentage point as compared with the end of 2022. The balance of domestic national-standard small-sized and micro-sized enterprise loans was RMB484.632 billion representing an increase of 25.27% as compared with the end of 2022 accounting for 21.67% of the domestic corporate loans representing an increase of 2.51 percentage points as compared with the end of 2022 and the non-performing loan ratio was 0.74% representing a decrease of 0.26 percentage point as compared with the end of 2022. The balance of domestic loans to enterprises in other national-standard – 140 –classifications18 was RMB150.439 billion representing an increase of 3.66% as compared with the end of 2022 accounting for 6.73% of the domestic corporate loans representing a decrease of 0.46 percentage point as compared with the end of 2022 and the non-performing loan ratio was 1.75% representing an increase of 0.37 percentage point as compared with the end of 2022.For the year ended 31 December 2023 the Bank continued to optimise its loan structure and maintained greater support for loan granting in sci-tech innovation green economy inclusive economy for small-sized and micro-sized enterprises manufacturing industry and other sectors in response to national policy guidance steadily and orderly promoted the development of the real estate business. For the key regulatory areas such as local government financing platforms the loan granting control was strictly implemented in accordance with the regulatory guidance. As at 31 December 2023 the balance of the corporate loans extended to the manufacturing industry was RMB555.102 billion representing an increase of RMB111.250 billion as compared with the end of 2022 accounting for 23.91% of the total corporate loans representing an increase of 2.75 percentage points as compared with the end of 2022. The balance of green loans was RMB447.765 billion representing an increase of RMB92.408 billion as compared with the end of 2022 accounting for 19.29% of the total corporate loans representing an increase of 2.34 percentage points as compared with the end of 2022. The balance of loans to strategic emerging industries was RMB375.097 billion representing an increase of RMB72.774 billion as compared with the end of 2022 accounting for 16.16% of the total corporate loans representing an increase of 1.74 percentage points as compared with the end of 2022.Sci-tech Finance Business The Bank has launched the sci-tech finance service brand offering integrated service solutions for sci-techenterprises catering for their five core needs namely “bank financing treasury management capitalconnection cross-border development and talent retention and employment”. The Bank innovatively launched the exclusive financing product “Sci-Tech Loan (科创贷)” established “six specialised (六个专门)” working mechanism to serve sci-tech enterprises covering teams products policies institutions assessments and processes expanded the layout of key branches for sci-tech finance thereby increasing the number of key branches to 11 and carried out the bulk acquisition and operation of sci-tech enterprise customers through major channels. As at 31 December 2023 the number of sci-tech enterprise customers of the Bank reached 140800 representing an increase of 42.51% as compared with the end of 2022; and the balance of loans extended to sci-tech enterprises amounted to RMB428.477 billion representing an increase of 44.95% as compared with the end of 2022.Bill Business For the year ended 31 December 2023 the Bank further deepened the transformation of comprehensive services for bill customers continuously improved the experience of bill customers and continued to enhance the direct discounting and inter-bank discounting linkage capabilities and bill transaction capabilities and actively responded to the changes in the external markets. For the year ended 31 December 2023 the number of customers of bill business of the Bank was 159690 with a year-on-year increase of 11.38% among which 122800 were micro- small- and middle-sized customers accounting for 76.90% of the total. The volume of direct bill discounting business was RMB1895.076 billion for the year ended 31 December 2023 representing a year-on-year increase of 24.78% still ranking second in the market (data from the China Banking Association) of which the volume of commercial acceptance bill 18 Such loans include loans made by domestic institutions to overseas and offshore customers domestic non-enterprise customers and self-employed businesses.– 141 –discounting business was RMB234.208 billion ranking first in the market (data from the Commercial Bank Bill Business Association). As at 31 December 2023 the Bank’s bill discounting balance was RMB471.127 billion representing a decrease of 8.32% as compared with the end of 2022 mainly due to the active adjustment and optimisation of the Bank’s asset allocation due to the decrease in interest rate in the bill market.The Bank keeps on improving the bill investment and research integration mechanism and the band trading strategy and flow management optimises the mechanism of Head Office and branch cooperation and continues to enhance its trading capabilities. For the year ended 31 December 2023 the discounted bills transferred to other financial institutions (buy-out) amounted to RMB1851.516 billion representing a year-on-year increase of 27.62% ranking second in the market (data from the China Banking Association).The Bank keeps on implementing the rediscounting policy of the People’s Bank of China supports enterprise financing through rediscounting and improves the quality and efficiency of serving the real economy. For the year ended 31 December 2023 the business volume of bill rediscounting amounted to RMB260.061 billion representing a year-on-year increase of 25.84%. As at 31 December 2023 the Bank’s rediscounting balance was RMB101.161 billion representing an increase of 22.66% as compared with the end of 2022 ranking first in the market (data from the China Banking Association).Transaction Banking Business For the year ended 31 December 2023 the Bank in response to the “Digital China (数字中国)” campaign not only accelerated its own digital transformation but also focused on the three business scenarios of corporate treasury management sales and procurement. The Bank enhanced products innovation and deepened ecological connection so as to forge its two major advantages of “digital treasury management” and “digital integration of business and finance”. By actively integrating with and empowering the digital transformation of enterprises the Bank explored new growth points for the corporate banking business.For the year ended 31 December 2023 the Bank officially launched the “Enterprise Digital IntelligentFinance (企业数智金融)” brand establishing three major service systems namely “Online Finance (线上金融)” “Treasury Management Cloud (财资管理云)” and “Scenario-based Finance (场景金融)” to provide enterprises with intelligent solutions for their efficient operation cost reduction and efficiency enhancement.Relying on Fintech the Bank accelerated the online migration of whole-process of corporate banking business and enhanced the convenience and efficiency of “Online Finance (线上金融)” services. For the year ended 31 December 2023 the online operation of the financing business of the Bank was furtherenhanced. Based on digital risk control technology the Bank continued to upgrade its “Flash Series (闪电系列)” of domestic trade finance products to improve the efficiency of short-term financing for enterprises. Furthermore the Bank continued to upgrade the “people + digitalisation” whole-processcompanion model and explored the introduction of artificial intelligence technology to create a “digitalproduct manager (数字产品经理)” forming a service system of instant response to customer needs for multiple scenarios to improve service efficiency and enhance customer experience. For the year ended 31 December 2023 the letters and certificates issuance business transactions of the Bank amounted to RMB488.285 billion representing a year-on-year increase of 20.49%; the domestic trade financing business volume amounted to RMB1204.238 billion representing a year-on-year increase of 29.48%.– 142 –Based on the demand for upgrading treasury management under the multi-entity cross-region and even global business model gradually adopted by enterprises during their business expansion the Bank took theTreasury Management Cloud as the digital service platform for enterprises and developed the “SingleAccount Version Standard Version Professional Version and Treasury Version (单户版、标准版、专业版、司库版)” to completely cover and precisely meet the needs of treasury management and intelligent analysis and decision-making for various enterprises and users at different stages of development with different size of business under different management modes and with different roles thus to assist enterprises in improving their efficiency in allocating financial resources. At the same time the Bank actively responded to the needs of large enterprises to accelerate the construction of treasury systems builtup the core functions of the Treasury Management Cloud and innovatively launched the “consulting +finance + technology (咨询+金融+科技)” treasury service model so as to deepen the cooperation with large conglomerates. As at 31 December 2023 the number of customers of Treasury Management Cloud services reached 477600 representing an increase of 62.15% as compared with the end of 2022.The Bank also actively explored the comprehensive digital services for enterprises under the scenario of “integration of business and finance” and developed the “Payment Centre (付款中心)” for procurement scenarios based on the whole procurement service process providing enterprises with full-cycle digital payment service in respect of integration of business and finance. As for the corporate sales scenarios the Bank relied on the “Corporate Cashier (企业收银台)” to offer an omni-channel and whole-process unified sales collection service assisting enterprises with digital upgrade of sales management. The Bank developed and further promoted the digital intelligent finance solutions for various industries such as automobile consumption pharmaceutical infrastructure and energy and created branded services such as “Automobile Cashier (汽车收银台)” to contribute to the digital transformation of the real economy. For the year ended 31 December 2023 the customers of corporate collection products reached 87100 representing a year-on-year increase of 38.92%. The transaction amount of corporate collection products was RMB6.28 trillion representing a year-on-year increase of 47.76%.Also the Bank continued to innovate the “Cloud-based H2H Connection” model to expand the breadth and depth of the connection between its digital platforms such as the Treasury Management Cloud and the digital systems of enterprises which facilitated rapid access to the financial services of the Bank by customers of mainstream SaaS office platforms. As at 31 December 2023 the number of customers of the Cloud-based H2H Connection service reached 169800 representing an increase of 31.93% as compared with the end of 2022.Cross-border Finance Business For the year ended 31 December 2023 the Bank focused on the target customer groups of cross-border businesses improved product service system aiming to become the “principal bank for settlement” for customers of cross-border transactions and the “global principal bank” for core customers by implementing operation and management and solidifying foundational capacity building. For the year ended 31 December 2023 the Bank recorded U.S.$356.887 billion19 of international balance of payments for corporate customers representing an increase of 4.90% based on the same calibre as compared with 2022. In particular the balance of payments for corporate customers under trade in goods amounted to U.S.$173.814 billion representing a year-on-year increase of 9.92%. 19 The data for 2023 is based on the latest calibre of the State Administration of Foreign Exchange. – 143 –Centring on customer group acquisition and operation the Bank made solid progress in customer group construction. The Bank established its marketing strategy led by segmentation-based management and supplemented by classification-based management and regional division thereby consolidating the basic customer groups of trade in goods and consolidating our strengths in serving customers of trade in services and capital account. At the same time the Bank extended its service coverage by leveraging the strengths in providing integrated services at home and abroad to three major customer groups and scenarios namely the global operation of Chinese enterprises the foreign invested companies “bringing in” and the overseas capital market.The Bank has fully developed the comprehensive digital and facilitated service system for the cross-border finance business and formed differentiated competitive advantages. In addition it continued to improve its online service capability for the basic products carried out the digital transformation of international trade finance business launched the global cash management service system deepened the segmentation and classification-based service mechanism in respect of international documents efficiently operated the international business section of CMB U-Bank and the CMB Corporate APP and developed a one-stop service platform for its cross-border finance business. For the year ended 31 December 2023 107206 customers visited the international business section of CMB U-Bank representing a year-on-year increase of 98%. The total number of online transactions was 1.5 million among which the online replacement rate for key products was over 86%.The Bank reinforced proactive management of risks in key areas and built the solid “first line of defence” for risk management of cross-border business. It also continued to strengthen the closed-loop risk management for products covering the full-life cycle enhanced risk monitoring in key areas further optimised the anti-money laundering process and improved the ability to prevent sanction risks.Inclusive Finance Business For the year ended 31 December 2023 the Bank implemented the policy guidance of providing financial support for small- and micro-sized enterprises and steadily improved the quality and efficiency of its financial services for the real economy while maintaining stable asset quality and strengthening compliance management. As at 31 December 2023 the balance of loans granted by the Bank to inclusive small- and micro-sized enterprises amounted to RMB804.279 billion representing an increase of RMB125.930 billion or 18.56% as compared with the end of 2022 10.77 percentage points higher than the overall loan growth rate of the Bank. The number of inclusive small- and micro-sized enterprises with loan balance was 1004500 representing an increase of 13800 as compared with the end of 2022. During the year of 2023 the Bank has newly issued inclusive loans of RMB602.821 billion for inclusive small- and micro-sized enterprises with an average interest rate of 4.48% down by 67 basis points year-on-year.With regard to its supply chain and scenario-based finance the Bank innovated and upgraded the supplychain finance 3.0 service system by launching the new products such as “CMB Chain Easy Loan (招链易贷)” and the “Distribution Easy Loan (经销易贷)” which further improved the supply chain product system and effectively enhanced the efficiency of product operation and customer experience. Leveraging the advantage of “One Entire Bank for One Customer (全行服务一家)” the Bank provided exclusive credit support to customers in key industries such as automobile green energy medical security and healthcare communication power and equipment manufacturing under the “product + customer group” scenario- based business model. For the year ended 31 December 2023 the business volume of the Bank’s supply chain financing amounted to RMB818.733 billion representing an increase of 23.68% as compared with the end of 2022. The Bank served 6556 core enterprises and 39490 upstream and downstream customers.– 144 –Retirement Finance Business For the year ended 31 December 2023 the Bank actively practised the concept of “finance for the people” and “finance to serve the real economy” and regarded the retirement finance business as a strategic business with continuously increased input of resources. With the aim of building its distinctive advantages in retirement finance the Bank made overall planning in respect of top-level design of retirement finance integrating retirement finance with non-financial service scenarios and building a four-in-one innovative service model integrating “products + services + channels + technology” to provide customers with all-round one-stop personalised and comprehensive solutions for retirement finance.Following the national development strategy of accelerating the formation of a multi-level and multi-pillar pension insurance system and leveraging its advantages as a fully licenced financial institution the Bank promoted its retirement finance business into a new stage of high-quality development.In terms of the first pillar the Bank offered convenient online services for insured persons such as social security inquiry qualification certification annual report review and other services. As at 31 December 2023 the Bank has issued a total of 62586200 electronic social security cards. In terms of the second pillar the Bank strengthened the construction of core capability with distinctive services and formed its differentiated competitive advantages. As at 31 December 2023 the number of enterprise annuity accounts under management reached 2224800.In terms of the third pillar a total of 5356200 individual pension fund accounts had been opened as at 31 December 2023. At the same time the custody service has covered in depth the three-pillar pension insurance system. As at 31 December 2023 the pension funds under custody amounted to RMB1.05 trillion realising an increase in both market share and scale.Investment Banking Business For the year ended 31 December 2023 the Bank accelerated the transformation of its investment banking business by building an all-round service system for corporate investment banking and stepping up its role change from a loan provider to a fund originator.With respect to its bond underwriting business the Bank strove to serve real economy-based enterprises in direct financing and asset revitalisation with dedication in green finance and sci-tech finance. For the year ended 31 December 2023 the debt financing instruments with the Bank as the lead underwriter amounted to RMB591.813 billion representing a year-on-year decrease of 5.28% ranked third among its industry peers (based on the data from the National Association of Financial Market Institutional Investors). In particular the Bank ranked first by the size of perpetual bonds and sci-tech innovation notes second by the size of green bonds and third by the size of asset-backed notes (ABN) among its industry peers.With respect to its M&A financing business the Bank actively served the industrial integration of real economy-based enterprises and built up the ability to provide systematic services in the capital market throughout the full-life cycle for enterprises. For the year ended 31 December 2023 the Bank’s M&A financing business volume amounted to RMB193.348 billion representing a year-on-year increase of 3.71% ranking first in both book runner and lead arranger in the Asia Pacific M&A syndicate ranking published by Bloomberg.– 145 –With respect to its corporate wealth management business the Bank actively responded to fluctuations in the fixed income market and continued to improve the product system thereby enhancing customer service experience. For the year ended 31 December 2023 the Bank’s average daily balance of corporate wealth management products was RMB306.759 billion representing a year-on-year decrease of 20.32% due to the redemption of bank wealth management products at the beginning of the year with the reduction narrowed down by 6.41 percentage points from the middle of the year.With respect to its market transactions (matching services) business the Bank in collaboration with licenced financial institutions provided a diverse range of funding services in addition to bank credit while focusing on the needs of customers. For the year ended 31 December 2023 the Bank’s market transaction (matching services) amounted to RMB371.405 billion representing a year-on-year increase of 14.54%. Financial Institution Business With respect to financial institution liability business for the year ended 31 December 2023 the daily average balance of financial institution deposits of the Bank amounted to RMB565.449 billion representing a year-on-year decrease of 14.79%. The decrease was mainly due to corrections in the equity market the contraction of the overall bank wealth management market business restructuring of the trust industry as well as the Bank’s refined management and control over the interest-bearing costs and its initiative to reduce high-priced deposits.With respect to its depository service the Bank’s security and future margin depository services were in stable operation. The Bank partnered with 106 securities companies in third-party depository services and 16618000 customers were secured as at 31 December 2023 representing an increase of 7.39% as compared with the end of 2022. Also the Bank entered into cooperation with 144 futures companies on fund transfer securing 423200 customers as at 31 December 2023 representing an increase of 17.13% as compared with the end of 2022.Asset Management Business As at 31 December 2023 the total asset management business of CMB Wealth Management China Merchants Fund Management Co. Ltd. (“China Merchants Fund”) CIGNA & CMB Asset Management Company Limited (“CIGNA & CMAM”) and CMB International Capital all being subsidiaries of the Bank amounted to RMB4.48 trillion20 representing an increase of 1.59% as compared with the end of 2022. Among them the balance of wealth management products under management by CMB Wealth Management amounted to RMB2.55 trillion representing a decrease of 4.49% as compared with the end of 2022; the scale of asset management business of China Merchants Fund amounted to RMB1.55 trillion representing an increase of 4.73% as compared with the end of 2022; the scale of asset management business of CIGNA & CMAM amounted to RMB267.593 billion representing an increase of 62.44% as compared with the end of 2022; the scale of asset management business of CMB International Capital amounted to RMB113.466 billion representing an increase of 8.77% as compared with the end of 2022. 20 The total volume of asset management business of China Merchants Fund and CMB International Capital both included the data of their respective subsidiaries.– 146 –For the year ended 31 December 2023 CMB Wealth Management promoted the efficient operation of thevalue cycle chain in accordance with the business strategy of “stabilising scale adjusting structure andenhancing capacity”. In terms of improving its investment and research capabilities it continued to build on its capabilities in terms of asset allocation and multi-strategy investment while promoting the integration of investment and research maintaining a reasonable staff arrangement in the investment and research system and continuous improvement in the conversion efficiency of investment and research results. In terms of increasing its efforts on product innovation 20 investment strategies highlighting quality asset allocation have been implemented based on market demands which were well accepted by the channels and customers. In terms of enhancing investor experience CMB Wealth Management increased the business hours for wealth management products to 24 hours extending the daily cut-off time for redemption application of cash management products from 15:30 to 24:00 winning favourable recognition from customers. In terms of improving risk management CMB Wealth Management strove to build a comprehensive risk and compliance management system in line with the rules of wealth management and investment following the principle of prudent and sound risk management.For the year ended 31 December 2023 following the “high-quality development” requirements of mutual funds China Merchants Fund stabilised performance expanded growth improved capabilities and upheld to the bottom line and recorded steady progress under the adverse environment prevailing in the fund market. As at 31 December 2023 the total size of non-money-market mutual funds amounted to RMB575.568 billion representing an increase of 2.62% as compared with the end of 2022. In terms of improving the investment and research capability the organisation of industry chain research teams was optimised the building of a digital investment and research platform was well on track while investment and research capabilities continued to grow. In terms of product layout it insisted on deploying equity products amid the adverse environment and launched as the industry pioneer the first hybrid valuation product the shareholder return ETF of Central state-owned enterprises the manager concession products and the first green bond index product so as to satisfy the needs of investors through business model innovation. In terms of customer operations China Merchants Fund actively promoted channel and customer base expansion maintained steady operation of fund investment advisory business took advantage of the opportunity arising from pension business development further engaged in customer accompany and investor education satisfied customers’ needs and realised stable growth in business scale.In terms of basic management it strengthened value orientation optimised human resource management accelerated to promote the digital transformation and tightened risk control compliance and operational assurance management to help boost the quality and efficiency of various businesses. No major risk compliance incidents occurred for the year ended 31 December 2023.For the year ended 31 December 2023 CIGNA & CMAM was positioned as a professional and stable long-term capital management institution adhered to the “customer-centric” value orientation fully integrated into the Group’s strategic layout and strove to become an asset management institution with core competitiveness. With regard to the insurance fund fiduciary business it viewed enhancement of fiduciary investment returns as the core objective and survival foundation to improve the market competitiveness of insurance products. As at 31 December 2023 the scale of insurance funds under entrusted management was RMB144.963 billion representing an increase of 33.15% as compared with theend of 2022. In terms of product creation CIGNA & CMAM adopted the approach of “upholdingfundamental principles and breaking new ground (守正创新)” and conquered challenges to actively seek for new business growth points. During the year it obtained the issuance qualification under the insurance asset support scheme and has basically acquired the issuance and management capability for all types of insurance asset management products. Meanwhile it steadily improved itself in handling the portfolio asset management products and as at 31 December 2023 it ranked among the top of the industry in terms of alternative insurance asset management products business. In terms of operation and risk management it proceeded with high-quality ground work established an efficient operation and management system continued to improve the comprehensive risk management system and accelerated the construction of digital infrastructure with steady progress achieved.– 147 –For the year ended 31 December 2023 CMB International Capital closely aligned with the Bank’s strategic goal of building a value creation bank by making active business coordination with the Bank and strengthening the linkage mechanism of investment banking and commercial banking to jointly propel high quality development. Notwithstanding the weak capital market in Hong Kong CMB International Capital completed a total of 30 Hong Kong IPO projects for the year ended 31 December 2023 maintaining its leading position in terms of Hong Kong IPO underwriting business. According to the statistics of Bloomberg in respect of the market share of IPO underwriting in Hong Kong CMB International Capital ranked third among all the investment banks and first among the investment banks with Chinese banking background as at 31 December 2023. In respect of domestic asset management business CMB International Capital has focused on the private equity investments business as the core business to consolidate its position in the industry. For the year ended 31 December 2023 four investment projects were successfully listed domestically and overseas by CMB International Capital. Additionallyit ranked the fifth for three consecutive years in the “Zero2IPO Group Top 100 Private Equity InvestmentInstitutions in China (清科中国私募股权投资机构百强榜)” and was considered one of the top tier companies in private equity investment industry with the best performance among the banking PE institutions. In respect of overseas asset management business three investment projects with respect to CMB International Capital’s private equity products completed their listing domestically or overseas for the year ended 31 December 2023 and two listed projects were successfully delisted through sound trading strategies. Meanwhile CMB International Capital has made great efforts to develop monetary mutual funds business. For the year ended 31 December 2023 the issuance of USD money market funds by CMB International Capital was approved by the Hong Kong Securities and Futures Commission which made the product become the Group’s first mutual funds product approved overseas.Asset Custody Business As at 31 December 2023 the balance of assets under custody of the Bank was RMB21.12 trillion representing an increase of 5.28% as compared with the end of 2022. The total scale of custody ranked first in the industry (data from the Custody Business Professional Committee under China Banking Association).Through perseverance with high quality development the Bank aimed to become the first choice of customers in respect of custody banks with core competitiveness. For the year ended 31 December 2023 the Bank’s custody business reached a new stage of development. The custody customer acquisition capability and comprehensive service capability was continuously improved and the custody brand influence was constantly enhanced.Firstly the Bank continued to optimise its business structure with significant effect in high-quality development. As at 31 December 2023 the Bank’s asset management products21 accounted for 72.02% of its incremental custody size surpassing the average proportion of the industry by 3.30 percentage points.Among them the scales of custody of four key businesses including mutual funds insurance pension and cross-border business increased by 15.07% as compared with the end of 2022 2.84 percentage points higher than the average increase of the industry. 21 According to the statistical calibre of the Custody Business Professional Committee under China Banking Association the custody of asset management products includes custody of securities investments funds customer asset management of fund companies customer asset management of securities companies bank wealth management trust property private equity investment funds insurance assets pension funds QDII products QFI products futures etc.– 148 –Secondly the Bank continued to consolidate its business strengths in various segments delivering breakthroughs in key products. As at 31 December 2023 the scale of pension products under the Bank’s custody totalled to RMB1.05 trillion a new breakthrough exceeding one trillion. Additionally the Bank continued to rank first in terms of number of public REITs under its custody (data from WIND). For the year ended 31 December 2023 the newly offered mutual funds under the custody by the Bank ranked the first in terms of number and scale (data from WIND). For the year ended 31 December 2023 the Bank effectively took the market opportunity to finalise the custody of the first batch of cross-border QDII semi-conductor ETF and the first fixed-income QDII-FOF fund.Thirdly the Bank made active efforts in propelling digitalisation aiming to enhance customers experience through technology empowerment. The Bank kept on raising digital service capabilities and developed anumber of service platforms such as online customer service digital platform “custody + bank andenterprise” reconciliation platform “custody + treasury management” cloud platform and “custody +investment” cloud platform to broaden the boundaries of custody service.Financial Markets Business For the year ended 31 December 2023 the Bank continued to build on its investment and research capabilities for proprietary investment and service capabilities for trading on behalf of customers tightened up risk management and strengthened Fintech application. While serving the real economy the Bank achieved high-quality development in various businesses.In terms of investment transactions the Bank adhered to prudent operation actively studied and made judgement on the economic fundamentals of the PRC and the major overseas economies the trend of inflation and the direction of monetary policy continued to strengthen macro policy research and market analysis improved proprietary investments research and analysis framework strengthened indicator tracking and monitoring optimised the portfolio structure and enhanced investments returns.Furthermore the Bank continued to actively provide liquidity to the market in the capacity as a market maker and continued to strengthen the comprehensive capability of market making and to enhance its quotation and trading services. Also it closely followed the guidance of national economic strategies focused on the national industrial structure adjustment increased its credit bond investment in “specialised competitive distinguished and innovative (专精特新)” enterprises and corporate clients in area of new growth engines thereby assisting the development of strategic emerging industries. For the year ended 31 December 2023 the transaction volume of RMB bond investments amounted to RMB2.79 trillion representing a year-on-year increase of 21.57%.In terms of business of tradings on behalf of customers the Bank continued to advocate the concept of neutral management of exchange rate risk to corporate customers and helped the enterprises to fully understand and manage exchange rate risk in a scientific manner. Also to fulfil customer needs the Bank provided solutions against financial market risks such as exchange rate and interest rate risks faced by enterprises tailored to their main business scenarios. For the year ended 31 December 2023 the Bank provided hedging services to 6285 companies with a total transaction volume of derivatives to corporate customers amounting to U.S.$64.783 billion.In terms of digital transformation the Bank continued to promote the in-depth integration of technology and business and continued to deepen the application of digital technology in its financial markets business. In terms of digital investment and research the Bank has initially studied and developed a multi-factor trading strategy covering bonds foreign exchange and precious metals formed a multi- dimensional investment decision-making system covering fundamental policy and sentiment perspectives and achieved positive progress in the development of its self-developed digital trading platform. The – 149 –monitoring signals of its self-developed bond investment credit risk management system were increasingly diversified which effectively improved the foresight and effectiveness of risk identification. The Bank accelerated the building of online platforms for business of tradings on behalf of customers diversified online products and enhanced the convenience of corporate business processing. For the year ended 31 December 2023 the Bank provided online derivative trading services to 5287 corporate clients with a total transaction volume of U.S.$22.661 billion.For the year ended 31 December 2023 the Bank continued to actively perform its duties as a market maker and successfully completed the first batch of standardised interest rate swap trading through National Interbank Funding Centre and once again received the “Northbound Top Market Maker” award from Bond Connect Company Limited.Distribution Channels The Bank provides products and services via multiple online and offline distribution channels.Offline Channels The Bank’s business is mainly in the market of China and its distribution network is mainly distributed in major central cities in the Chinese mainland and some international financial centres such as China’s Hong Kong New York London Singapore Luxembourg and Sydney. As at 31 December 2023 the Bank has 143 branches and 1781 sub-branches in China two branch-level specialised institutions (a credit card centre and a global markets centre) 2226 self-service banks 5281 cash self-service devices and 7603 visual counters. The Bank has a Hong Kong branch in Hong Kong China (“Hong Kong Branch”) a representative office in Chinese Taipei a New York branch (“New York Branch”) and a representative office in the United States a London branch in the United Kingdom (“London Branch”) a Singapore branch in Singapore (“Singapore Branch”) a Luxembourg branch in Luxembourg (“LuxembourgBranch”) and a Sydney branch in Australia (“Sydney Branch”).Major Online Channels for Retail CMB APP: For the year ended 31 December 2023 the Bank continued to deepen its core financial scenario services around extensive wealth management focusing on the “people + digitalisation” service model and continuously improving the customer experience of the CMB APP. It also innovatively launched customised wealth products based on users’ needs and professional services to further improve the self-service model of online wealth management. The reach of account management services has been expanded revolving around the purpose of becoming customers’ principal bank of main accounts thus improving the account management experience.As at 31 December 2023 the cumulative number of users of CMB APP amounted to 207 million. For the year ended 31 December 2023 the maximum number of daily active users of CMB APP reached 21638200. The number of monthly active users was 75054300 As at 31 December 2023. – 150 –CMB Life APP for credit card: For the year ended 31 December 2023 the Bank continued to further enhance the customer service and mobilisation capabilities of the CMB Life APP. The Bank enriched the online service ecosystem focusing on high-frequency consumption scenarios and connecting with quality partners. Also the Bank enhanced interaction efficiency and customer experience with upgraded search recommendation and otherintelligent service capabilities. Furthermore a series of marketing campaigns such as “618 Save Moneyto Spend (618 会省才敢花)” “Exceptional Hainan (非常海南)” “Cashback (笔笔返现)” and “Welcome tothe New Year with Credit Cards (礼迎新年 刷卡有鲤)” were launched to build up and continuously improve the ability to mobilise large-scale online and offline customers.As at 31 December 2023 the cumulative number of users of CMB Life APP amounted to 144 million. For the year ended 31 December 2023 the maximum number of daily active users of CMB Life APP reached 6792300 and the number of monthly active users was 41975500 as of the end of the period. In terms of user engagement CMB Life APP was in the front rank among other credit card APPs in the banking industry.Network operation service The Bank’s Network Operation Service Centre provides real-time comprehensive prompt and professional services to its customers via telephone network video etc. and applies intelligent technology to link such services with the processing interface of the CMB APP directly making the services more convenient.The Bank continued to enrich the service mode and provided a more intuitive service experience by means of images videos the same-screen services and other modes to solve complex operational issues. TheBank optimised the response speed and processing efficiency in handling “business that are urgentcomplicated distressing and waiting for help” by intelligent dispatch which made the issues solved in a more efficient manner. The Bank further intensified the customised service and warm service for elderly customers to duly fulfil its social responsibilities. For the year ended 31 December 2023 the remote online omni-channel manual service connection rate was 97.26% the remote online omni-channel manual service response rate within 20 seconds was 92.52% and the remote online omni-channel customer satisfaction rate was 99.10%. With “people + digitalisation” as the core driving force the Bank fully leverage on Fintech continued to enhance the service level of intelligent robots and provided the most suitable solutions for customers through intelligent dispatch.Smart service system In terms of debit card smart service system for the year ended 31 December 2023 the Bank continued to optimise the intelligent service network of the Bank’s mobile app CMB APP further integrating artificial intelligence intelligent customer service and remote consultancy service capabilities to launch the brand-new intelligent wealth assistant “Xiao Zhao (小招)”. “Xiao Zhao (小招)” has strong conversational interactional capabilities and can provide customers with one-stop wealth management service such as financial analysis product selection strategies and yield analysis etc.. It supports inquiries for various business scenarios. Furthermore “Xiao Zhao (小招)” can be also connect to remote relationship managers to provide customers with customised consultancy services.– 151 –In terms of credit card smart service system for the year ended 31 December 2023 the Bank continued to promote the digitisation and intelligent transformation of credit card customer service improved the construction of the intelligent service management system and enhanced the comprehensive service capabilities for customers. On the one hand the Bank managed to build a new-generation customer contact centre to enhance customer interaction experience and operational efficiency through continuouspromotion of service channel collaboration and digitalisation. On the other hand CMB Life APP “XiaoZhao (小招)” assistant through real-time prediction of users’ needs offered a new companion service centred around the image of “Xiao Zhao Miao (小招喵)” reshaping intelligent services and interaction patterns.Major wholesale online channels For the year ended 31 December 2023 the Bank focused on the enterprises’ demands for digital transformation adopted “Treasury Management Cloud +” as the main interface to deliver the “EnterpriseDigital Intelligent Finance (企业数智金融)” scenario-based services and transformed the comprehensive customer-oriented product services towards scenario-based turnkey (整车交付) solutions. Firstly the Bank built the Treasury Management Cloud (Single Account Version) to explore a batch operation model comprising online marketing online delivery and online operation of digital products for corporate customers making the treasury management services accessible to large conglomerates as well as individual start-up enterprises so as to take the leading position in digital services. Secondly with the two major service channels of CMB Corporate U-Bank and CMB Corporate APP the Bank continued to upgrade its channel service capability. For the year ended 31 December 2023 the Bank launched the upgraded 6.0 version of the Mobile Treasury on CMB Corporate APP catering to the core needs of legal persons executives and other key personnel of enterprises and provided them with convenient treasury management service via the mobile terminals. Thirdly highlighting core financial scenarios such as cross-border Special Service Section for Specific Scenario financing and wealth management the Bankbuilt “Treasury Management Cloud + Special Service Section for Specific Scenario (财资管理云+场景专区服务)” based on customers’ perspective. As at 31 December 2023 the Bank had 2713700 wholesale customers on the online channels representing an increase of 13.43% as compared with the end of 2022.The coverage rate of wholesale customers on the online channels was 96.21% representing an increase of 1.50 percentage points as compared with the end of 2022. The Bank had 1696900 monthly active customers of wholesale online channels representing a year-on-year increase of 11.68%; the total number of wholesale online channel transactions handled by the Bank reached 412 million representing a year-on-year increase of 26.38%; and the total value of wholesale online channel transactions amounted to RMB210.22 trillion representing a year-on-year increase of 20.37%.Major Overseas Branches Hong Kong Branch Established in 2002 the Hong Kong Branch of the Bank is the first branch duly established overseas by the Bank which can engage in comprehensive commercial banking businesses. With regard to corporate banking the Hong Kong Branch provides diversified corporate banking products and services such as deposit-taking settlement trade financing bilateral loans syndicated loans cross-border M&A comprehensive solutions asset management and asset custody and engages in transaction of funds bond trading and foreign exchange trading with financial institutions and conducts funds clearing and asset transfer with financial institution customers. With respect to retail banking the Hong Kong Branch can provide personal banking services and private wealth management services for customers. Featured products include “Hong Kong All-in-one Card” and “Hong Kong Bank-Securities Express”.– 152 –For the year ended 31 December 2023 the Hong Kong Branch optimised its business structure focused on customer group construction continuously innovated and developed featured businesses while expanding and strengthening its traditional banking business and increased investment in quality assets by capitalising on the interest rate hike enhanced compliance and risk management and achieved stable growth in efficiency while maintaining good control over asset quality. For the year ended 31 December 2023 the Hong Kong Branch achieved a net operating income of HKD3.552 billion. New York Branch Established in 2008 the New York Branch of the Bank is the first branch of Chinese banks approved in the U.S. since the implementation of U.S. Foreign Bank Supervision Enhancement Act in 1991. The New York Branch is located in a global financial centre being committed to establishing a cross-border financial platform characterised by coordination between China and the U.S. so as to offer diversified and all-round banking services for the companies in China and the U.S. Such services and products mainly include: deposit-taking settlement foreign exchange transactions international documents trade financing bilateral loans syndicated loans working capital financing M&A financing privatisation financing fund financing etc. At the same time the New York Branch actively builds a global service network for private banking customers and provides high-quality non-financial value-added services for high-net-worth private banking customers.For the year ended 31 December 2023 the New York Branch achieved notable results regarding customer base expansion origination of quality asset and digital transformation. For the year ended 31 December 2023 the New York Branch achieved a net operating income of U.S.$91.7710 million. Singapore Branch Established in 2013 the Singapore Branch of the Bank is positioned as a significant cross-border financial platform in Southeast Asia. Based in Singapore and expanding to Southeast Asia the Singapore Branch takes cross-border finance and wealth management as its core businesses. In terms of cross-border financial business the Singapore branch strives to provide all-round one-stop solutions to the Chinese companies “going global” and the foreign companies “brought in” located in Singapore and other Southeast Asian countries. The main services and products of the Singapore Branch include: deposit- taking settlement foreign exchange transactions trade financing syndicated loans M&A financing and delisting financing. In terms of wealth management business the Private Banking (Singapore) Centre provided private banking products and value-added services with integrated investment and financing services such as cash management asset allocation and wealth inheritance to high-net-worth customers.For the year ended 31 December 2023 the Singapore Branch has practised the strategy of “building avalue creation bank” and broadened the range of its customer services focusing on strategic customers “going global” while assisting the branch’s characteristic operation with regional advantages to create value in diversified businesses. For the year ended 31 December 2023 the Singapore Branch achieved a net operating income of U.S.$22.4820 million.– 153 –Luxembourg Branch The Luxembourg Branch of the Bank established in 2015 is positioned as an important cross-border financial platform in continental Europe providing comprehensive cross-border one-stop financial solutions to Chinese companies “going global” and the companies “brought in” located in Europe. Its main services and products include: deposit-taking lending project financing trade financing M&A financing M&A consulting bond underwriting and asset management. The branch is also committed to building a business platform in Europe by combining the advantages of the Bank and European characteristics.For the year ended 31 December 2023 the Luxembourg Branch clarified its strategic orientation optimised its customer structure and cemented its business roots. For the year ended 31 December 2023 the Luxembourg Branch achieved a net operating income of EUR36.8897 million.London Branch Established in 2016 the London Branch of the Bank is the first branch approved to be established in the United Kingdom among all the PRC joint-stock commercial banks providing comprehensive cross-border one-stop financial solutions to Chinese companies “going global” and leading companies “brought in” located in the UK. The main services and products of the London Branch include: deposit-taking settlement foreign exchange transactions trade financing bilateral loans syndicated loans and M&A financing. At the same time the London Branch actively builds a global service network for private banking customers and provides high-quality non-financial value-added services for high-net worth private banking customers.For the year ended 31 December 2023 the London Branch adhered to a value-oriented strategy by emphasising on origination of quality asset and building a value-based customer group deepening business restructuring and optimising customer structure and solidifying the foundations of risk and compliance management therefore achieving steady progress in its overall business operations amid stability. For the year ended 31 December 2023 the London Branch achieved a net operating income of U.S.$19.6287 million.Sydney Branch The Sydney Branch of the Bank was established in 2017 and is the first branch approved to be establishedin Australia among the PRC joint-stock commercial banks. Based on the overall requirement of “steadygrowth improved quality and efficiency enhanced foundation featured business and risk prevention” the Sydney Branch adheres to the high-quality development path guided by the Bank’s values and managed to get a foothold in businesses derived from China-Australia economic trade and investment exchanges.The Sydney Branch focuses on the needs of the strategic customers and top-tiered customers of Australia and New Zealand creating value for customers through providing two-way cross-border financial services. The main services and products of the Sydney Branch include: settlement foreign exchange transactions trade financing M&A financing and commitment business project financing syndicated loans and fund financing. At the same time the branch actively builds a global service network for private banking customers and provides high-quality non-financial value-added services for high-net-worth private banking customers.For the year ended 31 December 2023 the Sydney Branch promoted the balanced business development with origination of high-quality asset. For the year ended 31 December 2023 the Sydney Branch achieved a net operating income of AUD58.3127 million.– 154 –Major Subsidiaries The Bank exercises the rights of shareholders in compliance with the law keeps on strengthening the comprehensive control over the corporate governance capital management risk management financial management and other aspects of its subsidiaries and capitalises on the synergy of comprehensive operation to enhance the Group’s capabilities of providing comprehensive financial services to customers while achieving their own high-quality growth.CMB Wing Lung Bank Limited Founded in 1933 CMB Wing Lung Bank has a registered capital of HKD1.161 billion and is a wholly-owned subsidiary of the Bank in Hong Kong. CMB Wing Lung Bank provides customers with diversified banking products and services including retail and private banking corporate banking and other banking businesses. CMB Wing Lung Bank also provides asset management and insurance brokerage services through its subsidiaries.As at 31 December 2023 the total assets of CMB Wing Lung Group amounted to HKD426.640 billion.Total equity attributable to shareholders amounted to HKD46.392 billion. For the year ended 31 December 2023 CMB Wing Lung Group realised a net profit attributable to shareholders of HKD1.605 billion. For detailed financial information on CMB Wing Lung Group please refer to the 2023 annual results of CMB Wing Lung Bank which is published on the website of CMB Wing Lung Bank (www.cmbwinglungbank.com).CMB Financial Leasing Co. Ltd.CMB Financial Leasing is a wholly-owned subsidiary established by the Bank in 2008 with a registered capital of RMB12 billion. It meets the needs of lessees to purchase equipment promote sales revitalise assets balance tax burden and improve financial structure through 10 major financial solutions relating to aviation shipping energy infrastructure equipment manufacturing environment health culture and tourism public transportation and logistics intelligent interconnect and integrated circuit and leasing industry etc.As at 31 December 2023 the total assets of CMB Financial Leasing were RMB290.794 billion and the net assets were RMB33.111 billion. For the year ended 31 December 2023 the net profit was RMB3.675 billion.CMB International Capital Holdings Corporation Limited Established in 1993 CMB International Capital is a wholly-owned subsidiary of the Bank in Hong Kong with a registered capital of HKD4.129 billion. At present the business scope of CMB International Capital and its subsidiaries mainly covers corporate finance asset management wealth management global market business and structured finance.As at 31 December 2023 the total assets of CMB International Capital amounted to HKD69.714 billion and its net assets amounted to HKD13.146 billion. For the year ended 31 December 2023 it realised a net profit of HKD1.152 billion.– 155 –CMB Wealth Management CMB Wealth Management was officially opened in 2019 and its business scope includes issuing wealth management products providing wealth management advisory and consulting services and other businesses approved by regulatory authorities. As at 31 December 2023 the registered capital of CMB Wealth Management was approximately RMB5.556 billion. The Bank and JP Morgan Asset Management (Asia Pacific) Limited hold 90% and 10% of its shares respectively. As at 31 December 2023 CMB Wealth Management had total assets of RMB21.062 billion and net assets of RMB20.135 billion. For the year ended 31 December 2023 the net profit was RMB3.190 billion.China Merchants Fund Established in 2002 China Merchants Fund has a registered capital of RMB1.31 billion. As at 31 December 2023 the Bank and China Merchants Securities Co. Ltd. held 55% and 45% of China Merchants Fund’s shares respectively. The business scope of China Merchants Fund covers fund establishment fund management and other operations approved by the CSRC.As at 31 December 2023 the total assets of China Merchants Fund amounted to RMB14.151 billion and its net assets amounted to RMB9.325 billion. It realised a net profit of RMB1.753 billion for the year ended 31 December 2023.CIGNA & CMAM CIGNA & CMAM was established in 2020 with a registered capital of RMB500 million and it is an indirectly owned subsidiary of the Bank which is owned as to 87.3458% and 12.6542% by CIGNA & CMB Life Insurance Co. Ltd. (“CIGNA & CMB Life Insurance”) a joint venture of the Bank and CMB International Capital a subsidiary of the Bank respectively. The business scope of CIGNA & CMAM includes entrusted management of client’s funds issuance of insurance asset management products and asset management related consultation business.As at 31 December 2023 CIGNA & CMAM had total assets of RMB920 million with net assets of RMB713 million and a net profit of RMB108 million for the year ended 31 December 2023.CMB Europe S.A.CMB Europe S.A. was approved to be established in 2021 with a registered capital of EUR100 million (the Bank made an additional capital injection of EUR50 million to CMB Europe S.A. in June 2023). It is a wholly-owned subsidiary of the Bank in Europe and the regional headquarter of the Bank in continental Europe. CMB Europe S.A. will be fully integrated into the Bank’s extensive wealth management system and leverage its full licence advantage to provide its customers with diversified financial products and services such as cross-border financing M&A finance private banking investment management financial markets bond underwriting trade financing and operates and allocates the global assets of enterprises and individuals.As at 31 December 2023 CMB Europe S.A. had total assets of EUR118 million and net assets of EUR92 million.– 156 –Major Joint Ventures22 CIGNA & CMB Life Insurance CIGNA & CMB Life Insurance a joint venture of the Bank was established in 2003 with a registered capital of RMB2.8 billion. As at 31 December 2023 the Bank held 50% shares in CIGNA & CMB Life Insurance and Cigna Health and Life Insurance Company held the other 50% shares. CIGNA & CMB Life Insurance is mainly engaged in insurance businesses such as life insurance health insurance accident injury insurance and the reinsurance of the above insurances.As at 31 December 2023 the total assets of CIGNA & CMB Life Insurance amounted to RMB165.340 billion and its net assets amounted to RMB9.855 billion. For the year ended 31 December 2023 CIGNA & CMB Life Insurance realised a net profit of RMB429 million.Merchants Union Consumer Finance Merchants Union Consumer Finance a joint venture of the Bank was established in 2015 with a registered capital of RMB10.0 billion. As at 31 December 2023 the Bank held 50% shares in Merchants Union Consumer Finance and China United Network Communications Limited held the other 50% shares. Upon the approval from regulatory authorities Merchants Union Consumer Finance completed the registration of the change of its Chinese name from “招联消费金融有限公司” to “招联消费金融股份有限公司” in July 2023. Merchants Union Consumer Finance is mainly engaged in the granting of personal consumer loans. As at 31 December 2023 the total assets of Merchants Union Consumer Finance amounted to RMB176.421 billion and the net assets were RMB20.367 billion. It realised a net profit of RMB3.600 billion for the year ended 31 December 2023.INFORMATION TECHNOLOGY RESEARCH AND DEVELOPMENT In 2022 the Bank accelerated the digital transformation. While successfully completed the three-year cloud migration project the Bank strengthened the construction of key systems ensured the continuous growth of scientific and technological output further accelerated the delivery speed and supported the high-quality growth of “Digital CMB”.In terms of Fintech infrastructure the Bank achieved a stable and seamless migration to the cloud created a new foundation of digitalisation and possessed the ability to independently control in core areas. TheBank took the lead in the industry in achieving a full-scale cloud deployment and the “Project ofFull-scale Cloud Deployment of CMB Banking System” won the first prize of Fintech Development Award of the People’s Bank of China. The Bank initiated the construction of a large model ecosystem and established a large model experience platform connecting to multiple mainstream large models in China. 22 The major joint ventures of the Bank include CIGNA & CMB Life Insurance and Merchants Union Consumer Finance and their financial data have been adjusted in accordance with the accounting policies of the Group where necessary.– 157 –The Bank accelerated the promotion of new technology applications and deepened the construction of intelligent applications by comprehensively enhancing the expansion ability of intelligent customer service and building a bank-wide intelligent recording and auditing middle office and introduced the Bank’s digital products. RPA+ (Robotic Process Automation) with independent intellectual property right evolved from an automation tool to a digital workforce with the basic ability to listen read write and act.Since the digital RMB service was launched on 4 January 2022 the Bank has been actively exploring its integration with business and improving customer service capabilities such that digital RMB service is available through multiple channels and business scenarios such as CMB APP counter online corporate banking CMB Corporate APP and Xin Fu Tong (薪福通) and cooperates with them to work out digital RMB service solutions. Blockchain applications were promoted effectively enhancing the recovery rate of non-performing flash loans.In terms of business system construction the Bank launched the digital collection “Xiao Zhao Miao (小招喵)”. The Bank also strengthened the construction of an open wealth management platform attracting external institutions to settle in and creating a new ecosystem of extensive wealth management. It accelerated the promotion of online business and improved the online migration rate of compliance account management corporate derivative business financing business and foreign exchange business in financial markets. The Bank strengthened the construction of online risk control platform made a breakthrough in credit-centric data risk control and built a complex risk control model system and the self-governance capacity for tax data. A data ecosystem of positive cycle was formed with the promotion of constructing four engines: smart marketing engine smart operation engine smart risk control engine and smart wealth engine. The Bank continued to upgrade key systems such as corporate customer relationship management (CRM) platform retail customer manager work platform W+ and centralised operation platform empowering frontlines to improve work efficiency.In 2023 the Bank sped up the transition from “Online CMB” to “Smart CMB”. It increased input in technology with the information technology input reaching 4.60% of the Bank’s net operating income and R&D personnel accounting for 9.14% of its total employee headcount. The Bank sets its sights on the cutting edge technologies robustly strengthened the research and development as well as comprehensive applications of AI technology and launched brand new intelligent wealth assistant “Xiao Zhao (小招)”. AI has relieved staff from repetitive time-consuming work equivalent to the workload of over 17000 individuals. The Bank improved its service capability of “people + digitalisation” serving over 200 million users via the CMB APP; the online rate of its basic corporate banking business and financing business exceeded 92%; the digital application capabilities of all employees of the Bank continued to improve further enhancing the quality and efficiency for integrated online and offline services.In terms of information security the Information Security Management Committee of the Bank has set up a data security team led by the Information Technology Department at the Head Office which is composed of the leaders in charge of data security and data security administrators from over 40 departments at the Head Office to oversee and implement various key areas of data security. The Information Technology Department at the Head Office as a leading management department for network security is responsible for the Group’s network security management under the leadership of the Information Security Management Committee. The Information Technology Department at the Head Office the Risk Management Department at the Head Office and audit departments at all levels assume the responsibilities of the first second and third lines of defence for network and data security management.– 158 –ENVIRONMENTAL SOCIAL AND GOVERNANCE ESG ReviewThe Bank adheres to the concept of social responsibility of “originating from society and repayingsociety” takes “being committed to sustainable finance promoting sustainable value and contributing tosustainable development” as the sustainable development goal integrates the concept of Environmental Social and Governance (“ESG”) into the daily operation and management of the Bank constantly improve the sustainable development management mechanism fully communicate with stakeholders effectively fulfil corporate social responsibility and continuously promotes high-quality financial development.In 2023 the Bank achieved the social contribution value of RMB17.04 per share23 (calculated on the Group’s statistical calibre) and the total amount of external donations of the Bank was RMB115 million.The Bank continued to promoting green finance green operation and building a green home. For the year ended 31 December 2023 the Bank did not have any environmental violations.Green Finance The Bank actively integrated itself into the national green development strategy. For the year ended 31 December 2023 the Bank released the “CMB Green Finance” brand which is in line with the green development of the Bank with an aim to realise green value creation. In addition it published the “Sustainable Finance Report under ‘Dual Carbon’ Goal” (《“双碳”背景下的可持续金融报告》) to provide guidance on implementing the green finance business strategy. Moreover the Bank incorporated the green finance concept into the main direction of the Bank’s financial development with a view to building a green financial service system to help achieve the “dual carbon” goal in the PRC. The Bank innovated and promoted carbon-linked loan products deploying 18 carbon-linked loans in 2023 totalling RMB370 million. For the year ended 31 December 2023 the Bank further increased the provision of green financial services focusing on green deposits green credits ESG bonds green wealth management green investment green consumption and others.In terms of green deposit and green credit the Bank launched innovative green deposit products while increasing the funds allocation to the green sector with a focus on energy conservation and environmental protection clean production clean energy ecological environment green upgrade of infrastructure green services and other sectors. For the year ended 31 December 2023 the Bank’s green deposits24 amount was RMB917 million with a closing balance of RMB420 million. As at 31 December 2023 the Bank’s balance of green loans was RMB447.765 billion representing an increase of 26.00% as compared with the end of 2022. For the year ended 31 December 2023 the Bank granted RMB370 million of carbon emission reduction-linked loans. For the year ended 31 December 2023 CMB Financial Leasing a subsidiary of the Bank granted loans of RMB54.721 billion in green leasing accounting for 49.67% of the total loans granted by CMB Financial Leasing with a closing balance for green leasing of RMB121.500 billion representing an increase of 15.31% as compared with the end of 2022. 23 Social contribution value per share = basic earnings per share + (taxes paid + employee expenses + interest expenses + total external donations)/total share capital of ordinary shares at the end of the period. 24 Green deposit is a green finance product that raises funds for sustainable projects of green economy helping drive the economic transition to low carbon climate change adapted and sustainable development.– 159 –With respect to ESG bonds for the year ended 31 December 2023 the Bank issued the world’s first floating-rate blue bond overseas with an issuing scale of U.S.$400 million. The proceeds raised will be applied to support sustainable water resources management and offshore wind power projects contributing to water ecological protection marine renewable energy and marine economic construction. As at 31 December 2023 the balance of the Bank’s existing domestic green bonds amounted to RMB15.000 billion and the balance of existing overseas ESG bonds amounted to U.S.$1.900 billion. For the year ended 31 December 2023 the Bank served as leading underwriter for 41 green bonds and underwrote RMB27.073 billion in those bonds. For the year ended 31 December 2023 CMB International Capital a subsidiary of the Bank assisted 11 enterprises to issue 11 green bonds with a fundraising scale of U.S.$5.980 billion.In terms of green wealth management as at 31 December 2023 the Bank had a total of 7 existing ESG-themed wealth management products from its agency distribution with a balance of RMB3.718 billion. CMB Wealth Management a subsidiary of the Bank issued 4 ESG-concept wealth management products in total with an existing fund size of RMB1.730 billion.In terms of green investment the Bank’s subsidiaries effectively practised the ESG investment philosophy.CMB Wealth Management prioritised the investment in green finance products such as green finance bonds green enterprise bonds green debt financing instruments and green asset-backed securities with a balance of green bonds investment of RMB29.286 billion as at 31 December 2023. China Merchants Fund insisted on taking social responsibility ESG guidelines and “dual carbon” strategy as the main direction of product deployment and constantly improved the product spectrum of ESG funds. For the year ended 31 December 2023 it focused on the issuance of China Merchants Social Responsibility Mixed Fund and China Merchants CFETS Green Bond Index Fund the first green bond index product in the industry. As at 31 December 2023 China Merchants Fund had a total of 10 existing ESG-related products with an existing fund size of RMB9.321 billion representing an increase of 154.53% as compared with the end of 2022. CMB International Capital actively promoted the transformation upgrading and sustainable development of the green industry and invested in 8 green finance industry projects with an amount of totalling RMB735 million for the year ended 31 December 2023.In terms of promoting green consumption the Bank strengthened proactive marketing to customers in environmental-friendly and green properties advanced the granting of green micro-finance loans and proactively explored green consumption business innovation. For the year ended 31 December 2023 the Bank issued the green and low-carbon themed credit card which is integrated with a number of exclusive rights and interests regarding environmental protection. The Bank also increased its financial support to new energy vehicles created the “e-second car purchase” green finance product simplified the application process for new energy vehicle instalments pioneered the dedicated service model for new energy business and worked with new energy vehicle shops to provide customers with one-stop services from shop entry to vehicle delivery and vehicle registration so as to facilitate green consumption.Green Operation The Bank continued to promote the establishment of smart service system. By strengthening smart service capabilities enriching online services and optimising service points the Bank provided convenient digital financial services to hundred-million customers to effectively reduce the frequency of customers going to physical outlets for business thereby decreasing carbon emissions from customer travel. The Bank encouraged credit card customers to accept electronic bills and continued to upgrade and optimise reconciliation across various online channels as well as guided customers to check their accounts quickly through self-service channels. As at 31 December 2023 with the proportion of credit card electronic bill reaching 99.57% the Bank saved more than 1.893 billion pieces of paper in billing for the year ended 31 December 2023.– 160 –The Bank adhered to the concept of “green operation” striving to reduce the impact of operation on the environment. For the year ended 31 December 2023 starting with sorting out the Bank’s carbon footprint to identify carbon emission sources the Bank conducted a comprehensive inventory of all carbon emission sources of over 1900 organisations across the Bank over the past three years benchmarking against general international standards and grasped the energy management mechanism and consumption of each organisation. The Bank assessed the potential for carbon emission reduction based on the results of the inventory to formulate carbon emission reduction measures. From the perspectives of energy management water resources management paper management waste management and other dimensions the Bank implemented various emission reduction measures according to local conditions and effectively promoted the green transformation of its operations.In terms of energy management as at 31 December 2023 the online energy management platform achieved automatic collection and real-time monitoring of the power energy consumption data of 54 Head Office and branch office buildings and 172 sub-branch offices. Through a series of energy-saving measures and continuous refinement of management the energy consumption per square metre of the Head Office Tower was 118.98KWH/(㎡a) in 2023 which was reduced to below the constraint value as published in the “Guangdong Province Standard for Energy Consumption of Public Buildings” and successfully passed the assessment of “Three-Star Green Property Management Project” in Shenzhen. The Pinghu Data Centre in Shenzhen and Zhangjiang Data Centre in Shanghai reduced power consumption by about 10.82 million kWh a year through various measures such as AI controlled tuning of the chilled water system use of natural cooling sources highly airtight cold and hot aisles intelligent speed-regulated operation of precision air conditioners and intelligent lighting.In terms of water resources management the Bank earnestly carried out water conservation publicity campaign and water conservation sign posting; completed direct drinking fountain renovation in the break room and removed barrelled water; reduced the use of bottled water during meetings and receptions; installed additional air-conditioning condensate recycling equipment with the processed air-conditioning condensate as a source of water for the atrium pool; adopted infrared-detecting human-sensor faucets and water-saving toilets; and used high-pressure scrubbers and sweeping robots to sweep the floor of the plaza and lobbies to enhance the efficiency of water resource utilisation.In terms of paper management the Bank actively carried out daily paper-saving publicity campaign advocated double-sided printing adopted shared printers monitoring and other measures to reduce paper-wasting behaviours; reduced the consumption of all kinds of materials for meetings such as disposable paper cups and tissues. The Bank also used big data and cloud storage instead of paper archives and reduced the use of paper documents through system module construction. For the year ended 31 December 2023 through continuously promoting straight-through business processes and digitalisation of counter service agreements the Bank saved approximately 69.96 million pieces of paper achieving energy saving and carbon emission reduction of 181.90 tonnes.In terms of waste management the Bank has set up various treatment methods for different types of wastes to ensure that wastes are treated in a timely and scientific manner. For the year ended 31 December 2023 the Bank standardised the garbage storage sites on the office floors of the Head Office Tower to achieve full-process compliance management of garbage classification at the Head Office Tower; advocated the “Clean Your Plate” campaign and promoted the “Against Food Waste” work. For the year ended 31 December 2023 food waste for the five restaurants at the Head Office decreased by 9.81% year-on-year.– 161 –EMPLOYEES As at 31 December 2023 the Group had a total of 116529 employees25 (including dispatched employees).The classification of the Group’s employees by gender is: 49864 males and 66665 females with a relatively balanced gender ratio.The classification of the Group’s employees by profession is: 19746 employees in corporate finance 52834 employees in retail finance 6844 employees in risk management 17377 employees in operation and management 10650 employees in research and development 983 employees in administrative and logistics support and 8095 employees in comprehensive management.The classification of the Group’s employees by educational background is: 28352 employees with master’s degrees and above 74849 employees with bachelor’s degrees and 13328 employees with junior college degrees or below.LEGAL PROCEEDINGS For the last 12 months prior to the date of this Offering Circular none of the Bank or any of its subsidiaries had been involved in any material litigation arbitration or similar proceedings and the Bank is not aware that any such proceedings are pending or threatened.RECENT DEVELOPMENTS Quarterly Financial Information as at and for the Three Months Ended 31 March 2024 On 29 April 2024 the Group announced its unaudited IFRS financial results as at and for the three months ended 31 March 2024. The Group also reported additional financial and operating indicators. The unaudited consolidated quarterly interim financial information as at and for the three months ended 31 March 2023 and 2024 set forth in the First Quarterly Report was prepared on the same basis as the audited consolidated financial statements for the year ended 31 December 2023 and has not been reviewed by the Bank’s auditors. Consequently such consolidated quarterly interim financial information and the First Quarterly Report should not be relied upon by investors to provide the same quality of information associated with information that has been subject to an audit or review. 25 Including employees of the Bank CMB Wing Lung Bank and its subsidiaries CMB Financial Leasing CMB International Capital and its subsidiaries CMB Wealth Management China Merchants Fund and its subsidiaries CIGNA & CMB Life Insurance CIGNA & CMAM MUCFC CMB Network Technology and CMB YunChuang.– 162 –The following table sets forth for the periods indicated the Group’s unaudited consolidated statement of profit or loss and other comprehensive income.For the three months ended 31 March 20242023 (unaudited) (Expressed in millions of Renminbi unless otherwise stated) Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94135 93344 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42135) (37935) Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52000 55409 Fee and commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . 22296 27317 Fee and commission expense . . . . . . . . . . . . . . . . . . . . . . . . . . (2092) (2238) Net fee and commission income . . . . . . . . . . . . . . . . . . . . . . . 20204 25079 Other net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13470 9344 Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85674 89832 Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (26965) (27323) Operating profit before impairment losses . . . . . . . . . . . . . . . 58709 62509 Expected credit losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14267) (16421) Share of profits of joint ventures . . . . . . . . . . . . . . . . . . . . . . . 371 529 Share of profits of associates . . . . . . . . . . . . . . . . . . . . . . . . . . 375 264 Profit before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45188 46881 Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6746) (7655) Profits for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38442 39226 Attributable to: Equity holders of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 38077 38839 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365 387 Earnings per share Basic and diluted (RMB Yuan) . . . . . . . . . . . . . . . . . . . . . . . . . 1.51 1.54 Profit for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38442 39226 Other comprehensive income after tax Items that may be reclassified subsequently to profit or loss: Net fair value gain/(loss) on financial assets measured at fair value through other comprehensive income . . . . . . . . . . . . 2867 (1473) Net changes in expected credit losses of financial assets measured at fair value through other comprehensive income . . (403) (1626) Net movement in cash flow hedge reserve . . . . . . . . . . . . . . . . (12) (36) Share of other comprehensive income/(expense) from equity-accounted investees . . . . . . . . . . . . . . . . . . . . . . . . . . . 636 466 Exchange difference on translation of financial statements of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 822 (935) Items that will not be reclassified subsequently to profit or loss: Net fair value gain on equity instruments designated at fair value through other comprehensive income . . . . . . . . . . . 650 277 Other comprehensive income for the period net of tax . . . . . 4560 (3327) Attributable to: Equity holders of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 4518 (3255) Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 (72) Total comprehensive income for the period . . . . . . . . . . . . . . 43002 35899 Attributable to: Equity holders of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 42595 35584 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407 315 – 163 –The following table sets forth as at the dates indicated the Group’s unaudited consolidated statement of financial position.As at As at 31 March 2024 31 December 2023 (unaudited) (Expressed in millions of Renminbi unless otherwise stated) Assets Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16129 14931 Precious metals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2209 2321 Balances with central bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . 797211 667871 Balances with banks and other financial institutions . . . . . . . . . 92427 100769 Placements with banks and other financial institutions . . . . . . . . 294182 287694 Amounts held under resale agreements . . . . . . . . . . . . . . . . . . . 224494 172246 Loans and advances to customers . . . . . . . . . . . . . . . . . . . . . . . 6555072 6252755 Financial investments at fair value through profit and loss . . . . . 524686 526145 Derivative financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19463 18733 Debt investments at amortised cost . . . . . . . . . . . . . . . . . . . . . . 1739594 1749024 Debt investments at fair value through other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . 916465 899102 Equity investments designated at fair value through other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . 20117 19649 Interest in joint ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16649 15707 Interest in associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11574 10883 Investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1139 1160 Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119210 115348 Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17215 17041 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2535 2709 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9954 9954 Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89978 90557 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49923 53884 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11520226 11028483 Liabilities Borrowings from central bank . . . . . . . . . . . . . . . . . . . . . . . . . 254270 378621 Deposits from banks and other financial institutions . . . . . . . . . 561995 508378 Placements from banks and other financial institutions . . . . . . . 277693 247299 Financial liabilities at fair value through profit or loss . . . . . . . 48765 43958 Derivative financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 17413 17443 Amounts sold under repurchase agreements . . . . . . . . . . . . . . . . 162679 135078 Deposits from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8533902 8240498 Salaries and welfare payable . . . . . . . . . . . . . . . . . . . . . . . . . . 28346 28679 Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16308 13597 Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5251 5486 Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12907 12675 Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21142 19662 Debt securities issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311560 176578 Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1638 1607 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140866 113195 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10394735 9942754 – 164 –As at As at 31 March 2024 31 December 2023 (unaudited) (Expressed in millions of Renminbi unless otherwise stated) Equity Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25220 25220 Other equity instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150446 150446 Including: Preference shares . . . . . . . . . . . . . . . . . . . . . . . . . . 27468 27468 Perpetual bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . 122978 122978 Capital reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65432 65432 Investment revaluation reserve . . . . . . . . . . . . . . . . . . . . . . . . . 17370 13656 Hedging reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 92 Surplus reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108737 108737 General reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141591 141481 Retained profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 556627 518638 Proposed profit appropriations . . . . . . . . . . . . . . . . . . . . . . . . . 49734 49734 Exchange reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3728 2934 Total equity attributable to shareholders of the Bank . . . . . . 1118965 1076370 Non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6526 9359 Including: Non-controlling interest . . . . . . . . . . . . . . . . . . . . . 6526 6521 Perpetual debt capital . . . . . . . . . . . . . . . . . . . . . . . – 2838 Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1125491 1085729 Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 11520226 11028483 The following table sets forth for the periods indicated selected items from the Group’s unaudited consolidated cash flow statement.For the three months ended 31 March 20242023 (unaudited) (Expressed in millions of Renminbi unless otherwise stated) Net cash generated from operating activities before income tax payment . . . . . . . . . . . . . . . . . . . . . . . . . 3477 (7732) Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4685) (4886) Net cash used in operating activities . . . . . . . . . . . . . . . . . . . (1208) (12618) Net cash flows generated from/(used in) investing activities . . 1119 (91875) Net cash generated from financing activities . . . . . . . . . . . . . 129954 43944 Increase/(decrease) in cash and cash equivalents . . . . . . . . . . 129865 (60549) Cash and cash equivalents as of 1 January . . . . . . . . . . . . . . . . 599019 567198 Effects of foreign exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 (1709) Cash and cash equivalents as of 31 March . . . . . . . . . . . . . . . 729079 504940 – 165 –Analysis of capital adequacy ratios as at 31 March 2024 The Bank continuously optimise its business structure and enhance capital management and satisfies the various capital requirements of the PRC Banking Regulatory Authority.As at 31 March 2024 the core Tier 1 capital adequacy ratio the Tier 1 capital adequacy ratio and the capital adequacy ratio of the Group under the Advanced Measurement Approach were 14.07% 16.30% and 18.20% respectively. As at As at The Group 31 March 2024 31 December 2023 (in millions of RMB except for percentages) The capital adequacy ratios under the Advanced Measurement Approach(1) 1. Net core Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 948069 907308 2. Net Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1098515 1057754 3. Net capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1226629 1181487 4. Core Tier 1 capital adequacy ratio . . . . . . . . . . . . . . . . . . . . 14.07% 13.73% 5. Tier 1 capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . 16.30% 16.01% 6. Capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.20% 17.88% Information on leverage ratio(2) 7. Balance of on- and off-balance sheet assets after adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13549939 12806260 8. Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11% 8.26% (1) The “Advanced Measurement Approach” refers to the “Internal Ratings-Based (IRB) Approach for Credit Risk” “theStandardised Approach for Market Risk” and “the Standardised Approach for Operational Risk” set out in the “CapitalRules for Commercial Banks” issued by the National Financial Regulatory Administration on 1 November 2023 (same as below). In accordance with the provisions of the “Capital Rules for Commercial Banks” the scope of entities for calculating the capital adequacy ratios of the Group shall include the Bank and its subsidiaries. The scope of entities for calculating the capital adequacy ratios of the Bank shall include all the domestic and overseas branches and sub-branches of the Bank. As at 31 December 2023 the Group’s subsidiaries for calculating its capital adequacy ratios included CMB Wing Lung Bank CMB International Capital CMB Financial Leasing CMB Wealth Management China Merchants Fund CIGNA & CMAM and CMB Europe S.A. A commercial bank shall use both the advanced capital measurement approach and other approach to calculate capital adequacy ratios in parallel and comply with the capital floor requirements. (2) Since 2024 the leverage ratio shall be calculated based on the “Capital Rules for Commercial Banks” issued by the National Financial Regulatory Administration on 1 November 2023. The leverage ratios of the Group were 8.26% 7.93% and 7.70% respectively as at the end of 2023 the end of the third quarter and the end of the second quarter of 2023. (3) As the “Capital Rules for Commercial Banks” came into effect on 1 January 2024 the data as at 31 March 2024 in the above table was calculated in accordance with the provisions of the “Capital Rules for Commercial Banks” whilethe data as at 31 December 2023 was still calculated in accordance with the provisions of the “Capital Rules forCommercial Banks (Provisional)” issued by the former CBRC on 7 June 2012 (same as below).– 166 –As at 31 March 2024 the core Tier 1 capital adequacy ratio the Tier 1 capital adequacy ratio and the capital adequacy ratio of the Group under the Weighted Approach were 12.01% 13.92% and 15.01% respectively.As at As at The Group 31 March 2024 31 December 2023 The capital adequacy ratios under the Weighted Approach(1) 1. Core Tier 1 capital adequacy ratio . . . . . . . . . . . . . . . . . . . . 12.01% 11.86% 2. Tier 1 capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . 13.92% 13.82% 3. Capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.01% 14.96% (1) The “Weighted Approach” refers to the Weighted Approach for credit risk the Standardised Approach for market riskand the Standardised Approach for operational risk in accordance with the relevant provisions of the “Capital Rulesfor Commercial Banks” issued by NFRA on 1 November 2023.– 167 –FUNDING AND CAPITAL ADEQUACY OF THE BANK FUNDING As at 31 December 2023 total deposits from customers of the Group amounted to RMB8155.438 billion representing an increase of 8.22% as compared with the end of 2022. Deposits from customers accounting for 82.0% of the total liabilities of the Group were the major funding source of the Group.The following table sets forth as at the dates indicated the deposits from customers of the Group by product type and customer type.As at 31 December 20232022 Amount Percentage Amount Percentage (%)(%) (in millions of RMB except for percentages) Corporate customer deposits Demand . . . . . . . . . . . . . . . . . . . . . . . . . 2644685 32.43 2762671 36.66 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015837 24.72 1668882 22.15 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 4660522 57.15 4431553 58.81 Deposits from retail customers Demand . . . . . . . . . . . . . . . . . . . . . . . . . 1829612 22.43 1983364 26.32 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1665304 20.42 1120825 14.87 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 3494916 42.85 3104189 41.19 Total deposits from customers . . . . . . . . . 8155438 100.00 7535742 100.00 In 2023 the percentage of daily average balance of the demand deposits to that of the deposits from customers of the Group was 57.08% representing a decrease of 4.55 percentage points as compared with 2022. Among which the daily average balance of demand deposits from corporate customers accounted for 57.31% of that of the corporate customer deposits representing a decrease of 2.67 percentage points as compared with that of 2022 and the daily average balance of demand deposits from retail customers accounted for 56.74% of that of the deposits from retail customers representing a decrease of 7.69 percentage points as compared with that of 2022. Factors such as decrease in risk appetite of customers and insufficient liquidity activities of enterprises along with the increased customers’ demand for investment in time deposit products contributed to a decrease in proportion of demand deposits.– 168 –The following table sets out a breakdown of the Group’s customer deposits by remaining maturity for the periods indicated: As at 31 December 20232022 Amount Percentage Amount Percentage (%)(%) (in millions of RMB except for percentages) Repayable on demand . . . . . . . . . . . . . . . 4474297 54.86 4746035 62.98 Within 1 month . . . . . . . . . . . . . . . . . . . . 432094 5.30 384557 5.10 1 to 3 months . . . . . . . . . . . . . . . . . . . . . 542828 6.66 393284 5.22 3 months to 1 year . . . . . . . . . . . . . . . . . 1301368 15.96 861631 11.43 1 to 5 years . . . . . . . . . . . . . . . . . . . . . . 1375860 16.87 1115153 14.80 Over 5 years . . . . . . . . . . . . . . . . . . . . . . 28991 0.36 35082 0.47 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8155438 100.00 7535742 100.00 CAPITAL ADEQUACY The Bank kept on optimising its business structure and strengthening capital management. For the year ended 31 December 2023 the Bank met various capital requirements of the supervisory and management bodies of the banking industry in China during 2023 with sufficient capital buffer. In September 2023 the list of domestic systemically important banks in 2023 was released. The Bank was still in the third group of the list and still needed to meet additional regulatory requirements such as the additional capital adequacy ratio of 0.75% and the additional leverage ratio of 0.375%. As at 31 December 2023 the Bank’s capital adequacy ratio leverage ratio liquidity and other operating indicators at all levels were maintained at a high level which met additional regulatory requirements.As at 31 December 2023 the core Tier 1 capital adequacy ratio the Tier 1 capital adequacy ratio and the capital adequacy ratio of the Group under the Advanced Measurement Approach were 13.73% 16.01% and 17.88% respectively representing an increase of 0.05 0.26 and 0.11 percentage point respectively as compared with the end of 2022.– 169 –The following table sets forth certain information about the Group’s Tier 1 capital and risk-weighted assets as well as the Group’s capital adequacy ratios for the periods indicated.As at 31 December 20232022 (in millions of RMB except for percentages) The Group Capital adequacy ratios under the Advanced Measurement Approach(1) Net core Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907308 799352 Net Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1057754 919798 Net capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1181487 1037942 Risk-weighted assets (without taking into consideration the floor requirements during the parallel run period) . . . . . . . 5919504 5491072 Of which: Credit risk weighted assets . . . . . . . . . . . . . . . . . . . . 5226757 4823836 Market risk weighted assets . . . . . . . . . . . . . . . . . . . 86751 89200 Operational risk weighted assets . . . . . . . . . . . . . . . . 605996 578036 Risk-weighted assets (taking into consideration the floor requirements during the parallel run period)) . . . . . . . . . . . . . 6608021 5841685 Core Tier 1 capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . 13.73% 13.68% Tier 1 capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 16.01% 15.75% Capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.88% 17.77% Information on leverage ratio(2) . . . . . . . . . . . . . . . . . . . . . . .Balance of adjusted on- and off-balance sheet assets . . . . . . . . . 12806260 11569842 Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.26% 7.95% (1) The “Advanced Measurement Approach” refers to the advanced measurement approach set out in the “Capital Rulesfor Commercial Banks (Provisional)” issued by the former CBRC on 7 June 2012 (same as below). In accordance with the requirements of the Advanced Measurement Approach the scope of entities for calculating the capital adequacy ratio of the Group shall include the Bank and its subsidiaries. The scope of entities for calculating the capital adequacy ratio of the Bank shall include all the domestic and overseas branches and sub-branches of the Bank. As at 31 December 2023 the Group’s subsidiaries for calculating its capital adequacy ratio included CMB Wing Lung Bank Limited CMB International Capital Holdings Corporation Limited CMB Financial Leasing Co. Ltd. CMB Wealth Management Company Limited China Merchants Fund Management Co. Ltd. CIGNA & CMAM and CMB Merchants Bank (Europe) Co. Ltd.. During the parallel run period when the Advanced Measurement Approach for capital measurement is implemented a commercial bank shall use both the Advanced Measurement Approach and other approaches to calculate capital adequacy ratios and comply with the capital floor requirements. The capital floor adjustment coefficients shall be 95% 90% and 80% respectively in the first year the second year and the third year (i.e. 2017) and subsequent years during the parallel run period. (2) Since 2015 the leverage ratio shall be calculated based on the “Measures for Management of the Leverage Ratioof Commercial Banks (Revised)” promulgated by the former CBRC on 12 February 2015. The leverage ratio of the Group was 7.93% 7.70% and 7.96% respectively as at the end of the third quarter the end of the half year and the end of the first quarter of 2023.As at 31 December 2023 the core Tier 1 capital adequacy ratio the Tier 1 capital adequacy ratio and the capital adequacy ratio of the Bank under the Advanced Measurement Approach were 13.32% 15.70% and 17.62% respectively representing an increase of 0.09 0.28 and 0.11 percentage points respectively as compared with the end of 2022.– 170 –The following table sets forth certain information about the Bank’s Tier 1 capital and risk-weighted assets as well as the Bank’s capital adequacy ratios for the periods indicated.As at 31 December 20232022 (in millions of RMB except for percentages) The Bank Capital adequacy ratios under the Advanced Measurement Approach Net core Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 801565 701033 Net Tier 1 capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 944349 817387 Net capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1059697 927881 Risk weighted assets (without taking into consideration the floor requirements during the parallel run period) . . . . . . . 5295085 4925532 Of which: Credit risk weighted assets . . . . . . . . . . . . . . . . . . . . 4673703 4330955 Market risk weighted assets . . . . . . . . . . . . . . . . . . . 67143 69000 Operational risk weighted assets . . . . . . . . . . . . . . . . 554239 525577 Risk weighted assets (taking into consideration the floor requirements during the parallel run period) . . . . . . . . . . . . . 6015774 5299237 Core Tier 1 capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . 13.32% 13.23% Tier 1 capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . 15.70% 15.42% Capital adequacy ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.62% 17.51% – 171 –RISK MANAGEMENT OF THE BANK OVERVIEW The Bank adhered to a solid and prudent risk culture and risk appetite and was dedicated to building a fortress-style overall risk and compliance management system. The Risk and Compliance Management Committee of the Head Office is responsible for reviewing and determining the most significant bank-wide risk management policies under the framework of risk appetite strategies policies and authorisations approved by the Board of Directors.In 2023 the Bank maintained strategic determination and continued to increase its support to the real economy. The Bank prevented and mitigated risks consolidated management foundation improved digital risk control capabilities and continued to promote the construction of a fortress-style risk and compliance management system.Credit risk management Credit risk refers to the risk arising from a bank’s borrowers or counterparties failing to perform their obligations as agreed. The Bank adhered to the concept of balanced returns and risks and the prudent business strategy in which risks can be ultimately covered by capital pursued the dynamically balanced development of “Quality Profitability and Scale” implemented a unified credit risk preference optimised the full-life cycle credit risk management process continuously upgraded credit risk management tools reinforced the construction of three lines of defence and strengthened risk management capability so as to prevent and reduce credit risk loss.In 2023 the Bank closely monitored the macroeconomic situation actively responded to the changes rigorously upheld the bottom line and took a number of initiatives to ensure stable asset quality. Firstly the Bank has strengthened the risk management of domestic and overseas branches and subsidiaries established a branch-based risk profile rating system put in place the framework and principles for risk management in subsidiaries and further consolidated the risk management foundation. Secondly the Bank improved the risk management system tightened risk management for its off-balance sheet business in strict accordance with regulatory requirements optimised administrative measures such as the centralised system of credit granting and credit facility management over group customers and consolidated the foundation of the risk management system for extensive wealth management. Thirdly the Bank carried out strict management in key risk areas especially strengthening the closed-loop management in the real estate sector. The Bank conducted risk screening targeting key industries and key customer groups and enhanced differentiated and refined risk management capabilities. Fourthly based on the current situation with a long-term perspective and revolving around the strategy of “dynamic rebalancing” of industries regions and customer bases the Bank strengthened research on key industries relying on industry self-organisation built on its professional capabilities improved policy adaptability and promoted the implementation of “one branch one policy” principle of list-based customer management for assets business so as to optimise the asset origination and support the high-quality development of the real economy. Fifthly the Bank enhanced its efforts in disposal of non-performing loans focused on key risk items implemented different measures based on different categories expanded the channels for disposal of non-performing assets and improved the quality and efficiency of settlement collection and disposal.Sixthly the Bank enhanced the application of Fintech optimised the risk management system enhanced the risk measurement capability and promoted the digital transformation of risk management.– 172 –Management of large-scale risk exposureIn accordance with the Rules on Large Exposure of Commercial Banks (《商业银行大额风险暴露管理办法》) large exposure refers to the credit risk exposure (including various credit risk exposures in the banking book and trading book) to a single customer or a group of related customers of a commercial bank that exceeds 2.5% of its net Tier 1 capital. The Bank has incorporated large risk exposure management into its overall risk management system continued to improve customer credit management requirements continued to streamline risk exposure measurement rules dynamically monitored changes in large risk exposures by way of Fintech and reported regularly on large risk exposure indicators and related management work to regulatory authorities so as to effectively control customer concentration risks. As at 31 December 2023 other than customers with regulatory exemption single non-financial institution customers group non-financial institution customers single financial institution customers and group financial institution customers of the Bank that reached the standards of large risk exposure were all in compliance with the regulatory requirements.Country risk management Country risks represent the risks of political economic social changes and incidents in a country or region that may cause debtors in that country or region to be unable or unwilling to fulfil their obligations to banks or incur losses to commercial presences of the Bank in that country or region or other losses to the Bank in that country or region.The Bank strictly implemented relevant regulatory requirements and followed the principles of soundness and prudence established a country risk management system compatible with strategic objectives risk profile and complexity and incorporated country risk management into its overall risk management system so as to promptly identify measure evaluate monitor report control and mitigate country risks assess the country risk ratings in a regular manner and implement limit management while guiding business to tilt in favour of relatively-low-risk countries or regions. Major matters involving country risk management strategies and policies were submitted to the Board of Directors for consideration and approval.In 2023 the global geopolitical conflict continued. In the face of increasingly complex and volatile international political and economic situation the Bank dynamically updated the country risk rating according to the risk changes tightened the monitoring and limit control of country risk and strictly restricted the growth of business in high-risk countries. As at 31 December 2023 the Bank’s country risk exposure was mainly concentrated in relatively-low-risk countries or regions. The country risk would not have a significant impact on the Bank’s business operation.Market risk management The Bank’s market risk arises from trading book and banking book and the interest rate risk and exchange rate risk are the major market risks faced by the Bank.Interest rate risk management * Trading book The Bank uses volume indicators market risk value indicators (VaR covering interest rate risk factors of various currencies and durations relating to trading book business) interest rate stress testing loss indicators interest rate sensitive indicators and accumulative loss indicators to measure monitor and manage the interest rate risk of trading book. The interest rate risk factors used for risk – 173 –measurement cover all businesses under the trading book and are comprised of around 200 interest rate indicators or bond yield curves. VaR includes general VaR and stressed VaR which are both calculated using the historical simulation method and adopt a confidence coefficient of 99% an observation period of 250 days and a holding period of 10 days. The interest rate stress testing scenarios include the parallel move steep move and twisted change of interest rates at various degrees and various unfavourable market scenarios designed on the characteristics of investment portfolios. Among which the extreme interest rate scenario may move up to 300 basis points and cover the extremely unfavourable conditions of the market. Major interest rate sensibility indicator reflects the duration of bonds and the change in the market value of bonds and interest rate derivatives PV01 (when an interest rate fluctuates unfavourably by 1 basis point). As for routine risk management the annual scope of authorisation and the market risk limits for the interest rate risk businesses under the trading book are set in accordance with the risk appetite operation plan and risk prediction of the Board of Directors at the beginning of the year for which the Market Risk Management Department is responsible for routine monitoring and continuous reporting.* In 2023 the Sino-US interest rate spread inverted under the weight of continued interest rate hikes by the US Federal Reserve with the RMB interest rate demonstrating an overall downward trend while the U.S. dollar interest rate fluctuated with an upward trend and remained at high levels. The scope of investment in the Bank’s trading books mainly covered RMB bonds. The Bank generally adopted a prudent trading strategy and prudent risk control measures to ensure that all interest rate risk indicators of the trading book remained within the target range.Banking book * In accordance with external regulatory requirements and internal banking book interest rate risk management policies the Bank has established and continuously improved the banking book interest rate risk management system clarified the interest rate risk governance structure and established the management process of interest rate risk identification measurement monitoring control and reporting. The Bank mainly adopts the re-pricing gap analysis duration analysis benchmark- correlated analysis scenario simulation and other methods to measure and analyse the interest rate risk of banking book on a monthly basis. The re-pricing gap analysis mainly monitors the distribution of re-pricing duration and mismatch of assets and liabilities; the duration analysis monitors the duration of major product types and the change in the duration gap of assets and liabilities of the Bank as a whole; the benchmark-correlated analysis assesses the benchmark risk existing between different pricing benchmark interest rate curves as well as between the different duration points on each of such curves based on the benchmark correlated coefficients calculated using our internal models; the scenario simulation is the major approach for the Bank to conduct interest rate risk analysis and measurement which comprises a number of ordinary scenarios and stress scenarios including the interest rate benchmark impact the parallel move and the change in the shape of yield curves the extreme changes in interest rates in history and the most possible changes in interest rates in the future as judged by experts and other scenarios. The net interest income (NII) for the future one year and the changes in economic value of equity (EVE) indicator are calculated through simulation of the scenario of changes in interest rates. The NII fluctuation ratio and the EVE fluctuation ratio of certain scenarios are included into the interest rate risk limit system of the Bank.In addition the internal limit indicator system is included into the standardised measurement indicators set out in the Guidelines on the Management of Interest Rate Risk of Banking Book of Commercial Banks (Revised).– 174 –* Adhering to a neutral and prudent interest rate risk preference the Bank pays close attention to changes in the external environment and internal interest rate risk exposure structure predicts and analyses interest rate trends based on macro-quantitative models and experts’ research and judgement prospectively deploys active interest rate risk management strategies and adjusts them flexibly. In 2023 the Bank constantly monitored and analysed various interest rate risks especially the gap risk in the context of the loan prime rates downturn and the benchmark risk caused by inconsistent changes of deposit and loan interest rates and adjusted the structure of assets and liabilities on the balance sheet and hedged interest rate derivatives off the balance sheet to manage risks. As at 31 December 2023 the Bank’s on- and off-balance-sheet management measures were carried out as planned the interest rate risk level was controlled within the annual interest rate risk control target range and various indicators including the stress test results were kept within the limits and warning values. The banking book interest rate risk was generally controllable.Exchange rate risk management * Trading book The Bank uses risk exposure indicator market risk value indicator (VaR covering foreign exchange rate risk factors of various currencies related to transactions on the trading book) the exchange loss indicator under stress test option-sensitive indicator and accumulated loss indicator to conduct risk measurement and monitoring management. As for risk measurement the selected exchange rate risk factor is applied on spot prices forward prices and volatilities in all transaction currencies under the trading book. Market value risk indicators comprise general market value at risk and stress market value at risk and are calculated using historical simulation based on a confidence coefficient of 99% an observation period of 250 days and a holding period of 10 days. Exchange rate stress test scenarios cover 5% 10% 15% or more adverse changes in every transaction currency against RMB and changed volatility of foreign exchange options. Major option-sensitive indicators include Delta Gamma Vega and other indicators. For routine management the Bank set annual limits on authority associated with exchange rate risks under the trading book and relevant market exposure at the beginning of the year according to the risk appetite business planning and risk forecast of the Board of Directors and delegated the Market Risk Management Department to perform routine monitoring and on-going reporting.* In 2023 RMB generally demonstrated a trend of “initially appreciation followed by a depreciation” with an accumulated depreciation once by as much as over 5.5% against the U.S. dollar. The depreciation of RMB narrowed to approximately 2.0% towards the end of 2023 as the US Federal Reserve suspended interest rate hikes resulting in decline of foreign exchange rate. The Bank’s trading book mainly obtained the spread income through the foreign exchange business on behalf of customers and implemented rigorous internal control and management through a well-established and efficient management system and closely monitored changes of limit indicators such as sensitivity index and stop-loss indicator. All exchange rate risk indicators of the Bank’s trading book were within the target range as of the end of the 31 December 2023.Banking book * The Bank mainly uses foreign exchange exposure analysis scenario simulation analysis stress test and other methods for measurement and analysis of exchange rate risk of its banking book. The foreign exchange exposure measurement uses the short-sided method the correlation approach and the aggregation approach; scenario simulation and stress test analysis are two important exchange rate risk management tools of the Bank for managing foreign exchange rate risk covering the – 175 –standard scenario historical scenario forward scenario and stress scenario which include scenarios such as spot and forward exchange rate fluctuations and historical extreme exchange rate fluctuations of various currencies each scenario could simulate the impact on the Bank’s profit or loss. The effects of certain scenario simulation on the profit and loss and its percentage to net capital as a limit indicator are taken as reference in the routine management. The Bank conducts back-testing and assessment on relevant model parameters on a regular basis to verify the effectiveness of measurement models.* The Bank regularly measures and analyses foreign exchange exposure of banking book and scenario simulation results monitors and reports exchange rate risk on a monthly basis under its quota limit framework and adjusts its foreign exchange exposure accordingly based on the trend of foreign exchange movements so as to mitigate the relevant foreign exchange risk of banking book. The Audit Department of the Bank is responsible for auditing of our exchange rate risk.* In 2023 the Bank paid close attention to exchange rate movements took initiative to analyse the impact of exchange rate changes in light of the macroeconomic conditions at home and abroad and proposed a balance sheet optimisation program as a scientific reference for the management’s decision-making.* In 2023 the Bank increased its efforts to monitor and analyse foreign exchange exposure and imposed a stringent control over the scale of foreign exchange risk exposure. The Bank was prudent about the exchange rate risk. As at 31 December 2023 the scale of foreign exchange exposure of the Bank’s banking book was at a relatively low level. The exchange rate risk of the Bank was generally stable with all the core limit indicators general scenarios and stress testing results satisfying the regulatory limit requirement.Operational risk management Operational risk refers to the risk of loss arising from inappropriate or problematic internal procedures incompetent personnel or IT systems or external events. In view of the various aspects and wide range of operational risks the Bank’s operational risk management will based on the principles of cost-revenue matching and input-output balance vigorously strengthen the establishment of operational risk management system implement internal control system continue to carry out various businesses steadily and reduce or prevent operational risk losses with a certain level of cost. In the process of operational risk management within the risk limits set by the Board of Directors the Bank will through measures such as further improving the risk management mechanism strengthening risk prevention and control in key areas conducting in-depth risk monitoring and pre-warning improving assessment and evaluation mechanism and cultivating operational risk prevention culture further improve operational risk management capabilities and effectiveness and prevent and reduce operational risk losses.In 2023 by striving for the goal of preventing losses arising from systematic operational risk and major operational risk the Bank continued to improve its operational risk management system. Firstly the Bank carried out the implementation of the new Basel III operational risk standards at the group level took the contents of the Basel III reform plan as a benchmark and further improved the level of operational risk management. Secondly the Bank strengthened risk prevention and control in key areas carried out special investigation on agency clearing and settlement and other businesses and put forward management measures and suggestions. Thirdly the Bank kept improving the operational risk management system carried out system platform reconstruction and development and data migration launched the new operational risk portal system within the Group in a comprehensive manner continued to strengthen the construction and application of system tools and accelerated the digitalisation process of the operational – 176 –risk management. Fourthly the Bank strengthened the second line of defence of information technology risk and business continuity management and carried out informational technology process inspection external events analysis and organised business continuity risk assessment. Fifthly the Bank arranged for the Head Office branches and subsidiaries to carry out centralised training for operational risk management and organising corresponding examination for the personnel holding relevant positions of operational risk management throughout the Bank and issuing newsletters on operational risk management so as to enhance the awareness of operational risk prevention at the Head Office branches and subsidiaries.Liquidity risk management Liquidity risk refers to the risk that the Bank is unable to obtain sufficient funds at a reasonable cost in a timely manner to grow its assets pay maturing debts and perform other payment obligations. The liquidity risk management of the Bank is based on the principles of prudence foresight and comprehensiveness which is more appropriate for the current development stage of the Bank. The current liquidity risk management policies and systems of the Bank have satisfied the regulatory requirements and its own management needs.Based on the principle of separating policy-making strategy implementation and supervision of liquidity risk management the Bank has established a liquidity risk management governance structure under which the roles responsibilities and reporting lines of the Board of Directors the Risk and Capital Management Committee the Board of Supervisors senior management special committees and relevant departments are segregated to ensure the effectiveness of liquidity risk management.In 2023 the central bank kept on adopting a prudent monetary policy and the inter-bank market maintained reasonable and sufficient liquidity. Based on the analysis of macroeconomic and market trends the Bank dynamically quantified and forecasted the future risk situation and proactively laid out the asset liability management strategy to achieve the balance between risk and yield. Firstly the Bank constantly promoted the steady growth of customer deposits with multiple measures adopted to enhance the origination and support of assets constantly optimised the asset-liability structure realising the smooth operation of assets and liabilities. Secondly the Bank strengthened forward-looking forecasts of liquidity indicators flexibly carried out active liability management of treasury based on the operation of deposit and loan business and indicators expanded diversified financing channels stabilised the sources of long-term liabilities through bond issuance and other means. Thirdly the Bank strengthened the management of monetary market trading strategies to maintain sufficient liquidity reserves actively conducted open market transactions and played the role of a primary dealer. Fourthly the Bank strengthened liquidity risk monitoring and management for business lines overseas branches and subsidiaries with reasonable control of maturity mismatches. Fifthly the Bank continued to carry out emergency management tested and improved the liquidity emergency plan and effectively improved the ability to respond to liquidity risk events through regular liquidity risk emergency drills.As at 31 December 2023 all liquidity indicators of the Bank met the regulatory requirements and the Bank had sufficient funding sources to meet the needs of sustainable and healthy development of its business.In accordance with the requirements of the PBOC the Bank’s RMB statutory deposit reserve ratio was 7% and the foreign exchange statutory deposit reserve ratio was 4%. The Bank’s liquidity indicators operated well. Deposits maintained steady growth. Liquidity reserves were sufficient and overall liquidity was at a safe level.– 177 –Reputational Risk Management Reputational risk refers to the risk that the Bank might be negatively evaluated by relevant stakeholders the public and the media due to behaviours of the Bank and its employees or external incidents which is detrimental to the brand value and normal operation of the Bank or to the extent be exposed to the risks involving market and social stability. Reputational risk management is an important part of the corporate governance and the overall risk management system of the Bank covering all activities operations and businesses undertaken by the Bank and its subsidiaries. The Bank has established and formulated the reputational risk management rules and system by taking the initiatives to effectively prevent the reputational risk and coping with any incidents in relation to reputation so as to reduce loss and negative impact to the greatest extent.In 2023 the Bank strictly fulfilled the requirements of the Rules on Reputational Risk Management of Banking and Insurance Institutions further developed the reputational risk management system following the management principles of forward-looking full-coverage matching and effectiveness and enhanced its capability of managing reputational risk. Firstly by implementing the requirements of “stability” the Bank adhered to the reputational risk management concept of prevention comes first and strengthened inspection early warning and prompting to reduce potential reputational risks at source. Secondly the Bank enhanced the precision and frequency of public opinion events aiming to realise early intervention in public opinion and to stop the fermentation of reputational risk events. Thirdly the Bank established a mechanism to analyse the causes of problems at source on the basis of proper handling of public opinion and promoted the improvement of operation and management by virtue of such public opinion. Fourthly the Bank strengthened empowerment and improved the reputational risk management abilities of branches and subsidiaries through online training case promotion emergency drills and other means.Compliance Risk Management Compliance risk refers to the risk of being subject to legal sanctions regulatory punishments material financial losses and reputational loss as a result of the failure to observe the laws rules and standards.The Bank set up three lines of defence for compliance risk management comprising business lines compliance management department and auditing department through the establishment of a reticulate management structure comprising the Risk and Capital Management Committee under the Board of Directors the risk and compliance management committee heads of compliance compliance officers as well as compliance supervisors of the Head Office and its branches thereby forming a compliance management organisational system with sound organisation clearly defined rights and responsibilities reasonable work allocation and mutual coordination and collaboration. Meanwhile through system management compliance risk assessment and monitoring construction of compliance culture management of employees behaviour and system building the Bank continuously improved compliance risk management techniques and optimised management procedures and established a complete and effective compliance risk management system to achieve effective control of compliance risks. In 2023 the Bank strictly complied with relevant laws and regulations and continued to consolidate its “fortress-style” internal control and compliance management system through various measures. The Bank effectively identified evaluated and prevented the compliance risk of new products new businesses and major projects continued to strengthen the interpretation and conveyance of the new regulations and carried out the internalisation of external regulations in a timely manner. The Bank further promoted compliance culture and carried out “Compliance for 2023” culture promotion activity. The Bank tightened up supervision inspection rectification and accountability procedures by setting up inspection and supervision teams in the Legal Compliance Department of branches and assigning additional inspectors.The Bank empowered digital transformation of internal control and compliance management with technology laying a solid foundation for the high-quality development of the Bank.– 178 –Money Laundering Risk Management Money laundering risk refers to the risk that the Bank may be exposed to because of being used by the three types of activities namely “money laundering” “terrorist financing” and “proliferation financing” in the course of conducting business and managing operations. The Bank has established a relatively sound money laundering risk management mechanism including a money laundering risk management structure with clear responsibilities assumed by the Board of Directors the Board of Supervisors senior management functional departments branches and subsidiaries an anti-money laundering system with comprehensive coverage an effectively operated risk assessment and dynamic monitoring mechanism scientific and reasonable anti-money laundering data governance targeted management of customers and businesses associated with high risks advanced and efficient IT system support independent inspection and auditing as well as continuous anti-money laundering training and promotion so as to provide compliance guarantee for the Bank’s stable operations.For the year ended 31 December 2023 the Bank proactively fulfilled its anti-money laundering obligations and constantly improved the quality and effectiveness of its money laundering risk management. The Bank optimised the money laundering risk management policies and procedures and improved the anti-money laundering mechanism in strict compliance with the laws and regulations and regulatory requirements in relation to anti-money laundering. The Bank continued to strengthen the money laundering risk management for customers and products focusing on the identification assessment and management of customers and products associated with high risk. The Bank improved the tools for monitoring suspicious transactions and endeavoured to enhance the quality and efficiency of suspicious transaction monitoring and analysis. The Bank continued to increase technology input in key anti-money laundering fields and continued to promote the implementation of the Group’s anti-money laundering system in the overseas branches and subsidiaries so as to safeguard the unified implementation of the Bank’s anti-money laundering policies in the overseas branches and subsidiaries.– 179 –ASSETS AND LIABILITIES The following discussions and analysis should be read in conjunction with the Group’s audited consolidated financial statements as at and for the years ended 31 December 2022 and 2023 which are included elsewhere in this Offering Circular. Such consolidated financial statements have been prepared in accordance with IFRSs. Unless otherwise stated all financial data discussed in this section are consolidated financial data.In this section unless otherwise specified loans and advances to customers or loans to customers represent total loans and advances to customers before deduction of allowance for impairment losses on loans rather than net loans and advances to customers.ASSETS As at 31 December 2023 the total assets of the Group amounted to RMB11028.483 billion up by 8.77% from the end of 2022 which was mainly attributable to the increase in loans and advances to customers and bond investments of the Group.The following table sets forth as at the dates indicated the components of the total assets of the Group.As at 31 December 20232022 Amount Percentage Amount Percentage (%)(%) (in millions of RMB except for percentages) Total loans and advances to customers . . . 6508865 59.02 6051459 59.69 Allowances for impairment losses on loans . . . . . . . . . . . . . . . . . . . . . . . . (266805) (2.42) (254913) (2.51) Net loans and advances to customers . . . . 6242060 56.60 5796546 57.18 Investment securities and other financial assets . . . . . . . . . . . . . . . . . . . . . . . . . . 3209473 29.10 2787066 27.49 Cash precious metals and balances with the central bank . . . . . . . . . . . . . . . . . . 684821 6.21 605068 5.97 Inter-bank transactions(1) . . . . . . . . . . . . . 558381 5.06 630302 6.22 Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 9954 0.09 9999 0.10 Other assets(2) . . . . . . . . . . . . . . . . . . . . . 323794 2.94 309931 3.04 Total assets . . . . . . . . . . . . . . . . . . . . . . . 11028483 100.00 10138912 100.00 (1) Inter-bank transactions include deposits and placements with banks and other financial institutions and amounts held under resale agreements. According to the relevant provisions of the Interim Measures for the Administration of Gold Leasing Business (Yin Ban Fa [2022] No. 88) issued by the General Office of the People’s Bank of China in July 2022 since 2023 for the gold leasing business carried out between the Group and financial institutions the lease-out side was adjusted from “precious metals” to “placements with banks and other financial institutions” and the comparative figures are re-presented accordingly. (2) Other assets include fixed assets right-of-use assets intangible assets investment properties deferred tax assets and other assets.– 180 –Loans and advances to customers As at 31 December 2023 total loans and advances to customers of the Group amounted to RMB6508.865 billion representing an increase of 7.56% as compared with the end of 2022; total loans and advances to customers accounted for 59.02% of the total assets representing a decrease of 0.67 percentage point as compared with the end of 2022.Distribution of loans by product type The following table sets forth as at the dates indicated the loans and advances to customers of the Group by product type.As at 31 December 20232022 Amount Percentage Amount Percentage (%)(%) (in millions of RMB except for percentages) Corporate loans . . . . . . . . . . . . . . . . . . . . 2599855 39.94 2375616 39.26 Retail loans . . . . . . . . . . . . . . . . . . . . . . . 3437883 52.82 3161789 52.25 Discounted bills . . . . . . . . . . . . . . . . . . . . 471127 7.24 514054 8.49 Total loans and advances to customers . . 6508865 100.00 6051459 100.00 As at 31 December 20232022 Amount Percentage Amount Percentage (%)(%) (in millions of RMB except for percentages) Corporate loans . . . . . . . . . . . . . . . . . . . . 2599855 39.94 2375616 39.26 Working capital loans . . . . . . . . . . . . . . 1021305 15.69 821269 13.57 Fixed asset loans . . . . . . . . . . . . . . . . . 838449 12.88 864880 14.29 Trade finance . . . . . . . . . . . . . . . . . . . . 334150 5.13 289605 4.79 Others(2) . . . . . . . . . . . . . . . . . . . . . . . 405951 6.24 399862 6.61 Discounted bills(3) . . . . . . . . . . . . . . . . . . 471127 7.24 514054 8.49 Retail loans . . . . . . . . . . . . . . . . . . . . . . . 3437883 52.82 3161789 52.25 Micro-finance loans . . . . . . . . . . . . . . . 751297 11.54 631038 10.43 Residential mortgage loans . . . . . . . . . . 1385486 21.29 1389208 22.96 Credit card loans . . . . . . . . . . . . . . . . . 935910 14.38 884519 14.62 Consumer loans . . . . . . . . . . . . . . . . . . 301538 4.63 202225 3.34 Others(4) . . . . . . . . . . . . . . . . . . . . . . . . 63652 0.98 54799 0.90 Total loans and advances to customers . . 6508865 100.00 6051459 100.00 – 181 –Distribution of non-performing loans by product type As at 31 December 20232022 Amount NPL ratio(1) Amount NPL ratio(1) (%)(%) (in millions of RMB except for percentages) Corporate loans . . . . . . . . . . . . . . . . . . . . 30992 1.19 29961 1.26 Working capital loans . . . . . . . . . . . . . . 8068 0.79 9562 1.16 Fixed asset loans . . . . . . . . . . . . . . . . . 14915 1.78 14123 1.63 Trade finance . . . . . . . . . . . . . . . . . . . . 119 0.04 330 0.11 Others(2) . . . . . . . . . . . . . . . . . . . . . . . 7890 1.94 5946 1.49 Discounted bills(3) . . . . . . . . . . . . . . . . . . – – – – Retail loans . . . . . . . . . . . . . . . . . . . . . . . 30587 0.89 28043 0.89 Micro-finance loans . . . . . . . . . . . . . . . 4592 0.61 4031 0.64 Residential mortgage loans . . . . . . . . . . 5122 0.37 4904 0.35 Credit card loans . . . . . . . . . . . . . . . . . 16383 1.75 15650 1.77 Consumer loans . . . . . . . . . . . . . . . . . . 3285 1.09 2191 1.08 Others(4) . . . . . . . . . . . . . . . . . . . . . . . . 1205 1.89 1267 2.31 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61579 0.95 58004 0.96 (1) Represents the percentage of the non-performing loans in a certain category to the total loans of that category. (2) Primarily consists of other corporate loans such as financial leasing M&A loans and corporate mortgage loans. (3) The Bank will transfer discounted bills to corporate loans for accounting purposes once overdue. (4) The “Others” category consists primarily of commercial housing loans automobile loans house decoration loans education loans and other personal loans secured by monetary assets.As at 31 December 2023 the balance of the Group’s corporate loans amounted to RMB2599.855 billion representing an increase of 9.44% as compared to the end of 2022. As affected by significant risk exposure of some high-debt real estate customers and individual corporate customers with poor operation and management the amount of non-performing corporate loans reached RMB30.992 billion representing an increase of RMB1.031 billion as compared with the end of 2022; and the non-performing loan ratio of corporate loans was 1.19% down by 0.07 percentage point as compared with the end of 2022.As at 31 December 2023 the balance of the Group’s retail loans amounted to RMB3437.883 billion representing an increase of 8.73% as compared to the end of 2022 of which micro-finance loans amounted to RMB751.297 billion representing an increase of 19.06% as compared with the end of 2022. As at 31 December 2023 the balance of non-performing retail loans amounted to RMB30.587 billion representing an increase of RMB2.544 billion as compared with the end of 2022. The non-performing ratio of retail loans was 0.89% which remained at the same level as compared to the end of 2022 of which the balance of non-performing credit card loans amounted to RMB16.383 billion representing an increase of RMB733 million as compared with the end of 2022; and the non-performing loan ratio of credit card loans was 1.75% down by 0.02 percentage point as compared with the end of 2022. – 182 –Distribution of non-performing loans by industry As at 31 December 20232022 Amount NPL ratio(1) Amount NPL ratio(1) (%)(%) (in millions of RMB except for percentages) Corporate loans . . . . . . . . . . . . . . . . . . . . 30992 1.19 29961 1.26 Transportation storage and postal services . . . . . . . . . . . . . . . . . . . . . . 1739 0.34 948 0.19 Property development . . . . . . . . . . . . . . 17183 5.26 15348 4.08 Manufacturing . . . . . . . . . . . . . . . . . . . 3063 0.53 4781 1.03 Production and supply of electric power heat gas and water . . . . . . . . . . . . . . 443 0.16 468 0.22 Leasing and commercial services . . . . . 1470 0.76 1784 1.10 Wholesale and retail . . . . . . . . . . . . . . . 1330 0.67 1836 1.02 Finance . . . . . . . . . . . . . . . . . . . . . . . . 387 0.29 440 0.39 Construction . . . . . . . . . . . . . . . . . . . . 333 0.30 435 0.41 Information transmission software and IT service . . . . . . . . . . . . . . . . . . . . . 760 0.73 406 0.45 Water conservancy environment and public utilities . . . . . . . . . . . . . . . . . 101 0.23 100 0.15 Mining . . . . . . . . . . . . . . . . . . . . . . . . 567 1.20 521 1.29 Others(2) . . . . . . . . . . . . . . . . . . . . . . . 3616 4.45 2894 3.96 Discounted bills . . . . . . . . . . . . . . . . . . . – – – – Retail loans . . . . . . . . . . . . . . . . . . . . . . . 30587 0.89 28043 0.89 Total loans and advances to customers . . 61579 0.95 58004 0.96 (1) Represents the percentage of the non-performing loan in a certain category to the total loans of that category. (2) Consists primarily of agriculture forestry animal husbandry fishery accommodation and catering health and social work etc.As at 31 December 2023 the balance of the Group’s loans extended to the manufacturing industry amounted to RMB577.026 billion representing an increase of 23.90% as compared with the end of 2022 accounting for 8.87% of the total loans and advances to customers with the proportion by 1.17 percentage points as compared with the end of 2022. Furthermore the Group closely tracked changes in internal and external situations and continuously prevented and defused risks in key areas such as real estate and local government financing platforms. For the year ended 31 December 2023 the non-performing loan ratios of the Group in terms of property development information transmission software and IT service as well as transportation storage and postal services all increased due to the risk exposure of high-debt real estate enterprises and individual corporate customers with poor operation and management.– 183 –Distribution of non-performing loans by region As at 31 December 20232022 Amount NPL ratio(1) Amount NPL ratio(1) (%)(%) (in millions of RMB except for percentages) Head Office(2) . . . . . . . . . . . . . . . . . . . . . 18011 1.85 17811 1.89 Yangtze River Delta . . . . . . . . . . . . . . . . 10489 0.73 10532 0.79 Bohai Rim . . . . . . . . . . . . . . . . . . . . . . . 5745 0.62 5118 0.62 Pearl River Delta and West Side of Taiwan Strait . . . . . . . . . . . . . . . . . . . . 7941 0.67 4673 0.43 North-eastern China . . . . . . . . . . . . . . . . . 1862 1.10 2020 1.19 Central China . . . . . . . . . . . . . . . . . . . . . 6514 0.95 8048 1.25 Western China . . . . . . . . . . . . . . . . . . . . . 5820 0.85 5468 0.86 Overseas . . . . . . . . . . . . . . . . . . . . . . . . . 851 1.06 544 0.69 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 4346 1.22 3790 1.14 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61579 0.95 58004 0.96 (1) Represents the percentage of non-performing loans in a certain category to the total loans of that category. (2) The Head Office includes Credit Card Centre. In 2023 the Group seized the development opportunities brought by national strategies of coordinated regional development focused on advantageous industries within the region strengthened the coordination of branches in key regions promoted business synergy within the region and accelerated the development of branches in key regions. Furthermore the Group closely monitored market changes conducted continuous research on regional credit policies and implemented differentiated operational management strategies.Distribution of non-performing loans by type of guarantees As at 31 December 20232022 Amount NPL ratio(1) Amount NPL ratio(1) (%)(%) (in millions of RMB except for percentages) Credit loans . . . . . . . . . . . . . . . . . . . . . . 24147 0.93 21662 0.98 Guaranteed loans . . . . . . . . . . . . . . . . . . . 18728 2.28 16698 2.00 Collateralised loans . . . . . . . . . . . . . . . . . 14091 0.63 14246 0.67 Pledged loans . . . . . . . . . . . . . . . . . . . . . . 4613 1.22 5398 1.55 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61579 0.95 58004 0.96 (1) Represents the percentage of non-performing loans in a certain category to the total loans of that category. – 184 –As at 31 December 2023 the balance of the Group’s collateralised and pledged loans increased by 5.74% as compared with the end of 2022; guaranteed loans decreased by 1.73% as compared with the end of 2022 and the credit loans increased by 16.78% as compared with the end of 2022. In addition the non-performing loan ratios of credit loans as well as collateralised loans and pledged loans all decreased as compared with the end of 2022 while the non-performing loan ratio of guaranteed loans increased as compared with the end of 2022.LIABILITIES As at 31 December 2023 the total liabilities of the Group amounted to RMB9942.754 billion representing an increase of 8.25% as compared with the end of 2022 which was primarily attributable to the steady growth in deposits from customers.The following table sets forth as at the dates indicated the components of the total liabilities of the Group.As at 31 December 20232022 Amount Percentage(1) Amount Percentage(1) (%)(%) (in millions of RMB except for percentages) Deposits from customers . . . . . . . . . . . . . 8155438 82.02 7535742 82.05 Inter-bank transactions(1) . . . . . . . . . . . . . 888408 8.94 957657 10.42 Borrowings from the central bank . . . . . . 377189 3.79 129438 1.41 Financial liabilities at fair value through profit or loss and derivative financial liabilities . . . . . . . . . . . . . . . . . . . . . . . 61401 0.62 67780 0.74 Debt securities issued . . . . . . . . . . . . . . . 174764 1.76 222288 2.42 Others(2). . . . . . . . . . . . . . . . . . . . . . . . . . 285554 2.87 271769 2.96 Total liabilities . . . . . . . . . . . . . . . . . . . . 9942754 100.00 9184674 100.00 (1) Inter-bank transactions include deposits and placements from banks and other financial institutions and amounts sold under repurchase agreements. According to the relevant provisions of the Interim Measures for the Administration of Gold Leasing Business (Yin Ban Fa [2022] No. 88) issued by the General Office of the People’s Bank of China in July 2022 since 2023 for the gold leasing business carried out between the Group and financial institutions the lease-in side was adjusted from “financial liabilities at fair value through profit or loss” to “placements from banks and otherfinancial institutions” and the comparative figures are re-presented accordingly. (2) Others include salaries and welfare payable taxes payable contract liabilities lease liabilities expected liabilities deferred income tax liabilities and other liabilities.– 185 –Deposits from customers As at 31 December 2023 total deposits from customers of the Group amounted to RMB8155.438 billion representing an increase of 8.22% as compared with the end of 2022 accounting for 82.02% of the total liabilities of the Group which was the major funding source of the Group.The following table sets forth as at the dates indicated the deposits from customers of the Group by product type and customer type.As at 31 December 20232022 Amount Percentage(1) Amount Percentage(1) (%)(%) (in millions of RMB except for percentages) Corporate customer deposits Demand . . . . . . . . . . . . . . . . . . . . . . . . . . 2644685 32.43 2762671 36.66 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015837 24.72 1668882 22.15 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 4660522 57.15 4431553 58.81 Deposits from retail customers Demand . . . . . . . . . . . . . . . . . . . . . . . . . . 1829612 22.43 1983364 26.32 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1665304 20.42 1120825 14.87 Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 3494916 42.85 3104189 41.19 Total deposits from customers . . . . . . . . . 8155438 100.00 7535742 100.00 In 2023 the percentage of daily average balance of the demand deposits to that of the deposits from customers of the Group was 57.08% representing a year-on-year decrease of 4.55 percentage points.Among these the daily average balance of demand deposits from corporate customers accounted for 57.31% of that of the corporate customer deposits representing a year-on-year decrease of 2.67 percentage points; the daily average balance of demand deposits from retail customers accounted for 56.74% of that of the deposits from retail customers representing a year-on-year decrease of 7.69 percentage points.Affected by the decline in the risk appetite of customers and insufficient liquidity activities of enterprises customers’ demand for investment in time deposit products increased leading to a decrease in the proportion of demand deposits.– 186 –SUBSTANTIAL SHAREHOLDERS As at 31 December 2023 the Bank had a total of 676450 ordinary shareholders including 28569 holders of H Shares and 647881 holders of A Shares. As at 31 December 2023 the number of A shares and H shares issued by the Bank accounted for 81.80% and 18.20% of the total number of shares in the Bank respectively. In particular China Merchants Group Ltd. directly and indirectly held 32.73% of the A shares and 17.57% of the H shares in the Bank.The table below sets out the particulars of the Bank’s top 10 shareholders as at 31 December 2023 (based on the register of shareholders as at 31 December 2023).Number of shares held subject to Shares Shares held Percentage Trading pledged at the end of of the Changes restrictions marked or Name of Type of the period total share in 2023 on sales frozen No. shareholders shareholders (share) capital Type of shares (share) (share) (share) (%) 1 . . HKSCC Nominees Overseas legal 4554053841 18.06 H Shares not 796918 – Unknown Ltd. person subject to trading restrictions on sales 2 . . China Merchants State-owned 3289470337 13.04 A Shares not – – – Steam Navigation legal person subject to Co. Ltd. trading restrictions on sales 3 . . China Ocean State-owned 1574729111 6.24 A Shares not – – – Shipping legal person subject to Company trading Limited restrictions on sales 4 . . Shenzhen Yan Qing State-owned 1258542349 4.99 A Shares not – – – Investment and legal person subject to Development trading Company Ltd. restrictions on sales 5 . . China Merchants State-owned 1147377415 4.55 A Shares not – – – Financial legal person subject to Holdings Co. trading Ltd. restrictions on sales 6 . . Hexie Health Domestic 1130991537 4.48 A Shares not – – – Insurance Co. legal person subject to Ltd. – Traditional trading – Ordinary restrictions on insurance sales products – 187 –Number of shares held subject to Shares Shares held Percentage Trading pledged at the end of of the Changes restrictions marked or Name of Type of the period total share in 2023 on sales frozen No. shareholders shareholders (share) capital Type of shares (share) (share) (share) (%) 7 . . Hong Kong Overseas legal 1060494391 4.20 A Shares not (446296795) – – Securities person subject to Clearing trading Company restrictions on Limited sales 8 . . Shenzhen Chu Yuan State-owned 944013171 3.74 A Shares not – – – Investment and legal person subject to Development trading Company Ltd restrictions on sales 9 . . Dajia Life Domestic 776574735 3.08 A Shares not (28333100) – – Insurance Co. legal person subject to Ltd – Universal trading Products. restrictions on sales 10 . . COSCO Shipping State-owned 696450214 2.76 A Shares not – – – (Guangzhou) Co. legal person subject to Ltd. trading restrictions on sales (1) Shares held by HKSCC Nominees Ltd. are the total shares in the accounts of holders of H Shares of the Bank trading on the transaction platform of HKSCC Nominees Ltd. Hong Kong Securities Clearing Company Limited is an institution designated by others to hold shares on behalf of them as a nominal holder and the shares held by it are the shares of the Bank acquired by investors through Northbound Trading. (2) As at 31 December 2023 among the aforesaid top ten shareholders HKSCC Nominees Ltd. is a subsidiary of Hong Kong Securities Clearing Company Limited; China Merchants Steam Navigation Co. Ltd. Shenzhen Yan Qing Investment and Development Company Ltd. China Merchants Financial Holdings Co. Ltd. and Shenzhen Chu Yuan Investment and Development Company Ltd. are all subsidiaries of China Merchants Group Ltd.; and China Ocean Shipping Company Limited and COSCO Shipping (Guangzhou) Co. Ltd. are both subsidiaries of China COSCO Shipping Corporation Limited. The Bank is not aware of any affiliated relationship or action in concert among other shareholders. (3) The above holders of A Shares did not hold the shares of the Bank through credit securities accounts neither were there cases of proxy trustee nor waiver of voting rights.– 188 –MANAGEMENT OF THE BANK The table below sets out the particulars of the Bank’s Directors(1)(2) Supervisors and Senior Management as at the date of this Offering Circular: Name Date of Birth Title Miao Jianmin (缪建民) . . . . . . . . . 1965.1 Chairman and Non-Executive Director Sun Yunfei (孙云飞) . . . . . . . . . . . 1965.8 Non-Executive Director Wang Liang (王良) . . . . . . . . . . . . 1965.12 Executive Director President and Chief Executive Officer Zhou Song (周松) . . . . . . . . . . . . . 1972.4 Non-Executive Director Zhang Jian (张健) . . . . . . . . . . . . . 1964.10 Non-Executive Director Chen Dong (陈冬) . . . . . . . . . . . . 1974.12 Non-Executive Director Zhu Jiangtao (朱江涛) . . . . . . . . . . 1972.12 Executive Director and Executive Vice President Wong See Hong (王仕雄)(1) . . . . . . 1953.6 Independent Non-Executive Director Li Menggang (李孟刚)(2) . . . . . . . . 1967.4 Independent Non-Executive Director Liu Qiao (刘俏)(2) . . . . . . . . . . . . . 1970.5 Independent Non-Executive Director Tian Hongqi (田宏启) . . . . . . . . . . 1957.5 Independent Non-Executive Director Li Chaoxian (李朝鲜) . . . . . . . . . . 1958.9 Independent Non-Executive Director Shi Yongdong (史永东) . . . . . . . . . 1968.11 Independent Non-Executive Director Li Jinming (李金明) . . . . . . . . . . . 1968.2 Shareholder Supervisor Luo Sheng (罗胜) . . . . . . . . . . . . . 1970.9 Shareholder Supervisor Wu Heng (吴珩) . . . . . . . . . . . . . . 1976.8 Shareholder Supervisor Xu Zhengjun (徐政军) . . . . . . . . . 1955.9 External Supervisor Cai Hongping (蔡洪平) . . . . . . . . . 1954.12 External Supervisor Zhang Xiang (张翔) . . . . . . . . . . . 1963.12 External Supervisor Cai Jin (蔡进) (3). . . . . . . . . . . . . . 1970.7 Employee Supervisor Cao Jian (曹建) . . . . . . . . . . . . . . 1970.10 Employee Supervisor Yang Sheng (杨盛) . . . . . . . . . . . . 1972.8 Employee Supervisor Zhao Weipeng (赵卫朋). . . . . . . . . 1972.3 Secretary of the Party Discipline Committee Zhong Desheng (钟德胜) . . . . . . . . 1967.7 Executive Vice President Wang Xiaoqing (王小青) . . . . . . . . 1971.10 Executive Vice President Wang Ying (王颖) . . . . . . . . . . . . . 1972.11 Executive Vice President Peng Jiawen (彭家文) . . . . . . . . . . 1969.5 Executive Vice President Chief Financial Officer and Secretary of the Board of Directors Lei Caihua (雷财华) . . . . . . . . . . . 1974.9 Executive Assistant President Xu Mingjie (徐明杰) . . . . . . . . . . . 1968.9 Executive Assistant President (1) Mr. Wong See Hong has tendered his resignation as an Independent Non-Executive Director to the Board of Directors of the Bank due to expiry of his term of office. In accordance with the relevant laws and regulations and the relevant requirements of the Articles of Association of the Bank the resignation of Mr. Wong See Hong will become effective upon the election of a new Independent Non-Executive Director at the Shareholders’ General Meeting of the Bank followed by the approval of the qualifications of the new Independent Non-Executive Director by the NFRA to fill the vacancy. (2) According to the Management Measures for the Independent Directors of Listed Companies the term of office of Independent Directors shall not exceed six years. Therefore the actual term of office of the Independent Directors Mr.Li Menggang and Mr. Liu Qiao will expire earlier than the expiration time of the Twelfth Session of the Board of Directors of the Bank. (3) Ms. Cai Jin has tendered her resignation as an Employee Supervisor to the Board of Supervisors of the Bank due to her age. In accordance with the relevant laws and regulations and the relevant requirements of the Articles of Association of the Bank the resignation of Ms. Cai Jin will become effective upon the election of a new Employee Supervisor by the Employee Representative Meeting of the Bank to fill the vacancy.– 189 –DIRECTORS Mr. Miao Jianmin is the Chairman and Non-Executive Director of the Bank. Mr. Miao obtained a doctoral degree in Economics from Central University of Finance and Economics and is a senior economist. He is an alternate member of the nineteenth and twentieth Central Committee of the Communist Party of China.Mr. Miao is Chairman of China Merchants Group Ltd. and concurrently serves as Chairman of China Merchants Financial Holdings Co. Ltd. (招商局金融控股有限公司) and Chairman of China Merchants Life Insurance Company Limited. Mr. Miao was an Executive Director and the Deputy General Manager of China Insurance (Group) Limited Company in Hong Kong the Vice Chairman and President of China Life Insurance (Group) Company the Chairman of The People’s Insurance Company (Group) of China Limited (a company listed on the Hong Kong Stock Exchange) and the Chairman of PICC Property and Casualty Company Limited (a company listed on the Hong Kong Stock Exchange).Mr. Sun Yunfei is a Non-Executive Director of the Bank. He is a senior economist (researcher level) with a master’s degree in Business Administration from the School of Management of Fudan University. He currently serves as the Deputy General Manager and Chief Accountant of China COSCO Shipping Corporation Limited. He served as the Deputy Chief of the Economic Planning and Statistics Division the Director of the Planning Department and the Deputy Chief Accountant of Hudong Shipyard (沪东造船厂) Chief Accountant of Hudong Shipbuilding (Group) Co. Ltd. (沪东造船(集团)有限公司) Director and Chief Financial Officer of Hudong-Zhonghua Shipbuilding (Group) Co. Ltd. Deputy Chief Accountant and Chief Accountant at China State Shipbuilding Corporation Deputy General Manager of China State Shipbuilding Corporation etc.Mr. Wang Liang is an Executive Director President and Chief Executive Officer of the Bank. Mr. Wang obtained a master’s degree in Economics from Renmin University of China. He is a senior economist. He joined the Bank in June 1995 and successively served as the Assistant General Manager Deputy General Manager and General Manager of Beijing Branch of the Bank. He successively served as the Executive Assistant President Executive Vice President and First Executive Vice President of the Bank since June 2012 and started to preside over overall business of the Bank since 18 April 2022. He has been the President of the Bank since 15 June 2022. He concurrently serves as the Bank’s authorised representative in charge of matters in relation to listing in Hong Kong the Chairman of CMB International Capital Holdings Corporation Limited the Chairman of CMB International Capital Corporation Limited Chairman of CMB Wing Lung Bank Vice Chairman of Merchants Union Consumer Finance Company Limited Director of China Merchants Financial Holdings Co. Ltd. Vice President of the Payment & Clearing Association of China a Director of the Fourth Session of the Professional Committee for Intermediate Business of China Banking Association and Executive Director of the Sixth Session of the Financial Accounting Society of China and a Deputy of the 14th Guangdong Provincial People’s Congress. He had served as the Chief Financial Officer Secretary of the Board of Directors and Company Secretary of the Bank.Mr. Zhou Song is a Non-Executive Director of the Bank. Mr. Zhou obtained a master’s degree of World Economics from Wuhan University. Mr. Zhou is the Chief Accountant of China National Petroleum Corporation and concurrently a Director of China Merchants Financial Holdings Co. Ltd. the Chairman of Shenzhen China Merchants Ping An Asset Management Co. Ltd. (深圳市招商平安资产管理有限责任 公司) the Chairman of China Merchants Group Finance Co. Ltd. (招商局集团财务有限公司) the Chairman of China Merchants Investment Development Co. Ltd. (招商局投资发展有限公司) the Chairman of the Board of Supervisors of China Merchants Shekou Industrial Zone Holdings Co. Ltd. (a company listed on Shenzhen Stock Exchange) and the Chairman of China Merchants Innovative Investment Management Co. Ltd.. He was the Deputy General Manager of the Planning and Finance Department of the Head Office of the Bank the Deputy General Manager of Wuhan Branch the Deputy – 190 –General Manager (in charge of work) and General Manager of the Planning and Finance Department of the Head Office the Employee Supervisor of the Bank the Business Director and General Manager of the Assets and Liabilities Management Department of the Head Office the President of the General Office of the Financial Institution Business and concurrently the General Manager of the Assets Management Department of the Head Office and the Business Director of the Head Office the President of the General Office of Investment Banking and Financial Market Business and concurrently the General Manager of the Assets Management Department of the Head Office the Business Director of the Head Office and the Chief Accountant of China Merchants Group Ltd..Mr. Zhang Jian is a Non-Executive Director of the Bank. Mr. Zhang obtained a bachelor’s degree in Economics and Management from the Department of Economics of Nanjing University and a master’s degree in Econometrics and is a senior economist. He is the Chief Digital Officer of China Merchants Group Ltd. and the Deputy General Manager of China Merchants Financial Holdings Co. Ltd.. He concurrently serves as the Non-Executive Director of China Merchants Securities Co. Ltd. (a company listed on the Shanghai Stock Exchange and Hong Kong Stock Exchange) the Chairman of China Merchants Financial Leasing Co. Ltd. (招商局融资租赁有限公司) and the Vice Chairman of China Merchants Capital Investment Co. Ltd.. He served as a General Manager of Finance Department of China Merchants Group Ltd. a Deputy General Manager of China Merchants Finance Holdings Company Limited a Deputy Director (Executive) of the Executive Committee of the China Merchants Financial Group/Platform a Director of China Merchants Life Insurance Company Limited and the Non-Executive Director and Chairman of the Board of Directors of China Merchants China Direct Investments Limited (a company listed on the Hong Kong Stock Exchange).Mr. Chen Dong is a Non-Executive Director of the Bank. He is a senior accountant with a master’s degree in Economics from Shanghai University of Finance and Economics. He currently serves as the Deputy General Manager Chief Account and Chief Financial Officer of China Southern Airlines Company Limited (a company listed on the Shanghai Stock Exchange). He concurrently serves as a Director of COSCO SHIPPING Specialized Carriers Co. Ltd. (a company listed on the Shanghai Stock Exchange).He served as Assistant Director and Deputy General Manager of the Finance and Accounting Department of China Shipping Development Co. Ltd. Tanker Company Deputy Director of Risk Control Centre of Enterprise Management Department Deputy Director of Risk Control Department of Accounting and Finance Department Deputy Director of Finance Department Senior Manager of Finance and Tax Management Office of Finance Department Assistant General Manager and Deputy General Manager of Finance Department of China Shipping (Group) Company and Deputy General Manager and General Manager of the Financial Management Division of China COSCO Shipping Corporation Limited a Director of COSCO SHIPPING International (Hong Kong) Co. Ltd. (a company listed on the Hong Kong Stock Exchange) and a Director of COSCO SHIPPING Ports Limited (a company listed on the Hong Kong Stock Exchange) etc.Mr. Zhu Jiangtao is an Executive Director and Executive Vice President of the Bank. Mr. Zhu holds a master’s degree in Economics. He is a senior economist. He joined the Bank in January 2003. He successively served as Assistant General Manager and Deputy General Manager of Guangzhou Branch General Manager of Chongqing Branch General Manager of Credit Risk Management Department of the Bank General Manager of Risk Management Department of the Bank between December 2007 and July 2020. He served as Chief Risk Officer of the Bank from July 2020 to May 2024. He has been Executive Vice President of the Bank since September 2021.– 191 –Mr. Wong See Hong is an Independent Non-Executive Director of the Bank. Mr. Wong obtained a bachelor’s degree in Business Administration from the National University of Singapore a master’s degree in Investment Management from Hong Kong University of Science and Technology and a doctorate degree in Transformational Leadership (DTL) from Bethel Bible Seminary. He is an Independent Director of The Frasers Hospitality Assets Management Pte. Ltd. (新加坡辉盛国际资产管理有限公司) Frasers Property Limited (a company listed on the Singapore Stock Exchange) and EC World Asset Management Private Limited and a member of the Financial Management Commission of the Hong Kong Administration Society (香港管理学会财务管理委员会). He previously served as the Deputy Chief Executive of BOC Hong Kong (Holdings) Limited the head Managing Director and President for the Southeast Asia region and the head of the Financial Market Department in Asia (亚洲区金融市场部主管) of ABN AMRO Bank a Director of Bank of China Group Insurance Company Limited the Chairman of the Board of BOC Group Trustee Company Limited the Chairman of BOCI-Prudential MPF (中银保诚强 积金) the Chairman of BOCHK Asset Management Limited a member of the Board of Directors of the Civil Servants Institute of Prime Minister’s Office Singapore (新加坡总理办公室公务员学院) and a member of the Client Consulting Commission (客户咨询委员会) of Thomson Reuters.Mr. Li Menggang is an Independent Non-Executive Director of the Bank. Mr. Li obtained a doctoral degree in Economics and a post-doctoral degree in both Transportation and Communication Engineering and Theoretical Economics from Beijing Jiaotong University. He has been serving as a professor and doctoral supervisor at Beijing Jiaotong University the Dean of the National Academy of Economic Security (NAES) of Beijing Jiaotong University the Director of the China Centre for Industrial Security Research the Director of Beijing Laboratory of National Economic Security Pre-Warning Project and the Chief Expert of Major Bidding Projects of the National Social Science Fund. He concurrently serves as the Vice President of Guanghua Engineering Science and Technology Award Foundation (光华工程科技 奖励基金会). He served as an Independent Director of Sichuan Golden Summit (Group) Joint-stock Co.Ltd. (a company listed on Shanghai Stock Exchange) an Independent Non-Executive Director of Yuxing InfoTech Investment Holdings Limited (a company listed on the Hong Kong Stock Exchange) the Chairman of the Professional Committee of the Logistics Informatisation and Industrial Security System of the Institute of Electrical and Electronics Engineers (IEEE) an Independent Director of Hunan Copote Science & Technology Co. Ltd. (a company listed on Shanghai Stock Exchange) an Independent Director of Daqin Railway Co. Ltd. (a company listed on Shanghai Stock Exchange) an Independent Director of Huadian Power International Corporation Limited (a company listed on the Hong Kong Stock Exchange and Shanghai Stock Exchange) the Deputy Director of the Independent Board Committee of China Association for Public Companies the Vice President and the Deputy Director of the Expert Committee of China Human Resource Development Association and the Director of the Human Capital Institute.Mr. Liu Qiao is an Independent Non-Executive Director of the Bank. Mr. Liu obtained a bachelor’s degree of science in Economics and Mathematics from Renmin University of China a master’s degree in Economics from the Institute of Finance of People’s Bank of China and a Ph.D. in Economics from University of California Los Angeles in the United States and is a distinguished professor (特聘教授) of Changjiang Scholars Program. He has been serving as the Dean at the Guanghua School of Management of Peking University professor of Finance and Economics and doctoral supervisor. He is also a member of Think Tank Committee of All-China Federation of Industry and Commerce (全国工商联智库委员会) the Economic Research Centre of Chinese Kuomintang Revolutionary Committee the expert panel of the Shenzhen Stock Exchange and the Listing Committee of ChiNext of Shenzhen Stock Exchange; an advisor of the post-doctoral stations of the CSRC the Shenzhen Stock Exchange the China Financial Futures Exchange and China Minsheng Banking Corp. Ltd. etc. the Vice Chairman of the China Enterprise Reform and Development Society (中国企业改革与发展研究会) and an Independent Director of Beijing Capital Group Company Limited (a company listed on Shanghai Stock Exchange). Mr. Liu served as an assistant professor at School of Economics and Finance of the University of Hong Kong a consultant of – 192 –the Asia-Pacific Corporate Finance & Strategy Practice of McKinsey & Company an assistant professor and associate professor (with tenure) at the Faculty of Business and Economics of the University of Hong Kong an Independent Non-Executive Director of Zensun Enterprises Limited (formerly known as the ZH International Holdings Limited a company listed on the Hong Kong Stock Exchange) and Independent Non-Executive Director of CSC Financial Co. Ltd a company listed on the Hong Kong Stock Exchange and Shanghai Stock Exchange.Mr. Tian Hongqi is an Independent Non-Executive Director of the Bank. Mr. Tian obtained a bachelor’s degree in Finance and Accounting from the Faculty of Water Transportation Management of Shanghai Maritime University and is a senior accountant. He concurrently serves as the Independent Director of Nanjing Tanker Corporation (招商局南京油运股份有限公司 a company listed on Shanghai Stock Exchange). He previously served as the Chief Financial Officer and Chief Information Officer of COSCO SHIPPING Bulk Co. Ltd. the General Manager of the Finance Department of COSCO Container Lines Co. Ltd. the Director and the General Manager of the Financial Department of COSCO Japan the Chief Financial Officer of COSCO Holdings (Singapore) Pte. Ltd. (中远控股(新加坡)有限公司) the General Manager of the Finance Department of the COSCO Container Transportation Operation Headquarter (中 远集装箱运输经营总部) and the Deputy Director of the Finance Department of COSCO.Mr. Li Chaoxian is an Independent Non-Executive Director of the Bank. Mr. Li obtained a doctoral degree in Industrial Economics and a master’s degree in Statistics from Renmin University of China respectively. He is currently a professor and doctoral supervisor of Beijing Technology and Business University and concurrently serves as an Independent Director of China World Trade Centre Company Limited (a company listed on Shanghai Stock Exchange). He served as the Deputy Director and Director of the Finance Department of Beijing Business School Deputy Dean and Dean of the School of Economics of Beijing Technology and Business University Chief of the Academic Affairs Office of Beijing Technology and Business University Vice President of Beijing Technology and Business University and an Independent Director of Beijing HuaDaJianYe Engineering Management Co. Ltd. (北京华达建业工程 管理股份有限公司) (a company listed on the National Equities Exchange and Quotations).Mr. Shi Yongdong is an Independent Non-Executive Director of the Bank. Mr. Shi obtained a doctoral degree in Economics from Dongbei University of Finance and Economics and a master’s degree in Applied Mathematics from Jilin University. He is a leading talent of the national high-level special support plan one of the Cultural Masters and the Four First-Batch Talents and the chief expert of the major projects under the National Social Science Fund of China. He is currently the Dean Professor and Doctoral Supervisor of the School of Finance and Technology of Dongbei University of Finance and Economics and concurrently serves as a council member of China Finance Society a standing council member of the Chinese Finance Annual Meeting (中国金融学年会) and the Chinese Financial Projects Annual Meeting (中国金融工程学年会) and a standing council member of the International Symposium on Financial Systems Engineering and Risk Management (金融系统工程与风险管理国际年会). He served as the Deputy Dean of the School of Finance the Director of the Applied Finance Research Centre Chief of the scientific research department and the Dean of the School of Applied Finance and Behavioural Sciences in Dongbei University of Finance and Economics an Independent Director of Dalian Huarui Heavy Industry Group Co. Ltd. (a company listed on Shenzhen Stock Exchange) and an Independent Director of Bank of Anshan Co. Ltd..– 193 –SUPERVISORS Mr. Li Jinming is a Shareholder Supervisor of the Bank. Mr. Li is a senior accountant with a bachelor’s degree. He is currently the Secretary to the Party committee Director and General Manager of CCCC Finance Company Ltd. (中交财务有限公司). He served as the Director Chief Accountant and General Counsel of CCCC Investment Co. Ltd. (中交投资有限公司) the deputy general manager (executive) of the financial funding department of China Communications Construction Group Limited and the General Manager of the financial funding department of China Communications Construction Group Limited.Mr. Luo Sheng is a Shareholder Supervisor of the Bank. He graduated from the Business School of Nankai University majoring in corporate governance with a doctoral degree. Mr. Luo is currently the Deputy General Manager of Dajia Insurance Group Co. Ltd. and a Director of Dajia Life Insurance Co.Ltd.. He successively served as the principal staff member of the Regulation Division under the Policy and Regulation Department the principal staff member of the Market Analysis Division under the Development and Reform Department the Deputy Director and Director of the Corporate Governance Division under the Development and Reform Department as well as the deputy director of the Regulation Department of the China Insurance Regulatory Commission. He has also served as an Executive Director the Executive Vice President Secretary to the Board of Directors and General Manager of Shanghai Branch of China Insurance Information Technology Management Co. Ltd. the Deputy Director of the Development and Reform Department of China Insurance Regulatory Commission and a Director of Gemdale Corporation (a company listed on Shanghai Stock Exchange) etc. He served as the Non-Executive Director of the Eleventh Session of the Board of the Bank from June 2019 to June 2022.Mr. Wu Heng is a Shareholder Supervisor of the Bank and a postgraduate from the Department of Accounting of Shanghai University of Finance and Economics. Mr. Wu obtained a master’s degree in Management and is a senior accountant. He is the General Manager of Finance Affairs Department of SAIC Motor Corporation Limited (a company listed on Shanghai Stock Exchange) and concurrently serves as the General Manager of SAIC Motor Financial Holding Management Co. Ltd. a Non-executive Director of Bank of Chongqing Co. Ltd. (a company listed on the Hong Kong Stock Exchange and Shanghai Stock Exchange) and a Director of Wuhan Kotei Informatics Co. Ltd. (a company listed on Shenzhen Stock Exchange). He consecutively served as a Deputy Manager and Manager of Planning and Finance Department as well as a Manager of Fixed Income Department of Shanghai Automotive Group Finance Company Ltd. from March 2000 to March 2005. He consecutively served as a Section Chief Assistant to Executive Controller and the Manager of Accounting Section of Finance Department of SAIC Motor Corporation Limited from March 2005 to April 2009 the Chief Financial Officer of Huayu Automotive Systems Co. Ltd. (a company listed on Shanghai Stock Exchange) from April 2009 to May 2015 and concurrently serving as the Director and General Manager of Huayu Automotive Systems (Shanghai) Co. Ltd. (华域汽车系统(上海)有限公司) during the period from May 2014 to May 2015 and the Deputy General Manager of the Finance Affairs Department of SAIC Motor Corporation Limited from May 2015 to August 2019.Mr. Xu Zhengjun is an External Supervisor of the Bank. Mr. Xu obtained a master’s degree in Maritime Transportation Management from Shanghai Maritime University and is a senior political engineer. He is currently an Independent Director of China Merchants Life Insurance Company Limited and concurrently the Director of Shanghai Dongsheng Public Welfare Foundation. He previously served as the Section Chief and the Department Head of Shanghai Ocean Shipping Co. Ltd. the General Manager of the crew company and land property company of COSCO Container Lines Co. Ltd. the Assistant to General Manager of COSCO Container Lines Co. Ltd. the General Manager of Shanghai Ocean Shipping Co.Ltd. the Secretary of the Disciplinary Committee of COSCO Container Lines Co. Ltd. the General Manager of COSCO (HK) Industry & Trade Holdings Ltd. the Vice Chairman of Shenzhen Guangju Energy Co. Ltd. (a company listed on Shenzhen Stock Exchange) the Vice President and General Counsel of COSCO (Hong Kong) Group Limited and the Director of True Smart International Limited the General Manager and Executive Director of COSCO International Holdings Limited the Chairman of the Corporate Governance Committee of COSCO International and the Independent Director of Sinotrans Shipping Limited.– 194 –Mr. Cai Hongping is an External Supervisor of the Bank. He obtained a bachelor’s degree in Journalism from Fudan University. He is the Chairman of AGIC Capital and concurrently serves as an Independent Director of Shanghai Pudong Development Bank Co. Ltd. (a company listed on Shanghai Stock Exchange) BYD Company Limited (a company listed on Shenzhen Stock Exchange and the Hong Kong Stock Exchange) and China Southern Airlines Company Limited (a company listed on Shanghai Stock Exchange and the Hong Kong Stock Exchange) and was an Independent Director of China Oceanwide Holdings Limited (a company listed on the Hong Kong Stock Exchange) COSCO SHIPPING Development Co. Ltd. (a company listed on Shanghai Stock Exchange and the Hong Kong Stock Exchange) and China Eastern Airlines Corporation Ltd. (a company listed on Shanghai Stock Exchange and the Hong Kong Stock Exchange). From 1996 to 1997 Mr. Cai Hongping served as the Senior Vice President and Managing Director of Peregrine Investments Holdings Limited. He served as the Chairman of China of BNP Paribas Capital (Asia Pacific) Limited from 1998 to 2005 and served as the Chairman of UBS AG in Asia from 2006 to 2010 and served as the Executive Chairman of Investment Banking Asia Pacific of Deutsche Bank from 2010 to 2015.Mr. Zhang Xiang is an External Supervisor of the Bank. He obtained a doctoral degree in Mechanical Engineering from the University of California Berkeley and a master’s degree from the Department of Physics of Nanjing University. He is an elected member of the US National Academy of Engineering a foreign member of the Chinese Academy of Sciences an elected member of the Academia Sinica and the President of the University of Hong Kong. Mr. Zhang was the inaugural Ernest S. Kuh Endowed Chair Professor at the University of California Berkeley and the Director of the US National Science Foundation Nano-scale Science and Engineering Centre. He was an assistant professor at Pennsylvania State University in 1996 an associate professor and professor at the University of California Los Angeles from 1999 to 2004 an associate professor and professor at the Mechanical Engineering Department and the Institute of Applied Science and Technology of the University of California Berkeley from 2004 to 2018 and a director of Materials Science Division at the Lawrence Berkeley National Laboratory from 2014 to 2016. Ms. Cai Jin is an Employee Supervisor of the Bank. Ms. Cai obtained a bachelor’s degree in Finance from Hunan University of Finance and Economics. She is an economist. She currently serves as the Inspector of the Head Office of the Bank. In August 1992 she started her career in Shashi Branch of Industrial and Commercial Bank of China in Hubei Province. She joined the Bank in May 1995. She successively served as the Assistant General Manager of the Human Resources Department the Deputy General Manager of the Banking Department of the Head Office the Deputy General Manager of the Asset Custody Department of the Head Office and the Director of the Labour Union of the Head Office of the Bank from April 2010 to January 2024.Mr. Cao Jian is an Employee Supervisor of the Bank. Mr. Cao obtained a master’s degree in International Finance from the Graduate School of the Financial Research Institute of the People’s Bank of China. He is a nonpracticing member of Chinese Institute of Certified Public Accountants. He currently serves as the General Manager of the Audit Department of the Bank and concurrently serves as the Supervisor of CMB Wealth Management and a Member of the Professional Committee under the Board of Supervisors of China Association for Public Companies. He joined the Bank in August 2003 and successively served as the Assistant General Manager and Deputy General Manager of the Audit Department of the Bank. From November 2021 to March 2023 he served as the General Manager of the Shenzhen division of the Audit Department of the Bank.– 195 –Mr. Yang Sheng is an Employee Supervisor of the Bank. Mr. Yang has obtained a master’s degree in Economics from Renmin University of China and is a senior economist. He is currently the Director of the General Office of Head Office of the Bank. He joined the Bank in July 1998 and successively served as the Assistant General Manager the Deputy General Manager and the General Manager of the Human Resources Department of the Head Office of the Bank from September 2016 to November 2022.SENIOR MANAGEMENT Mr. Wang Liang please refer to Mr. Wang Liang’s biography under the paragraph headed “Directors” above.Mr. Zhao Weipeng is the Secretary of the Party Discipline Committee of the Bank. Mr. Zhao holds a master’s degree in Management and is a senior accountant and a non-practicing member of Chinese Institute of Certified Public Accountants. He successively served as the Manager of Finance Department of China Merchants Shipping and Enterprises Company Limited the Manager of Planning and Finance Department of Hong Kong Ming Wah Shipping Company Limited the Chief Financial Officer Deputy General Manager Secretary of the Party Discipline Committee and Deputy Secretary to the Party Committee of China Merchants Zhangzhou Development Zone Company Limited Secretary of the Party Discipline Committee Deputy Secretary to the Party Committee and Executive Deputy Director of the Management Committee of Zhangzhou China Merchants Economic and Technological Development Zone Secretary to the Party Committee and General Manager of China Merchants Taipingwan Development & Investment Company Limited Deputy General Manager (General Manager Level) of Finance Department (Property Rights Department) of China Merchants Group Ltd. Secretary to the Party committee and General Manager of China Merchants Group Finance Co. Ltd.. He has been the Secretary of the Party Discipline Committee of the Bank since August 2023.Mr. Zhu Jiangtao please refer to Mr. Zhu Jiangtao’s biography under the heading of “Directors” above.Mr. Zhong Desheng is an Executive Vice President of the Bank. He obtained a master’s degree in the History of Foreign Economic Thoughts from Huazhong University of Science and Technology and is a senior economist. He joined the Bank in July 1993 and successively served as an Assistant General Manager and Deputy General Manager of Wuhan Branch the General Manager of International Business Department of the Head Office the General Manager of Trade Finance Department of the Head Office and the General Manager of Offshore Finance Centre of the Head Office the General Manager of Guangzhou Branch the President of the General Office of Corporate Finance of the Head Office the General Manager of the Strategic Customers Department and the Executive Assistant President of the Bank. He has served as an Executive Vice President of the Bank since October 2023 and he concurrently serves as the Chairman of CMB Financial Leasing.Mr. Wang Xiaoqing is an Executive Vice President of the Bank. He obtained a doctoral degree in Political Economics from Fudan University and is an economist. He worked at PICC Asset Management Company Limited from March 2005 to March 2020 and successively served as the Deputy General Manager of Risk Management Department the Deputy General Manager and General Manager of Portfolio Management Department Assistant President and Vice President. In March 2020 he joined the Bank and successively served as the General Manager and the Chairman of China Merchants Fund Management Co. Ltd. and the Executive Assistant President of the Bank. He has served as an Executive Vice President of the Bank since July 2023 and concurrently serves as the General Manager of Shenzhen Branch the Chairman of China Merchants Fund Management Co. Ltd. CIGNA & CMB Life Insurance and CIGNA & CMAM.– 196 –Ms. Wang Ying is an Executive Vice President of the Bank. She obtained a master’s degree in Political Economics from Nanjing University and is an economist. She joined the Bank in January 1997 successively served as the Assistant General Manager and Deputy General Manager of Beijing Branch General Manager of Tianjin Branch General Manager of Shenzhen Branch and the Executive Assistant President of the Bank and has been serving as an Executive Vice President of the Bank since November 2023. Mr. Peng Jiawen is an Executive Vice President the Chief Financial Officer and the Secretary of the Board of Directors of the Bank. He obtained a bachelor’s degree in National Economic Planning from Zhongnan University of Economics and Law and is a senior economist. He joined the Bank in September 2001 and successively served as an Assistant General Manager and Deputy General Manager of the Planning and Finance Department of the Head Office Deputy General Manager and General Manager of the Overall Retail Management Department of the Head Office Deputy General Manager and Vice President of the General Office of Retail Finance of the Head Office and concurrently General Manager of Retail Credit Business Department of the Head Office General Manager of Zhengzhou Branch General Manager of Asset and Liabilities Management Department of the Head Office and the Executive Assistant President of the Bank. He has served as an Executive Vice President of the Bank since November 2023 and concurrently serves as the Chief Financial Officer and the Secretary of the Board of Directors of the Bank.Mr. Lei Caihua is an Executive Assistant President of the Bank. He obtained a bachelor’s degree in Investment Economics from Huazhong University of Science and Technology a master’s degree in National Economics from Zhongnan University of Economics and Law and is an economist. He joined the Bank in July 1995 and successively served as the Deputy General Manager of Corporate Banking Department and concurrently the General Manager of SME Finance Department of the Head Office General Manager of Corporate Finance Product Department of the Head Office General Manager of Strategic Customers Department of the Head Office General Manager of Small Enterprise Finance Department of the Head Office the General Manager of Chongqing Branch Head of Topology Bank Preparatory Team and the General Manager of Shanghai Branch. Since November 2023 he has served as an Executive Assistant President of the Bank and concurrently serves as the General Manager of Shanghai Branch.Mr. Xu Mingjie is an Executive Assistant President of the Bank. He obtained a bachelor’s degree in Engineering from Xi’an Jiaotong University a bachelor’s degree in Economics from Shanghai University of International Business and Economics and is a chartered certified accountant. He joined the Bank in September 1995 and successively served as the Assistant General Manager of Corporate Finance Product Department of the Head Office Assistant General Manager of Investment Banking Department of the Head Office Deputy General Manager of Investment Banking Department of the Head Office General Manager of Credit Approval Department of the Head Office and General Manager of Risk Management Department of the Head Office. Since November 2023 he has served as an Executive Assistant President of the Bank and concurrently serves as the General Manager of Beijing Branch.– 197 –BANKING REGULATION AND SUPERVISION IN THE PRC The banking industry is heavily regulated in the PRC with NFRA and PBOC acting as the principal regulatory authorities. NFRA is primarily responsible for supervising and regulating banking institutions and PBOC as the central bank of the PRC is primarily responsible for formulating and implementing monetary policies. The applicable laws and regulations governing activities in the PRC banking industry consist principally of the Commercial Banking Law the Law of PRC on Supervision and Administration of Banking Sector the PRC PBOC Law and rules and regulations promulgated thereunder. (A) NFRA Functions and Powers NFRA replacing CBIRC in May 2023 is responsible for implementing the policies and decisions of the Central Committee of the Communist Party of China (the “CPC Central Committee”) regarding financial work and according to the Provisions on the Functions Internal Structure and Staffing of the NFRA (《国家金融监督管理总局职能配置、内设机构和人员编制规定》 effective on 29 October 2023) its main responsibilities include to: (1) conduct unified supervision and regulation of the financial industry (excluding the securities sector) in accordance with laws and regulations strengthen institutional supervision conduct supervision functional supervision look-through supervision and on-going supervision and ensure the lawful and stable operation of the financial industry; (2) conduct systematic research regarding issues concerning the reform and opening up as well as effective supervision of the financial industry; participate in the formulation of strategic plans for reform and development of the financial industry; draft relevant laws and regulations on banking insurance and financial holding companies and put forward recommendations for their formulation and revision; and formulate relevant rules and regulations for banking institutions insurance institutions and financial holding companies etc; (3) coordinate work concerning the protection of financial consumers’ rights and interests; formulate development planning establish a sound system and study major issues concerning the protection of financial consumers’ rights and interests to carry out financial consumer education and build complaint handling mechanisms as well as diversified dispute resolution mechanisms for financial consumers; (4) conduct authorisation of banking institutions insurance institutions financial holding companies and others in accordance with law and carry out supervision and regulation of these institutions in respect of their corporate governance risk management internal controls capital adequacy solvency business operations information disclosure etc; (5) conduct on-site examination and off-site surveillance of banking institutions insurance institutions financial holding companies and others in accordance with law; and carry out risk and compliance assessment of these institutions investigate and impose administrative penalties over violations; (6) prepare regulatory data statements of banking institutions insurance institutions financial holding companies and others on a consolidated basis and release these information in accordance with relevant provisions; fulfil the responsibilities concerning comprehensive statistics of the financial industry; – 198 –(7) carry out technology supervision of banking institutions insurance institutions financial holding companies etc.; establish technology supervisory systems and formulate relevant policies; build up a regulatory big data platform carry out risk monitoring analysis assessment and early warning and make full use of technological means to strengthen supervision and prevent risks; (8) conduct look-through supervision of the banking institutions insurance institutions financial holding companies etc.; formulate rules on equity supervision and review and approve shareholders actual controllers as well as equity changes in accordance with law; and carry out investigation on shareholders actual controllers persons acting in concert and ultimate beneficiaries according to law and take relevant measures or impose penalties on violations of laws and regulations; (9) set up financial inspection and oversight systems outside of the fields of currency payment credit reporting anti-money laundering foreign exchange securities and futures; set up mechanisms connecting the administrative law enforcement with criminal justice and investigate collect evidence on and deal with related subjects of violations or illegal financial activities and transfer those suspected of committing a crime to judicial organs; (10) establish recovery and resolution mechanisms of banking institutions insurance institutions financial holding companies etc.; study and put forward recommendations on the recovery and resolution of financial institutions in collaboration with relevant departments and organise their implementation; (11) take the lead in cracking down on illegal financial activities organise the establishment of monitoring and early warning system on illegal financial activities coordinate guide and urge relevant departments and local governments to carry out work to prevent and deal with illegal financial activities according to law; study and put forward relevant suggestions on cross- sector and cross-region illegal financial activities and those involving new products and new types of business and organise their implementation as required; (12) establish a local financial supervision system as required which is mainly based on local offices directly under the central financial authorities; guide and oversee the local financial supervisory work and guide and coordinate local governments to fulfil their respective jurisdictional responsibility in resolving related financial risks; (13) supervise the outsourcing of information technology as well as other cooperating activities of banking institutions insurance institutions financial holding companies and other supervised entities with information technology service agencies and other intermediaries; conduct investigation over violations of laws and regulations in accordance with law and take relevant measures against financial institutions; (14) participate in the regulatory and rule-making work of international financial organisations and international regulatory standard-setting bodies; carry out overseas exchanges and international cooperation work; and (15) implement other tasks assigned by the CPC Central Committee and the State Council. – 199 –(B) EXAMINATION AND SUPERVISION NFRA through its head office in Beijing and offices across the PRC monitors the operations of commercial banks and their branches through on-site inspections and off-site surveillance. On-site inspections generally include inspecting the banks’ premises interviewing bank employees senior management and directors as well as reviewing documents and materials maintained by the banks.NFRA also conducts off-site surveillance by reviewing financial and other reports regularly submitted by the banks and monitoring banks’ business activities and risk exposure status to evaluate and analyse the operational risk of the banks. If a banking institution is not in compliance with a regulation NFRA has the power to issue corrective and punitive measures including imposition of fines suspension of certain business activities restrictions on distributions of dividends and asset transfers suspension of new branches opening and other penalties. (C) PBOC As the central bank of the PRC PBOC is responsible for formulating and implementing monetary policies and maintaining the stability of the financial markets. According to the PRC PBOC Law (《中华人民共和国中国人民银行法》) (as last amended in 2003) PBOC is empowered to: (1) formulate and implement monetary policies in accordance with the laws; (2) issue Renminbi the currency of the PRC and regulate the flow of Renminbi; (3) regulate the inter-bank lending market and inter-bank bond market; (4) implement foreign exchange controls and regulate inter-bank foreign exchange market; (5) regulate the gold market; (6) hold administer and manage the PRC’s foreign exchange reserves and gold reserves; (7) manage the state treasury; (8) maintain the normal operation of payment and settlement systems; and (9) guide and supervise anti-money laundering efforts of financial institutions and monitor fund transfers to ensure that such transfers are in compliance with anti-money laundering regulations. (D) OTHER REGULATORY AUTHORITIES In addition to NFRA and PBOC commercial banks in the PRC are also subject to the supervision and regulation by other regulatory authorities including but not limited to the Ministry of Commerce of the People’s Republic of China (the “MOFCOM”) the NDRC and the SAFE.– 200 –(E) REGULATIONS REGARDING CAPITAL ADEQUACY On 26 October 2023 the NFRA promulgated the New Capital Regulation which became effective on 1 January 2024 and abolished the Capital Regulation issued in June 2012. The New Capital Regulation set out minimum capital adequacy ratio (the “CAR”) requirements for commercial banks and provide detailed guidelines on the calculation of “capital” and “risk-weighted assets”.Commercial banks in the PRC are required to have a CAR of not less than 8% Tier 1 CAR of not less than 6% and Common Equity Tier 1 CAR of not less than 5%. The CARs are calculated in accordance with the New Capital Regulation as follows: (Total Capital ? deductions from corresponding capital instruments) Capital Adequacy Ratio = × 100% (Risk weighted Assets) (Tier 1 Capital ? deductions from corresponding capital instruments) Tier 1 Capital Adequacy Ratio = × 100% (Risk weighted Assets) (Core Tier 1 Capital ? deductions from corresponding capital instruments) Core Tier 1 Capital Adequacy Ratio = × 100% (Risk weighted Assets) Further details regarding the basic principles of such calculations can be obtained at the official website of the NFRA.The contents of this website do not form a part of this Offering Circular.On 22 November 2019 the former CBIRC released the Guiding Opinions on the Innovation in CapitalInstruments by Commercial Banks (Revision) the Guiding Opinions (《关于商业银行资本工具创新的指导意见(修订)》) (the “New Guiding Opinions”) which abolished the Guiding Opinions issued on 29 November 2012. Pursuant to the New Guiding Opinions Additional Tier 1 Capital instruments and tier 2 capital instruments issued by a commercial bank must contain a provision that requires such instruments to be either written off or converted into common stock upon the occurrence of a triggering event. A going-concern trigger event occurs when the Core Tier 1 Capital Adequacy Ratio of the commercial bank falls to 5.125% or below. An unable-to-survive trigger event occurs upon the earlier of: (i) a decision of write-off or share conversion without which the commercial bank would become non-viable as determined by the former CBIRC; or (ii) a decision to make a public sector injection of capital or equivalent support without which the commercial bank would have become non-viable as determined by relevant authorities.On 3 April 2014 the CBRC and CSRC promulgated the Guiding Opinions of the China Banking Regulatory Commission and China Securities Regulatory Commission on the Issuance of PreferenceShares by Commercial Banks to Replenish Tier-one Capital (《中国银监会、中国证监会关于商业银行发行优先股补充一级资本的指导意见》) which was amended on 19 July 2019 the commercial banks issuing preference shares shall comply with relevant regulations promulgated by the State Council and CSRC and the requirements of capital instruments released by CBIRC and the Core Tier 1 Capital Adequacy Ratio shall comply with the prudential regulation principles formulated by CBIRC. The commercial banks issuing preference shares to supplement tier 1 capital shall comply with the criteria of the Additional Tier 1 Capital instruments under the Capital Regulation and the Guiding Opinions and shall not issue the preference shares with put provisions.– 201 –TAXATION The following summary of certain PRC Hong Kong and EU tax consequences of the purchase ownership and disposal of the Notes is based upon applicable laws regulations rulings and decisions in effect as at the date of this Offering Circular all of which are subject to change (possibly with retroactive effect).This discussion does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase own or dispose of the Notes and does not purport to deal with consequences applicable to all categories of investors some of which may be subject to special rules.Neither these statements nor any other statements in this Offering Circular are to be regarded as advice on the tax position of any holder of the Notes or any persons acquiring selling or otherwise dealing in the Notes or on any tax implications arising from the acquisition sale or other dealings in respect of the Notes. Persons considering the purchase of the Notes should consult their own tax advisers concerning the possible tax consequences of buying holding or selling any Notes under the laws of their country of citizenship residence or domicile.PRC TAXATION According to the PRC Enterprise Income Tax Law (《中华人民共和国企业所得税法》) and the relevant implementation rules non-PRC resident enterprises with no establishment or place of business within the PRC and such although with establishment or place of business within the PRC gaining the income derived from or accrued in the PRC of no de facto relationship with its establishment or place of business will not be subject to the PRC income tax in respect of the interest income determined as income sourced outside the PRC by PRC tax authority. If the interest income is determined by the relevant PRC tax authority as income sourced within the PRC non-PRC resident enterprises with no establishment or place of business within the PRC and such although with establishment or place of business within the PRC gaining the income derived from or accrued in the PRC of no de facto relationship with its establishment or place of business will be subject to income tax at 10% of the gross amount of the interest unless there is an applicable tax treaty between the PRC and the jurisdiction in which the holders reside that reducesor exempts such PRC income tax. However pursuant to the PRC Individual Income Tax Law (《中华人民共和国个人所得税法》) and the relevant implementation rules it remains uncertain as to whether non-PRC resident individuals shall be subject to the PRC income tax in respect of the interest income from the Notes. Any individual who has a domicile within the PRC or has no domicile but has stayed in the PRC for 183 days or more cumulatively within a tax year shall pay the income tax at 20% for any income sourced within and outside the PRC and any individual who has no domicile in the PRC and has stayed in the PRC for less than 183 days cumulatively within a tax year shall pay the income tax at 20% for any income sourced in the PRC unless otherwise provided in preferential taxation policies under special taxation arrangements. In addition the tax so charged on the interest paid on the Notes to non-PRC holders which or who are residents of Hong Kong (including enterprises and individuals) for purposes of the avoidance of double taxation arrangement between the PRC and Hong Kong will be 7% of the gross amount of the interest pursuant to the arrangement between the PRC and Hong Kong if the non-PRC holders of the Notes are considered to be beneficial owners of the interest provided that the gains are not deemed as incurred or set mainly for obtaining such preferential taxation arrangement. In the event that the Bank or other domestic Issuers pay the interest on the Notes the Bank or such domestic Issuers will be subject to the withheld PRC income tax on the payment of the interest on the Notes to the holders of the Notes as the Bank or such domestic Issuers are established within the territory of the PRC.According to the Circular of Full Implementation of Business Tax to VAT Reform (Caishui [2016] No. 36 “Circular 36”) promulgated by the Ministry of Finance and the State Administration of Taxation (the “SAT”) on 23 March 2016 business tax was replaced by VAT from 1 May 2016. Since then the income derived from the provision of financial services which attracted business tax will be entirely replaced by and subject to VAT.– 202 –According to Circular 36 the entities and individuals providing the services within the PRC shall be subject to VAT. The services are treated as being provided within the PRC where either the service provider or the service recipient is located in the PRC but where the services are sold by offshore entities or individuals to onshore entities or individuals and such services purely take place outside the PRC they should not be deemed as services sold within the territory of the PRC. The services subject to VAT include the provision of financial services such as the provision of loans. It is further clarified under Circular 36 that the “loans” refers to the activity of lending capital for another’s use and receiving the interest income thereon. Based on the definition of “loans” under Circular 36 the issuance of Notes by a PRC issuer is likely to be treated as the holders of the Notes providing loans to such PRC issuer.In the event that the Issuer is the Bank In the event that the Issuer is the Bank the Bank will be subject to withholding PRC income tax on the payment of interest of the Notes to non-resident Noteholders. The current rates of such income tax are 20% (for non-resident individuals) and 10% (for non-resident enterprises) of the gross amount of the interest in each case unless a lower rate is available under an applicable tax treaty. For example the tax so charged on interests paid on the Notes to non-resident Noteholders who or which are residents of Hong Kong (including enterprise holders and individual holders) as defined under the arrangement between the PRC and Hong Kong for purpose of the avoidance of double taxation will be 7% of the gross amount of the interest pursuant to such arrangement. Further given that the Bank is located in the PRC the holders of the Notes would be regarded as providing the financial services within the PRC and consequently the holders of the Notes shall be subject to VAT at the rate of 6% when receiving the interest payments under the Notes. In addition the holders of the Notes shall be subject to the local levies. Given that the Issuer pays interest income to Noteholders who are located outside of the PRC the Issuer acting as the obligatory withholder in accordance with applicable law shall withhold VAT and local levies from the payment of interest income to Noteholders who are located outside of the PRC. The Issuer has agreed to pay additional amounts to holders of the Notes so that holders of the Notes would receive the full amount of the scheduled payment as further set out in the “Terms and Conditions of the Notes”.Under the PRC Enterprise Income Tax Law and its implementation rules any gains realised on the transfer of the Notes by holders who are deemed as non-resident enterprises may be subject to PRC enterprise income tax if such gains are regarded as income derived from sources within the PRC. There remains uncertainty as to whether the gains realised on the transfer of the Notes would be treated as incomes derived from sources within the PRC and be subject to PRC enterprise income tax. If such gains are subject to PRC income tax the 10% enterprise income tax rate and 20% individual income tax rate will apply respectively unless there is an applicable tax treaty or arrangement that reduces or exempts such income tax. The taxable income will be the balance of the total income obtained from the transfer of the Notes minus all costs and expenses that are permitted under PRC tax laws to be deducted from the income.In the event that the Issuer is the Bank’s Overseas Branches In the event that the Issuer is an overseas branch of the Bank the Issuer is not obliged to withhold PRC income tax at the rate up to 10% (for non-resident enterprises) or 20% (for non-resident individuals) on the payments of interest made by it to non-resident Noteholders provided that the payments are made outside of the territory of PRC and the Issuer is not held to be a PRC tax resident enterprise by PRC tax authorities. However this is subject to the interpretation by the PRC tax authorities. If the PRC tax authorities take an interpretation that the Issuer is a PRC tax resident or the interest on the Notes payable by the Issuer is treated as income sourced from the PRC a withholding tax may be imposed on such interest and the Issuer will pay additional amounts to holders of the Notes so that holders of the Noteswould receive the full amount of the scheduled payment as further set out in the “Terms and Conditions– 203 –of the Notes”. In the case of issuance of Notes by an overseas branch of the Bank Circular 36 is unlikely to apply if the provision of loans by individuals or entities located outside the PRC takes place outside the PRC but there is uncertainty as to the applicability of VAT as this will depend on how the PRC tax authorities interpret apply or enforce the Circular 36 and its implementation rules. If the Bank shall perform the obligation of paying interest of the Notes in the event and only when the Issuer fails to perform its obligations of paying the interest of the Notes the Bank will be obliged to withhold PRC income tax at a rate of 10% (for non-resident enterprises) or 20% (for non-resident individuals) (unless a lower rate is available under an applicable tax treaty) and if the holders of the Notes are regarded as providing the financial services within the PRC PRC VAT and local levies.Non-resident Noteholders will not be subject to the PRC tax on any capital gains derived from a sale or exchange of Notes consummated outside the PRC between non-resident Noteholders except however if such capital gains are determined as income sourced in the PRC accordingly such capital gains would be subject to the rate of 10% (for non-resident enterprises) or 20% (for non-resident individuals) of PRC withholding tax unless there is a lower tax rate applicable. There is uncertainty as to whether gains realised on the transfer of the Notes by individual holders who are not PRC citizens or residents will be treated as income sourced within the PRC which as a result will be subject to PRC individual income tax.Where a Noteholder who is an entity or individual located outside of the PRC resells the Notes to an entity or individual located outside of the PRC and derives any gain since neither the service provider nor the service recipient is located in the PRC theoretically VAT prescribed under Circular 36 does not apply and the Issuer does not have the obligation to withhold the VAT or the local levies. However there is uncertainty as to the applicability of VAT if either the seller or buyer of Notes is located inside the PRC.Circular 36 has been issued quite recently the above statements on VAT may be subject to further change upon the issuance of further clarification rules and/or different interpretation by the competent tax authority. There is uncertainty as to the application of Circular 36. Pursuant to the PRC Enterprise Income Tax Law and the VAT reform detailed above the Issuer shall withhold enterprise income tax (if applicable) from the payments of interest in respect of the Notes for any non-PRC Noteholder and the Issuer shall withhold VAT (should such tax apply) from the payments of interest in respect of the Notes for any Noteholders located outside of the PRC. However in the event that the Issuer is required to make such a deduction or withholding (whether by way of enterprise income tax or VAT otherwise) the Issuer has agreed to pay such additional amounts as will result in receipt by the Noteholders of such amounts after such withholding or deduction as would have been received by them had no such withholding or deduction been required. For more information see “Terms and Conditions of the Notes – Condition 8 (Taxation)”.No PRC stamp duty will be chargeable upon the issue or transfer (for so long as the register of Noteholders is maintained outside the PRC) of a Note.HONG KONG Withholding tax No withholding tax is payable in Hong Kong in respect of payments of principal or interest on the Notes or in respect of any capital gains arising from the sale of the Notes.Profits tax Hong Kong profits tax is chargeable on every person carrying on a trade profession or business in Hong Kong in respect of profits arising in or derived from Hong Kong from such trade profession or business (excluding profits arising from the sale of capital assets).– 204 –Interest on the Notes may be deemed to be profits arising in or derived from Hong Kong from a trade profession or business carried on in Hong Kong in the following circumstances: (a) interest on the Notes is derived from Hong Kong and is received by or accrues to a corporation carrying on a trade profession or business in Hong Kong; (b) interest on the Notes is derived from Hong Kong and is received by or accrues to a person other than a corporation carrying on a trade profession or business in Hong Kong and is in respect of the funds of that trade profession or business; (c) interest on the Notes is received by or accrues to a financial institution (as defined in the Inland Revenue Ordinance (Cap. 112) of Hong Kong (the “IRO”)) and arises through or from the carrying on by the financial institution of its business in Hong Kong; or (d) interest on the Notes is received by or accrues to a corporation other than a financial institution and arises through or from the carrying on in Hong Kong by the corporation of its intra-group financing business (within the meaning of section 16(3) of the IRO).Pursuant to the Exemption from Profits Tax (Interest Income) Order interest income accruing to a person other than a financial institution on deposits (denominated in any currency and whether or not the deposit is evidenced by a certificate of deposit) placed with inter alia an authorised institution in Hong Kong (within the meaning of section 2 of the Banking Ordinance (Cap. 155) of Hong Kong) is exempt from the payment of Hong Kong profits tax. This exemption does not apply however to deposits that are used to secure or guarantee money borrowed in certain circumstances. Based on the definition of “deposit” in the Banking Ordinance (Cap. 155) of Hong Kong and provided no prospectus involving the issue of the Notes is registered under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the “C(WUMP)O”) the issue of the Notes by the Bank is likely to constitute a deposit to which the above exemption from payment will apply.Sums received by or accrued to a financial institution by way of gains or profits arising through or from the carrying on by the financial institution of its business in Hong Kong from the sale disposal or redemption of Notes will be subject to Hong Kong profits tax. Sums received by or accrued to a corporation other than a financial institution by way of gains or profits arising through or from the carrying on in Hong Kong by the corporation of its intra-group financing business (within the meaning of section 16(3) of the IRO) from the sale disposal or other redemption of Notes will be subject to Hong Kong profits tax.Sums derived from the sale disposal or redemption of Notes will be subject to Hong Kong profits tax where received by or accrued to a person other than a financial institution who carries on a trade profession or business in Hong Kong and the sum has a Hong Kong source unless otherwise exempted.The source of such sums will generally be determined by having regard to the manner in which the Notes are acquired and disposed of.In addition with effect from 1 January 2024 pursuant to various foreign-sourced income exemption legislation in Hong Kong (the “FSIE Amendments”) certain specified foreign-sourced income (including interest dividend disposal gain or intellectual property income in each case arising in or derived from a territory outside Hong Kong) accrued to an MNE entity (as defined in the FISE Amendments carrying on a trade profession or business in Hong Kong is regarded as arising in or derived from Hong Kong and subject to Hong Kong profits tax when it is received in Hong Kong. The FISE Amendments also provide for relief against double taxation in respect of certain foreign-sourced income and transitional matters.– 205 –In certain circumstances Hong Kong profits tax exemptions (such as concessionary tax rates) may be available. Investors are advised to consult their own tax advisors to ascertain the applicability of any exemptions to their individual position.Stamp duty Stamp duty will not be payable on the issue of Bearer Notes provided that either: (a) such Bearer Notes are denominated in a currency other than the currency of Hong Kong and are not repayable in any circumstances in the currency of Hong Kong; or (b) such Bearer Notes constitute loan capital (as defined in the Stamp Duty Ordinance (Cap. 117) of Hong Kong) (the “SDO”).If stamp duty is payable it is payable by the Issuer on the issue of Bearer Notes at a rate of 3% of the market value of the Bearer Notes at the time of issue. No stamp duty will be payable on any subsequent transfer of Bearer Notes.No stamp duty is payable on the issue of Registered Notes. Stamp duty may be payable on any transfer of Registered Notes if the relevant transfer is required to be registered in Hong Kong. Stamp duty will however not be payable on any transfer of Registered Notes provided that either: (a) such Registered Notes are denominated in a currency other than the currency of Hong Kong and are not repayable in any circumstances in the currency of Hong Kong; or (b) such Registered Notes constitute loan capital (as defined in the SDO).With effect from 17 November 2023 if stamp duty applies to the transfer of Registered Notes required to be registered in Hong Kong and which are not otherwise exempt it will be payable at the rate of 0.2% (of which 0.1% is payable by the seller and 0.1% is payable by the purchaser) normally by reference to the consideration or its value whichever is higher. In addition stamp duty is payable at the fixed rate of HK$5.00 on each instrument of transfer executed in relation to any transfer of the Registered Notes if the relevant transfer is required to be registered in Hong Kong.FATCA Withholding Pursuant to certain provisions of the U.S. Internal Revenue Code of 1986 commonly known as FATCA a foreign financial institution (as defined by FATCA) may be required to withhold on certain payments it makes (“foreign passthru payments”) to persons that fail to meet certain certification reporting or related requirements. The Issuer may be a foreign financial institution for these purposes. A number of jurisdictions (including the People’s Republic of China) have entered into or have agreed in substance to intergovernmental agreements with the United States to implement FATCA (“IGAs”) which modify the way in which FATCA applies in their jurisdictions. Under the provisions of IGAs as currently in effect a foreign financial institution in an IGA jurisdiction would generally not be required to withhold under FATCA or an IGA from payments that it makes. Certain aspects of the application of the FATCA provisions and IGAs to instruments such as the Notes including whether withholding would ever be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Notes are uncertain and may be subject to change. Even if withholding would be required pursuant to FATCA or an IGA with respect to payments on instruments such as the Notes such withholding would not apply prior to the date that is two years after the date on which final regulations defining foreign passthru payments are published – 206 –in the U.S. Federal Register and Notes characterised as debt (or which are not otherwise characterised as equity and have a fixed term) for U.S. federal tax purposes that are issued on or prior to the date that is six months after the date on which final regulations defining “foreign passthru payments” are filed with the U.S. Federal Register generally would be “grandfathered” for purposes of FATCA withholding unless materially modified after such date (including by reason of a substitution of the Issuer). However if additional Notes (as described under “Terms and Conditions of the Notes – Further Issues”) that are not distinguishable from previously issued Notes are issued after the expiration of the grandfathering period and are subject to withholding under FATCA then withholding agents may treat all Notes including the Notes offered prior to the expiration of the grandfathering period as subject to withholding under FATCA.Holders should consult their own tax advisers regarding how these rules may apply to their investment in Notes.– 207 –PRC CURRENCY CONTROLS REMITTANCE OF RENMINBI INTO AND OUTSIDE THE PRC The Renminbi is not a freely convertible currency. The remittance of Renminbi into and outside the PRC is subject to controls imposed under PRC law.Current Account Items Under PRC foreign exchange control regulations current account item payments include payments for imports and exports of goods and services payments of income and current transfers into and outside the PRC.Prior to July 2009 all current account items were required to be settled in foreign currencies. In July 2009 the PRC government promulgated Measures for the Administration of the Pilot Program of Renminbi Settlement of Cross-Border Trades (《跨境贸易人民币结算试点管理办法》) (the “Measures”) and its implementation rules pursuant to which designated and eligible enterprises are allowed to settle their cross-border trade transactions in Renminbi. Since July 2009 subject to the Measures and its implementation rules the PRC has commenced a scheme pursuant to which Renminbi may be used for settlement of cross-border trade between approved pilot enterprises in five designated cities in the PRC including Shanghai Guangzhou Dongguan Shenzhen and Zhuhai and enterprises in designated offshore jurisdictions including Hong Kong and Macau. On 17 June 2010 the PRC government promulgated the Circular on Issues concerning the Expansion of the Scope of the Pilot Program of Renminbi Settlement of Cross-Border Trades (《关于扩大跨境贸易人民币结算试点有关问题的通知》) pursuant to which (i) the list of designated pilot districts was expanded to cover 20 provinces including Beijing Shanghai Tianjin Chongqing Guangdong Jiangsu Zhejiang Liaoning Shandong and Sichuan and (ii) the restriction on designated offshore districts was lifted. Accordingly any enterprises in the designated pilot districts and offshore enterprises are entitled to use Renminbi to settle any current account items between them (except in the case of payments for exports of goods from the PRC such Renminbi remittance may only be effected by approved pilot enterprises in 16 provinces within the designated pilot districts in the PRC). On 27 July 2011 the PRC government promulgated the Circular on the Expansion of the Regions of Renminbi Settlement of Cross-Border Trades (《关于扩大跨境贸易人民币结算地区的通知》) pursuant to which the list of designated pilot districts was expanded to the whole country. On 3 February 2012 the PRC government promulgated the Circular on the Relevant Issues Pertaining to Administrationover Enterprises Engaging in RMB Settlement of Export of Goods (《关于出口货物贸易人民币结算企业管理有关问题的通知》) pursuant to which any enterprises in China which are qualified to engage in import and export trade are allowed to settle their goods export trade in Renminbi. On 29 April 2019 theSAFE issued Administrative Measures for the Foreign Exchange Service of Payment Institutions (《支付机构外汇业务管理办法》) which facilitates domestic institutions and individuals to carry out e-commerce trade through the internet standardises the cross-border foreign exchange payment services provided by payment institutions and prevents the risk of cross-border capital flows through the internet channel.The Measures and the subsequent circulars will be subject to interpretation and application by the relevant PRC authorities. Local authorities may adopt different practices in applying the Measures and impose conditions for settlement of current account items.Capital Account Items Under PRC foreign exchange control regulations capital account items include cross-border transfers of capital direct investments securities investments derivative products and loans. Capital account payments are generally subject to approval of and/or registration or filling with the relevant PRC authorities.– 208 –Capital account items are generally required to be made in foreign currencies. For instance foreign investors (including any Hong Kong investors) are generally required to make any capital contribution to foreign invested enterprises in a foreign currency in accordance with the terms set out in the relevant joint venture contracts and/or articles of association as approved by the relevant authorities. Foreign invested enterprises or any other relevant PRC parties are also generally required to make capital account item payments including proceeds from liquidation transfer of shares reduction of capital and principal repayment under foreign debt to foreign investors in a foreign currency. That said the relevant PRC authorities may approve a foreign entity to make a capital contribution or shareholder’s loan to a foreign invested enterprise with Renminbi lawfully obtained by it outside the PRC and for the foreign invested enterprise to service interest and principal repayment to its foreign investor outside the PRC in Renminbi on a trial basis. The foreign invested enterprise may also be required to complete registration and verification process with the relevant PRC authorities before such Renminbi remittances.On 3 December 2013 the MOFCOM promulgated the Circular on Issues in relation to Cross-borderRenminbi Foreign Direct Investment (《关于跨境人民币直接投资有关问题的公告》) (the “MOFCOMRMB FDI Circular”) which became effective on 1 January 2014. Pursuant to the MOFCOM RMB FDI Circular the proceeds from foreign direct investment in Renminbi may not be used towards investment in securities financial derivatives or entrustment loans in the PRC except for investment in PRC domestic listed companies under the PRC strategic investment regime with the approval of the MOFCOM pursuantto the Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies (《外国投资者对上市公司战略投资管理办法》).On 3 June 2011 the PBOC promulgated the Circular on Clarifying Issues concerning Cross-borderRenminbi Settlement (《中国人民银行关于明确跨境人民币业务相关问题的通知》) (the “PBOCCircular”). The PBOC Circular provides instructions to local PBOC authorities on procedures for the approval of settlement activities for non-financial Renminbi foreign direct investment into the PRC. The PBOC Circular applies to all non-financial Renminbi foreign direct investment into the PRC and includes investment by way of establishing a new enterprise acquiring an onshore enterprise transferring the shares increasing the registered capital of an existing enterprise or providing loan facilities in Renminbi.The domestic settlement banks of foreign investors or foreign invested enterprises in the PRC are required to submit written applications to the relevant local PBOC authorities which include inter alia requisite approval letters issued by the relevant MOFCOM authorities.On 13 October 2011 the PBOC issued the Measures on Administration of the RMB Settlement in relationto Foreign Direct Investment (《外商直接投资人民币结算业务管理办法》) (the “PBOC RMB FDIMeasures”) and amended it on 5 June 2015 to commence the PBOC’s detailed RMB FDI administration system which covers almost all aspects of RMB FDI including capital injection payment of purchase price in the acquisition of PRC domestic enterprises repatriation of dividends and distribution as well as RMB denominated cross-border loans. Under the PBOC RMB FDI Measures special approval for RMB FDI and shareholder loans from the PBOC which was previously required by the PBOC Circular is no longer necessary. On 14 June 2012 the PBOC further issued the implementing rules for the PBOC RMB FDI Measures (《中国人民银行关于明确外商直接投资人民币结算业务操作细则的通知》) and amended it on 5 June 2015.On 19 November 2012 the SAFE promulgated the Circular on Further Improving and Adjusting theForeign Exchange Administration Policies on Direct Investment (《国家外汇管理局关于进一步改进和调整直接投资外汇管理政策的通知》) (the “SAFE Circular on DI”) which became effective on 17 December 2012 and was amended on 4 May 2015 10 October 2018 and 30 December 2019. According to the SAFE Circular on DI the SAFE removes or adjusts certain administrative licensing items with regard to foreign exchange administration over direct investments to promote investment including but – 209 –not limited to the abrogation of SAFE approval for opening of and payment into foreign exchange accounts under direct investment accounts the abrogation of SAFE approval for reinvestment with legal income generated within China of foreign investors the simplification of the administration of foreign exchange reinvestments by foreign investment companies and the abrogation of SAFE approval for purchase and external payment of foreign exchange under direct investment accounts.On 5 July 2013 the PBOC promulgated the Notice on Simplifying the Procedures of Cross-borderRenminbi Business and Improving Relevant Policies (《关于简化跨境人民币业务流程和完善有关政策的通知》) (the “2013 PBOC Circular”) which simplifies the operating procedures on current account cross-border Renminbi settlement provision of Renminbi outbound loans and Renminbi cross-border security in favour of offshore entities by onshore non-financial institutions and further published policies with respect to bank card related cross-border Renminbi clearing and issuance of offshore Renminbi bonds by onshore non-financial institutions. The 2013 PBOC Circular intends to improve the efficiency of cross-border Renminbi settlement and facilitate the use of cross-border Renminbi settlement by banks and enterprises.There is no assurance that the PRC government will continue to gradually liberalise controls over cross-border Renminbi remittance in the future that the pilot scheme introduced in July 2009 will not be discontinued or that new PRC regulations will not be promulgated in the future which have the effect of restricting or eliminating the remittance of Renminbi into or outside the PRC. In the event that funds cannot be repatriated outside the PRC in Renminbi the Bank will need to source Renminbi offshore to finance its obligations under the Notes and its ability to do so will be subject to the overall availability of Renminbi outside the PRC.– 210 –CLEARANCE AND SETTLEMENT The information set out below is subject to any change in or reinterpretation of the rules regulations and procedures of Euroclear Clearstream or the CMU (together the “Clearing Systems”) currently in effect.The information in this section concerning the Clearing Systems has been obtained from sources that the Issuer believes to be reliable but neither the Issuer nor any Dealer nor the Arrangers take any responsibility for the accuracy thereof. Investors wishing to use the facilities of any of the Clearing Systems are advised to confirm the continued applicability of the rules regulations and procedures of the relevant Clearing System. Neither the Issuer nor any other party to the Agency Agreement will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Notes held through the facilities of any Clearing System or for maintaining supervising or reviewing any records relating to or payments made on account of such beneficial ownership interests.The relevant Pricing Supplement will specify the Clearing System(s) applicable for each Series.THE CLEARING SYSTEMS Euroclear and Clearstream Euroclear and Clearstream each holds securities for participating organisations and facilitates the clearance and settlement of securities transactions between their respective participants through electronic book-entry changes in accounts of such participants. Euroclear and Clearstream provide to their respective participants among other things services for safekeeping administration clearance and settlement of internationally-traded securities and securities lending and borrowing. Euroclear and Clearstream participants are financial institutions throughout the world including underwriters securities brokers and dealers banks trust companies clearing corporations and certain other organisations. Indirect access to Euroclear or Clearstream is also available to others such as banks brokers dealers and trust companies which clear through or maintain a custodial relationship with a Euroclear or Clearstream participant either directly or indirectly.Distributions of principal with respect to book-entry interests in the Notes held through Euroclear or Clearstream will be credited to the extent received by the Paying Agent to the cash accounts of Euroclear or Clearstream participants in accordance with the relevant system’s rules and procedures.CMU The CMU is a central depositary service provided by the Central Moneymarkets Unit of the HKMA for the safe custody and electronic trading between the members of this service (“CMU Members”) of Exchange Fund Bills and Notes Clearing and Settlement Service securities and capital markets instruments (together “CMU Instruments”) which are specified in the CMU Reference Manual as capable of being held within the CMU.The CMU is only available to CMU Instruments issued by a CMU Member or by a person for whom a CMU Member acts as agent for the purposes of lodging instruments issued by such persons. Membership of the CMU is open to all financial institutions regulated by the Hong Kong Monetary Authority Securities and Futures Commission Insurance Authority or Mandatory Provident Fund Schemes Authority. For further details on the full range of the CMU’s custodial services please refer to the CMU Reference Manual.– 211 –The CMU has an income distribution service which is a service offered by the CMU to facilitate the distribution of interest coupon or redemption proceeds (collectively the “income proceeds”) by CMU Members who are paying agents to the legal title holders of CMU Instruments via the CMU system.Furthermore the CMU has a corporate action platform which allows an issuer (or its agent) to make an announcement/notification of a corporate action and noteholders to submit the relevant certification. For further details please refer to the CMU Reference Manual.An investor holding an interest through an account with either Euroclear or Clearstream in any Notes held in the CMU will hold that interest through the respective accounts which Euroclear and Clearstream each have with the CMU.BOOK-ENTRY OWNERSHIP Bearer Notes The Issuer may make applications to Euroclear and/or Clearstream for acceptance in their respective book-entry systems in respect of any Series of Bearer Notes. The Issuer may also apply to have Bearer Notes accepted for clearance through the CMU. In respect of Bearer Notes a Temporary Global Note and/or a Permanent Global Note in bearer form without coupons may be deposited with a common depositary for Euroclear and/or Clearstream a sub-custodian for the CMU or an Alternative Clearing System as agreed between the Issuer and the Dealer. Transfers of interests in such Temporary Global Notes or Permanent Global Notes will be made in accordance with the normal market debt securities operating procedures of the CMU Euroclear and Clearstream or if appropriate the Alternative Clearing System.Registered Notes The Issuer may make applications to Euroclear and/or Clearstream for acceptance in their respective book-entry systems in respect of the Notes to be represented by a Global Certificate. The Issuer may also apply to have Registered Notes to be represented by a Global Certificate accepted for clearance through the CMU. Each Unrestricted Global Certificate will have an International Securities Identification Number (“ISIN”) and a Common Code. Investors in Notes of such Series may hold their interests in a Global Certificate through Euroclear Clearstream or the CMU (if applicable).All Registered Notes will initially be in the form of an Unrestricted Global Certificate and/or a Restricted Global Certificate. Individual Certificates will only be available in the case of Notes initially represented by an Unrestricted Global Certificate in amounts specified in the applicable Pricing Supplement and in the case of Notes initially represented by a Restricted Global Certificate in minimum amounts of U.S.$250000 (or its equivalent rounded upwards as agreed between the Issuer and the relevant Dealer(s)) or higher integral multiples of U.S.$1000 in certain limited circumstances described below.Transfers of Registered Notes Transfers of interests in Global Certificates within Euroclear Clearstream and the CMU be in accordance with the usual rules and operating procedures of the relevant clearing system. The laws of some states in the United States require that certain persons take physical delivery in definitive form of securities.Consequently the ability to transfer interests in a Restricted Global Certificate to such persons may be limited.– 212 –Beneficial interests in a Global Certificate may be held through Euroclear Clearstream or the CMU. In the case of Registered Notes to be cleared through Euroclear or Clearstream transfers may be made at any time by a holder of an interest in an Unrestricted Global Certificate to a transferee who wishes to take delivery of such interest through a Restricted Global Certificate for the same Series of Notes provided that any such transfer made on or prior to the expiration of the distribution compliance period (as used in “Subscription and Sale”) relating to the Notes represented by such Unrestricted Global Certificate will only be made upon receipt by any.Transfer Agent of a written certificate from Euroclear Clearstream as the case may be (based on a written certificate from the transferor of such interest) to the effect that such transfer is being made to a person whom the transferor and any person acting on its behalf reasonably believes is a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States. Any such transfer made thereafter of the Notes represented by such Unrestricted Global Certificate will only be made upon request through Euroclear Clearstream by the holder of an interest in the Unrestricted Global Certificate to the Issuing and Paying Agent of details of that account to be credited with the relevant interest in the Restricted Global Certificate. Transfers at any time by a holder of any interest in the Restricted Global Certificate to a transferee who takes delivery of such interest through an Unrestricted Global Certificate will only be made upon delivery to any Transfer Agent of a certificate setting forth compliance with the provisions of Regulation S and giving details of the account at Euroclear and Clearstream as the case may be to be credited and debited respectively with an interest in each relevant Global Certificate.On or after the Issue Date for any Series transfers of Notes of such Series between accountholders in Euroclear Clearstream will generally have a settlement date three business days after the trade date (T+3).The customary arrangements for delivery versus payment will apply to such transfers.For a further description of restrictions on transfer of Registered Notes see “Transfer Restrictions”.Individual Certificates Registration of title to Registered Notes in a name other than the Hong Kong Monetary Authority or a depositary or its nominee for Clearstream and Euroclear will be permitted only (i) in the case of RestrictedGlobal Certificates in the circumstances set forth in “Summary of Provisions Relating to the Notes whilein Global Form – Exchange – Permanent Global Certificates – Restricted Global Certificates” or (ii) inthe case of Unrestricted Global Certificates in the circumstances set forth in “Summary of ProvisionsRelating to the Notes while in Global Form – Exchange – Permanent Global Certificates – UnrestrictedGlobal Certificates”. In such circumstances the Issuer will cause sufficient individual Certificates to be executed and delivered to the Registrar for completion authentication and despatch to the relevant Noteholder(s). A person having an interest in a Global Certificate must provide the Registrar with: (i) a written order containing instructions and such other information as the Issuer and the Registrar may require to complete execute and deliver such individual Certificates; and (ii) in the case of a Restricted Global Certificate only a fully completed signed certification substantially to the effect that the exchanging holder is not transferring its interest at the time of such exchange or in the case of a simultaneous resale pursuant to Rule 144A a certification that the transfer is being made in compliance with the provisions of Rule 144A. Individual Certificates issued pursuant to this paragraph (ii) shall bear the legends applicable to transfers pursuant to Rule 144A.– 213 –Pre-issue Trades Settlement It is expected that delivery of Notes will be made against payment therefor on the relevant Issue Date which could be more than three business days following the date of pricing. Under Rule 15c6-1 of the Exchange Act trades in the US secondary market generally are required to settle within three business days (“T+3”) unless the parties to any such trade expressly agree otherwise. Accordingly in the event that an Issue Date is more than three business days following the relevant date of pricing purchasers who wish to trade Registered Notes in the United States between the date of pricing and the date that is three business days prior to the relevant Issue Date will be required by virtue of the fact that such Notes initially will settle beyond T+3 to specify an alternative settlement cycle at the time of any such trade to prevent a failed settlement. Settlement procedures in other countries will vary. Purchasers of Notes may be affected by such local settlement practices and in the event that an Issue Date is more than three business days following the relevant date of pricing purchasers of Notes who wish to trade Notes between the date of pricing and the date that is three business days prior to the relevant Issue Date should consult their own adviser.– 214 –SUBSCRIPTION AND SALE DEALER AGREEMENT Subject to the terms and on the conditions contained in a Seventh Amended and Restated Dealer Agreement dated 28 June 2024 (as may be supplemented amended and/or restated from time to time) (the “Dealer Agreement”) between the Bank the Arrangers and the Permanent Dealers the Notes will be offered on a continuous basis by the Issuer to the Permanent Dealers. However the Issuer has reserved the right to sell Notes directly on its own behalf to Dealers that are not Permanent Dealers as at the date of the Dealer Agreement. The Notes may be resold at prevailing market prices or at prices related thereto at the time of such resale as determined by the relevant Dealer. The Notes may also be sold by the Issuer through the Dealers acting as agents of the Issuer. The Dealer Agreement also provides for Notes to be issued in syndicated Tranches that are severally underwritten or subscribed for by two or more Dealers.The Issuer will pay each relevant Dealer a commission as agreed between them in respect of Notes subscribed by it. The Issuer has agreed to reimburse each Arranger for certain of its expenses incurred in connection with the Programme and the Dealers for certain of their activities in connection with the Programme.The Issuer has agreed to indemnify the Dealers against certain liabilities in connection with the offer and sale of the Notes. The Dealer Agreement entitles the Dealers to terminate any agreement that they make to subscribe Notes in certain circumstances prior to payment for such Notes being made to the Issuer.In connection with the issue of any Tranche of Notes the Dealer or Dealers (if any) named as Stabilisation Manager(s) (or persons acting on behalf of any Stabilisation Manager(s)) in the applicable Pricing Supplement may over-allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However stabilisation may not necessarily occur. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Notes is made and if begun may cease at any time but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes. Any stabilisation action or over-allotment must be conducted by the relevant Stabilisation Manager(s) (or person(s) acting on behalf of any Stabilisation Manager(s)) in accordance with all applicable laws and rules.The Arrangers the Dealers or any of their respective affiliates are full service financial institutions engaged in various activities which may include securities trading commercial and investment banking financial advisory investment management principal investment hedging financing and brokerage activities (“Banking Services or Transactions”) and may have performed certain Banking Services or Transactions for the Issuer the Bank and/or their respective affiliates from time to time for which they have received customary fees and expenses and may from time to time perform various Banking Services or Transactions for the Issuer the Bank and/or their respective affiliates in the ordinary course of the Issuer’s or the Bank’s or their business for which they have received and will receive fees and expenses.The Dealers or certain of their respective affiliates may purchase the Notes and be allocated the Notes for asset management and/or proprietary purposes but not with a view to distribution. In particular CMB Wing Lung Bank Limited is a subsidiary of the Bank and China Merchants Securities (HK) Co. Limited is an affiliate of the Bank.If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Dealers or any affiliate of the Dealers is a licensed broker or dealer in that jurisdiction the offering shall be deemed to be made by the Dealers or such affiliate on behalf of the Issuer in such jurisdiction.– 215 –In connection with the offer and sale of the Notes the Issuer the Bank the Arrangers the Dealers and/or their respective affiliates may act as investors and place orders receive allocations and trade the Notes for their own account and such orders allocations or trading of the Notes may be material. Such entities may hold or sell such Notes or purchase further Notes for their own account in the secondary market or deal in any other securities of the Issuer or the Bank and therefore they may offer or sell the Notes or other securities otherwise than in connection with the offering of the Notes. Accordingly references herein to the offering of the Notes should be read as including any offering of the Notes to the Issuer the Bank the Arrangers the Dealers and/or their respective affiliates as investors for their own account. Such entities are not expected to disclose such transactions or the extent of any such investment otherwise than in accordance with any applicable legal or regulatory requirements. If such transactions occur the trading price and liquidity of the Notes may be impacted.Furthermore it is possible that a significant proportion of the Notes may be initially allocated to and subsequently held by a limited number of investors. If this is the case the trading price and liquidity of trading in the Notes may be constrained. The Issuer the Bank the Arrangers and the Dealers are under no obligation to disclose the extent of the distribution of the Notes amongst individual investors otherwise than in accordance with any applicable legal or regulatory requirements.In the ordinary course of their various business activities the Arrangers the Dealers and their respective affiliates make or hold a broad array of investments including proprietary interests in the Issuer or the Bank and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Issuer or the Bank including the Notes and could adversely affect the trading price and liquidity of the Notes. The Arrangers the Dealers and their affiliates may make investment recommendations and/or publish or express independent research views (positive or negative) in respect of the Notes or other financial instruments of the Issuer or the Bank and may recommend to their clients that they acquire long and/or short positions in the Notes or other financial instruments of the Issuer or the Bank.Notice to capital market intermediaries and prospective investors pursuant to paragraph 21 of the Hong Kong SFC Code of Conduct – Important Notice to CMIs (including private banks) This notice to CMIs (including private banks) is a summary of certain obligations the SFC Code imposes on CMIs which require the attention and cooperation of other CMIs (including private banks). Certain CMIs may also be acting as OCs for the relevant CMI Offering and are subject to additional requirements under the SFC Code. The application of these obligations will depend on the role(s) undertaken by the relevant Dealer(s) in respect of each CMI Offering.Prospective investors who are the directors employees or major shareholders of the Issuer a CMI or its group companies would be considered under the SFC Code as having an Association with the Issuer the CMI or the relevant group company. CMIs should specifically disclose whether their investor clients have any Association when submitting orders for the relevant Notes. In addition private banks should take all reasonable steps to identify whether their investor clients may have any Associations with the Issuer or any CMI (including its group companies) and inform the relevant Dealers accordingly.CMIs are informed that unless otherwise notified the marketing and investor targeting strategy for the relevant CMI Offering includes institutional investors sovereign wealth funds pension funds hedge funds family offices and high net worth individuals in each case subject to the selling restrictions and any EU MiFID II product governance language or any UK MiFIR product governance language set out elsewhere in this Offering Circular and/or the applicable Pricing Supplement.– 216 –CMIs should ensure that orders placed are bona fide are not inflated and do not constitute duplicated orders (i.e. two or more corresponding or identical orders placed via two or more CMIs). CMIs should enquire with their investor clients regarding any orders which appear unusual or irregular. CMIs should disclose the identities of all investors when submitting orders for the relevant Notes (except for omnibus orders where underlying investor information may need to be provided to any OCs when submitting orders). Failure to provide underlying investor information for omnibus orders where required to do so may result in that order being rejected. CMIs should not place “X-orders” into the order book.CMIs should segregate and clearly identify their own proprietary orders (and those of their group companies including private banks as the case may be) in the order book and book messages.CMIs (including private banks) should not offer any rebates to prospective investors or pass on any rebates provided by the Issuer. In addition CMIs (including private banks) should not enter into arrangements which may result in prospective investors paying different prices for the relevant Notes. CMIs are informed that a private bank rebate may be payable as stated above and in the applicable Pricing Supplement or otherwise notified to prospective investors.The SFC Code requires that a CMI disclose complete and accurate information in a timely manner on the status of the order book and other relevant information it receives to targeted investors for them to make an informed decision. In order to do this those Dealers in control of the order book should consider disclosing order book updates to all CMIs.When placing an order for the relevant Notes private banks should disclose at the same time if such order is placed other than on a “principal” basis (whereby it is deploying its own balance sheet for onward selling to investors). Private banks who do not provide such disclosure are hereby deemed to be placing their order on such a “principal” basis. Otherwise such order may be considered to be an omnibus order pursuant to the SFC Code. Private banks should be aware that placing an order on a “principal” basis may require the relevant affiliated Manager(s) (if any) to categorise it as a proprietary order and apply the “proprietary orders” requirements of the SFC Code to such order and will result in that private bank not being entitled to and not being paid any rebate.In relation to omnibus orders when submitting such orders CMIs (including private banks) that are subject to the SFC Code should disclose underlying investor information in respect of each order constituting the relevant omnibus order (failure to provide such information may result in that order being rejected). Underlying investor information in relation to omnibus orders should consist of: * The name of each underlying investor; * A unique identification number for each investor; * Whether an underlying investor has any “Associations” (as used in the SFC Code); * Whether any underlying investor order is a “Proprietary Order” (as used in the SFC Code); and * Whether any underlying investor order is a duplicate order.Underlying investor information in relation to omnibus order should be sent to the Dealers named in the relevant Pricing Supplement.– 217 –To the extent information being disclosed by CMIs and investors is personal and/or confidential in nature CMIs (including private banks) agree and warrant: (A) to take appropriate steps to safeguard the transmission of such information to any OCs; and (B) that they have obtained the necessary consents from the underlying investors to disclose such information to any OCs. By submitting an order and providing such information to any OCs each CMI (including private banks) further warrants that they and the underlying investors have understood and consented to the collection disclosure use and transfer of such information by any OCs and/or any other third parties as may be required by the SFC Code including to the Issuer relevant regulators and/or any other third parties as may be required by the SFC Code for the purpose of complying with the SFC Code during the bookbuilding process for the relevant CMI Offering.CMIs that receive such underlying investor information are reminded that such information should be used only for submitting orders in the relevant CMI Offering. The relevant Dealer may be asked to demonstrate compliance with their obligations under the SFC Code and may request other CMIs (including private banks) to provide evidence showing compliance with the obligations above (in particular that the necessary consents have been obtained). In such event other CMIs (including private banks) are required to provide the relevant Dealer with such evidence within the timeline requested.SELLING RESTRICTIONS General The distribution of this Offering Circular or any offering material and the offering sale or delivery of the Notes is restricted by law in certain jurisdictions. Therefore persons who may come into possession of this Offering Circular or any offering material are advised to consult with their own legal advisers as to what restrictions may be applicable to them and to observe such restrictions. This Offering Circular may not be used for the purpose of an offer or invitation in any circumstances in which such offer or invitation is not authorised. No action has been taken or will be taken in any jurisdiction that would permit a public offering of the Notes or possession or distribution of this Offering Circular or any amendment or supplement thereto or any other offering or publicity material relating to the Notes in any country or jurisdiction where action for that purpose is required.United States (1) If the Pricing Supplement for any Notes specifies that the applicable U.S. Selling Restrictions is “Reg. S Category 1” this paragraph shall apply. The Notes have not been and will not be registered under the Securities Act and subject to certain exceptions may not be offered or sold within the United States. The Notes are being offered and sold outside the United States in reliance on Regulation S. (2) This Offering Circular has been prepared by the Issuer for use in connection with the offer and sale of the Notes outside the United States and for the resale of the Notes in the United States. The Issuer and the Dealers reserve the right to reject any offer to purchase the Notes in whole or in part for any reason. This Offering Circular does not constitute an offer to any person in the United States or to any U.S. person other than any QIB to whom an offer has been made directly by one of the Dealers or its U.S. broker-dealer affiliate. Distribution of this Offering Circular by any non-U.S.person outside the United States or by any QIB in the United States to any U.S. person or to any other person within the United States other than any QIB and those persons if any retained to advise such non-U.S. person or QIB with respect thereto is unauthorised and any disclosure without the prior written consent of the Issuer of any of their contents to any such U.S. person or other person within the United States other than any QIB and those persons if any retained to advise such non-U.S.person or QIB is prohibited.– 218 –(3) Unless the Pricing Supplement or the Subscription Agreement relating to one or more Tranches specifies that the applicable TEFRA exemption is either “TEFRA C” or “TEFRA Not Applicable” each Dealer has represented and agreed in relation to each Tranche of Notes in bearer form: (i) except to the extent permitted under the TEFRA D Rules: (a) it has not offered or sold and during a 40-day restricted period shall not offer or sell Notes in bearer form to a person who is within the United States or its possessions or to a United States person; and (b) it has not delivered and shall not deliver within the United States or its possessions definitive Notes in bearer form that are sold during the restricted period; (ii) it has and throughout the restricted period shall have in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling Notes in bearer form are aware that such Notes may not be offered or sold during the restricted period to a person who is within the United States or its possessions or to a United States person except as permitted by the TEFRA D Rules; (iii) if it is a United States person it is acquiring the Notes in bearer form for purposes of resale in connection with their original issuance and if it retains Notes in bearer form for its own account it shall only do so in accordance with the requirements of U.S. Treas. Reg.§1.163-5(c)(2)(i)(D)(6) (or any successor rules in substantially the same form that are applicable for purposes of Section 4701 of the Code); (iv) with respect to each affiliate that acquires from it Notes in bearer form for the purpose of offering or selling such Notes during the restricted period it either (a) repeats and confirms the representations contained in sub-paragraphs (i) (ii) and (iii) on behalf of such affiliate or (b) agrees that it shall obtain from such affiliate for the benefit of the Issuer the representations contained in sub-paragraphs (i) (ii) and (iii); and (v) that it has not and agrees that it will not enter into any written contract (other than a confirmation or other notice of the transaction) pursuant to which any other party to the contract (other than one of its affiliates or another Dealer) has offered or sold or during the restricted period will offer or sell any Notes except where pursuant to the contract the Dealer has obtained or will obtain from that party for the benefit of the Issuer and the several Dealers the representations contained in and that party’s agreement to comply with the provisions of clauses (i) (ii) (iii) and (iv).Terms used in this paragraph have the meanings given to them by the Code and regulations thereunder including the TEFRA D Rules. (4) To the extent that the Pricing Supplement or the Subscription Agreement relating to one or more Tranches of Bearer Notes specifies that the applicable TEFRA exemption is “TEFRA C” under the TEFRA C Rules Notes in bearer form must be issued and delivered outside the United States and its possessions in connection with their original issuance by an issuer that (directly or indirectly through its agents) does not significantly engage in interstate commerce with respect to the issuance.In relation to each such Tranche each Dealer has represented and agreed that it has not offered sold or delivered and shall not offer sell or deliver directly or indirectly Notes in bearer form within the United States or its possessions in connection with their original issuance. Further in connection – 219 –with their original issuance of Notes in bearer form it has not communicated and shall not communicate directly or indirectly with a prospective purchaser if either such purchaser or it is within the United States or its possessions or otherwise involve its U.S. office in the offer or sale of Notes in bearer form. Terms used in this paragraph have the meanings given to them by the U.S.Internal Revenue Code of 1986 and regulations thereunder including the TEFRA C Rules. (5) Each issuance of index- commodity- or currency-linked Notes shall be subject to such additional U.S. selling restrictions as the relevant Dealer(s) shall agree with the Issuer as a term of the issuance and purchase or as the case may be subscription of such Notes. Each relevant Dealer has agreed that it shall offer sell and deliver such Notes only in compliance with such additional U.S. selling restrictions. (6) Pursuant to Rule 15c6-1 under the Exchange Act trades in the secondary market generally are required to settle in two business days unless the parties to any such trade expressly agree otherwise.Accordingly if delivery of any Tranche of Notes will not occur within two business days following the date of pricing purchasers who wish to trade such tranche of Notes on the date of pricing or the next succeeding business day will be required to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of any Tranche of Notes who wish to trade the Notes on the date of pricing or the next succeeding business day should consult their own advisor.If the Pricing Supplement for any Notes specifies that the applicable U.S. Selling Restrictions is either “Reg. S Category 2” or “Reg. S Category 3” the following paragraphs shall apply in lieu of paragraph (1) above. (A) The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to or for the account or benefit of U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act. Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to agree that except as permitted by the Dealer Agreement it has not offered sold or in the case of Notes in Bearer form delivered and will not offer sell or in the case of Notes in Bearer form deliver the Notes of any identifiable Tranche (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the closing date of such Tranche as determined and certified to the Issuer by the Fiscal Agent or in the case of Notes issued on a syndicated basis the lead manager or lead managers within the United States or to or for the account or benefit of U.S. persons and it will have sent to each Dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to or for the account or benefit of U.S.persons. Terms used in this paragraph have the meanings given to them by Regulation S. (B) Notes in bearer form having a maturity of more than one year are subject to U.S. tax law requirements and may not be offered sold or delivered within the United States or its possessions or to a United States person except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986 and regulations thereunder. Restrictions with respect to Notes in bearer form are described further below. (C) The Dealer Agreement provides that the Dealers may directly or through their respective US broker-dealer affiliates arrange for the offer and resale of Registered Notes within the United States only to QIBs in reliance on Rule 144A.– 220 –(D) In addition until 40 days after the commencement of the offering an offer or sale of Notes within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A.European Economic Area Prohibition of Sales to EEA Retail InvestorsUnless the Pricing Supplement in respect of any Notes specifies the “Prohibition of Sales to EEA RetailInvestors” as “Not Applicable” each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not offered sold or otherwise made available and will not offer sell or otherwise make available any Notes which are the subject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement in relation thereto to any retail investor in the EEA. For the purposes of this provision: (a) the expression “retail investor” means a person who is one (or more) of the following: (i) a retail client as defined in point (11) of Article 4(1) of EU MiFID II; or(ii) a customer within the meaning of Directive (EU) 2016/97 (as amended the “InsuranceDistribution Directive”) where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of EU MiFID II; or(iii) not a qualified investor as defined in Regulation (EU) 2017/1129 (as amended the “ProspectusRegulation”); and (b) the expression an “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes.Public Offer Selling Restrictions under the Prospectus RegulationIf the Pricing Supplement in respect of any Notes specifies “Prohibition of Sales to EEA RetailInvestors” as “Not Applicable” in relation to each Member State of the EEA each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not made and will not make an offer of Notes which are the subject of the offering contemplated by this Offering Circular as completed by the Final Terms in relation thereto to the public in that Member State except that it may make an offer of such Notes to the public in that Member State: (i) if the final terms in relation to the Notes specify that an offer of those Notes may be made other than pursuant to Article 1(4) of the Prospectus Regulation in that Member State (a “Non-exempt Offer”) following the date of publication of a prospectus in relation to such Notes which has been approved by the competent authority in that Member State or where appropriate approved in another Member State and notified to the competent authority in that Member State provided that any such prospectus has subsequently been completed by the final terms contemplating such Non-exempt Offer in accordance with the Prospectus Regulation in the period beginning and ending on the dates specified in such prospectus or final terms as applicable and the Issuer has consented in writing to its use for the purpose of that Non-exempt Offer; (ii) at any time to any legal entity which is a qualified investor as defined in the Prospectus Regulation; – 221 –(iii) at any time to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Regulation) subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or (iv) at any time in any other circumstances falling within Article 1(4) of the Prospectus Regulation provided that no such offer of Notes referred to in (ii) to (iv) above shall require the Issuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.For the purposes of this provision the expression an “offer of Notes to the public” in relation to any Notes in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129 as amended. United Kingdom Prohibition of Sales to UK Retail InvestorsUnless the Pricing Supplement in respect of any Notes specifies the “Prohibition of Sales to UK RetailInvestors” as “Not Applicable” each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not offered sold or otherwise made available and will not offer sell or otherwise make available any Notes which are the subject of the offering contemplated by this Offering Circular as completed by the Pricing Supplement in relation thereto to any retail investor in the United Kingdom. For the purposes of this provision: (a) the expression “retail investor” means a person who is one (or more) of the following: (i) a retail client as defined in point (8) of Article 2 of Regulation (EU) No 2017/565 as it forms part of domestic law by virtue of the EUWA; or (ii) a customer within the meaning of the provisions of the FSMA and any rules or regulations made under the FSMA to implement Directive (EU) 2016/97 where that customer would not qualify as a professional client as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of domestic law by virtue of the EUWA; or (iii) not a qualified investor as defined in Article 2 of the Prospectus Regulation as it forms part of domestic law by virtue of the EUWA and (b) the expression an “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes.– 222 –Public Offer Selling Restriction under the UK Prospectus RegulationIf the Pricing Supplement in respect of any Notes specifies the “Prohibition of Sales to UK RetailInvestors” as “Not Applicable” each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not made and will not make an offer of Notes which are the subject of the offering contemplated by the Offering Circular as completed by the Pricing Supplement in relation thereto to the public in the United Kingdom except that it may make an offer of such Notes to the public in the United Kingdom: (i) if the Pricing Supplement in relation to the Notes specify that an offer of those Notes may be made other than pursuant to section 86 of the FSMA (a “Public Offer”) following the date of publication of a prospectus in relation to such Notes which either (i) has been approved by the Financial Conduct Authority or (ii) is to be treated as if it had been approved by the Financial Conduct Authority in accordance with the transitional provision in Regulation 74 of the Prospectus (Amendment etc.) (EU Exit) Regulations 2019 provided that any such prospectus has subsequently been completed by Pricing Supplement contemplating such Public Offer in the period beginning and ending on the dates specified in such prospectus or Pricing Supplement as applicable and the Issuer has consented in writing to its use for the purpose of that Public Offer; (ii) at any time to any legal entity which is a qualified investor as defined in Article 2 of the UK Prospectus Regulation; (iii) at any time to fewer than 150 natural or legal persons (other than qualified investors as defined in Article 2 of the UK Prospectus Regulation) in the United Kingdom subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or (iv) at any time in any other circumstances falling within Section 86 of the FSMA provided that no such offer of Notes referred to in (ii) to (iv) shall require the Issuer or any Dealer to publish a prospectus pursuant to section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation. For the purposes of this provision the expression an “offer of Notes to the public” in relation to any Notes means the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes and the expression “UK Prospectus Regulation” means the Prospectus Regulation as it forms part of domestic law by virtue of the EUWA.Other Regulatory Requirements in the United Kingdom Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that: (i) in relation to any Notes which have a maturity of less than one year (a) it is a person whose ordinary activities involve it in acquiring holding managing or disposing of investments (as principal or agent) for the purposes of its business and (b) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring holding managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire hold manage or dispose of investments (as principal or an agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of section 19 of the FSMA by the Issuer; – 223 –(ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA would not if the Issuer was not an authorised person apply to the Issuer; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in from or otherwise involving the United Kingdom.Hong Kong Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that: (i) it has not offered or sold and will not offer or sell in Hong Kong by means of any document any Notes except for Notes which are a “structured product” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”) other than (a) to “professional investors” as defined in the SFO and any rules made under the SFO; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the C(WUMP)O or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and (ii) it has not issued or had in its possession for the purposes of issue and will not issue or have in its possession for the purposes of issue whether in Hong Kong or elsewhere any advertisement invitation or document relating to the Notes which is directed at or the contents of which are likely to be accessed or read by the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under the SFO.Singapore Each Dealer has acknowledged and each further Dealer appointed under the Programme will be required to acknowledge that this Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase and has not circulated or distributed nor will it circulate or distribute this Offering Circular or any other document or material in connection with the offer or sale or invitation for subscription or purchase of the Notes whether directly or indirectly to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act 2001 of Singapore as modified or amended from time to time (the “SFA”)) pursuant to Section 274 of the SFA or (ii) to an accredited investor (as defined in Section 4A of the SFA) pursuant to and in accordance with the conditions specified in Section 275 of the SFA.– 224 –PRC Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not offered or sold and will not offer or sell any of the Notes directly or indirectly in the PRC (for such purposes not including Hong Kong Macau SAR or Taiwan) or to residents of the PRC unless such offer or sale is made in compliance with all applicable laws and regulations of the PRC.Japan The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948 as amended the “Financial Instruments and Exchange Act”).Accordingly each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not directly or indirectly offered or sold and will not directly or indirectly offer or sell any Notes in Japan or to or for the benefit of any resident of Japan (which term as used herein means any person resident in Japan including any corporation or other entity organised under the laws of Japan) or to others for re-offering or re-sale directly or indirectly in Japan or to or for the benefit of any resident of Japan except pursuant to an exemption from the registration requirements of and otherwise in compliance with the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.– 225 –TRANSFER RESTRICTIONS Each purchaser of Notes within the United States pursuant to Rule 144A will be deemed to have represented agreed and acknowledged that: (1) It is (a) a QIB (b) acquiring such Notes for its own account or for the account of a QIB and (c) aware and each beneficial owner of such Notes has been advised that the sale of such Notes to it is being made in reliance on Rule 144A. (2) It understands that such Notes have not been and will not be registered under the Securities Act and may not be offered sold pledged or otherwise transferred except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the account of a QIB (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (c) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) in each case in accordance with any applicable securities laws of any State of the United States. (3) It understands that such Notes unless otherwise agreed between the Issuer and the trustee in accordance with applicable law will bear a legend to the following effect: THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S.SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED SOLD PLEDGED OR OTHERWISE TRANSFERREDEXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THIS NOTE. (4) The Issuer the Dealers and their affiliates and others will rely upon the truth and accuracy of the foregoing acknowledgements representations and agreements. If it is acquiring any Notes for the account of one or more QIBs it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements representations and agreements on behalf of each such account. (5) It understands that the Notes offered in reliance on Rule 144A will be represented by the Restricted Global Certificate. Before any interest in the Restricted Global Certificate may be offered sold pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Unrestricted Global Certificate it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws.Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.– 226 –To the extent the Pricing Supplement or the Subscription Agreement relating to one or more Tranches of Notes specifies that “Reg. S Category 2” or “Reg. S Category 3” applies each purchaser of Notes outside the United States pursuant to Regulation S and each subsequent purchaser of such Notes in resales prior to the expiration of the distribution compliance period will be deemed to have represented agreed and acknowledged that: (1) It is or at the time Notes are purchased will be the beneficial owner of such Notes and (a) it is not a U.S. person and it is located outside the United States (within the meaning of Regulation S) and (b) it is not an affiliate of the Issuer or a person acting on behalf of such an affiliate. (2) It understands that such Notes have not been and will not be registered under the Securities Act and that prior to the expiration of the distribution compliance period it will not offer sell pledge or otherwise transfer such Notes except (a) in accordance with Rule 144A under the Securities Act to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or the account of a QIB or (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S in each case in accordance with any applicable securities laws of any State of the United States. (3) The Issuer the Dealers and their affiliates and others will rely upon the truth and accuracy of the foregoing acknowledgements representations and agreements. (4) It understands that the Notes offered in reliance on Regulation S will be represented by the Unrestricted Global Certificate. Prior to the expiration of the distribution compliance period before any interest in the Unrestricted Global Certificate may be offered sold pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Restricted Global Certificate it will be required to provide a Transfer Agent with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws.– 227 –GENERAL INFORMATION 1. Clearing Systems: The Notes may be accepted for clearance through the Euroclear and Clearstream systems (which are the entities in charge of keeping the records). The Issuer may also apply to have Notes accepted for clearance through the CMU. The relevant CMU instrument number will be set out in the relevant Pricing Supplement. The relevant ISIN the Common Code the CUSIP number and (where applicable) the identification number for any other relevant clearing system for each series of Notes will be specified in the applicable Pricing Supplement. If the Notes are to clear through an additional or alternative clearing system the appropriate information will be set out in the relevant Pricing Supplement.The address of Euroclear is 1 Boulevard du Roi Albert II B-1210 Brussels Belgium and the address of Clearstream is 42 Avenue JF Kennedy L-1855 Luxembourg. The address of any alternative clearing system will be specified in the relevant Pricing Supplement. 2. Listing: Application has been made to the HKSE for the listing of the Programme valid within the 12-month period after the date of this Offering Circular on the HKSE by way of debt issues to Professional Investors only as described in this Offering Circular. Separate application may be made for the listing of the Notes on the HKSE or other stock exchange(s). Unlisted Notes may also be issued. The applicable Pricing Supplement will state whether or not the relevant Notes are to be listed and if so on which stock exchange(s). 3. Litigation: Save as disclosed in this Offering Circular none of the Bank nor any of its subsidiaries is involved in any governmental legal or arbitration proceedings nor is the Issuer or any of its subsidiaries aware that any such proceedings are pending or threatened which are or might be material in the context of the issue of the Notes. 4. Authorisations: The Bank has obtained all necessary consents approvals and authorisations as may be required in connection with the establishment and updates of the Programme and the issue of this Offering Circular. The establishment and updates of the Programme and the issue of Notes thereunder have been duly authorised by resolutions of the Board of Directors of the Bank dated 28 March 2012 13 March 2015 21 March 2017 and 18 March 2020. The Issuer has agreed to obtain from time to time all necessary internal consents approvals and authorisations for the issue of Notes under the Programme. The Bank shall obtain approvals from the NDRC the PBOC the SAFE and the PRC Banking Regulatory Authority (as applicable) in connection with its issuance of the Notes as the Issuer and the repayment of the principal and/or interest of the Notes by the Bank may be adversely affected in the event any required registration is not obtained. 5. No Material Adverse Change: Except as disclosed in this Offering Circular there has been no significant change in the financial or trading position of the Bank or of the Group since 31 December 2023 and no material adverse change in the financial position or prospects of the Issuer or of the Group since 31 December 2023. 6. Available Documents: For so long as Notes may be issued pursuant to this Offering Circular the following documents will be available during usual business hours on any weekday (Saturdays and public holidays excepted) for inspection at the registered office of the Issuer and at the specified office of the Fiscal Agent: (a) the articles of association of the Bank; (b) the consolidated financial statements of the Bank as at and for the years ended 31 December 2022 and 2023 and a copy of the auditor’s reports of Deloitte Touche Tohmatsu Certified Public Accountants the Bank’s current independent auditor; – 228 –(c) copies of the most recent annual and interim reports (including the financial statements) published by the Bank; (d) the Fifth Amended and Restated Agency Agreement (which includes the form of the Global Notes the Global Certificate the definitive Bearer Notes the Certificates the Coupons the Receipts and the Talons) dated 5 June 2023 and the Third Amended and Restated Deed of Covenant dated 5 June 2023; (e) a copy of this Offering Circular together with any supplement to this Offering Circular or further Offering Circular; (f) each Pricing Supplement (save that Pricing Supplement relating to a Note which is neither admitted to trading on a regulated market within the European Economic Area or the United Kingdom nor offered in the European Economic Area or the United Kingdom in circumstances where a prospectus is required to be published under the Prospectus Regulation will only be available for inspection by a holder of such Note and such holder must produce evidence satisfactory to the Issuer and the Fiscal Agent as to its holding of Notes and identity). 7. Auditor: Deloitte Touche Tohmatsu Public Interest Entity Auditor registered in accordance with the Financial Reporting Council Ordinance has audited the consolidated financial statements of the Bank for the years ended 31 December 2022 and 2023 as stated in its auditor’s reports included elsewhere in this Offering Circular. 8. Each Bearer Note having a maturity of more than one year Receipt Coupon and Talon will bear thefollowing legend: “Any United States person who holds this obligation will be subject to limitationsunder the United States income tax laws including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code”. 9. The issue price and the amount of the relevant Notes will be determined before filing of the relevant Pricing Supplement of each Tranche based on the prevailing market conditions. The Issuer does not intend to provide any post-issuance information in relation to any issues of Notes. 10. NDRC Approval: The Notes will be issued in accordance with either (i) the pre-issuance filing and registration with the NDRC to obtain the Enterprise Foreign Debt Examination and Registration Certificate (企业借 用外债审核登记证明) or the Registration Certificate of Foreign Debt (企业借用外债备案登记证明) prior to the issuance of the Notes under the Programme pursuant to the NDRC Administrative Measures or (ii) the then applicable annual foreign debt quota granted by the NDRC to the Bank for any issuance of the Notes pursuant to the NDRC Administrative Measures.In the case of (i) the Bank will make a pre-issuance registration with the NDRC followed by post-issuance filings with the NDRC within the prescribed time following issuance of the Notes. In the case of (ii) the Bank is able to rely on such annual foreign debt quota granted by the NDRC and is not required to make any pre-issuance registration for issuance of the Notes within the annual foreign debt quota with the NDRC. However the Bank will be required to make post-issuance filings with the NDRC within the prescribed time following issuance of the Notes and to provide the requisite information on the issuance of such Notes to the NDRC within the time period as required by the NDRC in accordance with the NDRC Administrative Measures. 11. The Legal Entity Identifier of the Bank is 549300MKO5B60FFIHF58. – 229 –INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page As at and for the year ended 31 December 2022 Independent Auditor’s Report of Deloitte Touche Tohmatsu(1) . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Consolidated Statement of Profit or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8 Consolidated Statement of Profit or Loss and Other Comprehensive Income . . . . . . . . . . . . . . F-9 Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10 Consolidated Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-12 Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-14 Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16 Unaudited Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-156 As at and for the year ended 31 December 2023 Independent Auditor’s Report of Deloitte Touche Tohmatsu(1) . . . . . . . . . . . . . . . . . . . . . . . . . F-169 Consolidated Statement of Profit or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-175 Consolidated Statement of Profit or Loss and Other Comprehensive Income . . . . . . . . . . . . . . F-176 Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-177 Consolidated Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-179 Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-181 Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-183 Unaudited Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-319 First Quarterly Report of 2024 Unaudited Consolidated Statement of Profit or Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-332 Unaudited Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-334 Unaudited Consolidated Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-336 (1) The independent auditor’s reports on the Bank’s consolidated financial statements as at and for the years ended 31 December 2022 and 2023 set out herein are reproduced from the Bank’s annual reports as at and for the years ended 31 December 2022 and 2023. Page references contained in such independent auditor’s reports refer to pages set out in such annual reports.– F-1 –162 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Independent Auditor’s Report To the shareholders of China Merchants Bank Co. Ltd. (A joint stock company incorporated in the People’s Republic of China with limited liability) Opinion We have audited the consolidated financial statements of China Merchants Bank Co. Ltd. (the “Bank”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 168 to 315 which comprise the consolidated statement of financial position as at 31 December 2022 and the consolidated statement of profit or loss consolidated statement of profit or loss and other comprehensive income consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements including a summary of significant accounting policies.In our opinion the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2022 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) and have been properly prepared in compliance with the disclosure requirements of Hong Kong Companies Ordinance.Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (the “Code”) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.Key Audit Matters Key audit matters are those matters that in our professional judgement were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon and we do not provide a separate opinion on these matters.– F-2 –China Merchants Bank Chapter VIII Financial Statements 163 Annual Report 2022 (H share) Key Audit Matters (continued) Key audit matter How our audit addressed the key audit matter Expected credit loss allowances of loans and advances to customers at amortised cost debt investments at amortised cost and financial guarantees and loan commitments We identified expected credit loss (“ECL”) allowance of Our audit procedures in relation to the expected credit loss loans and advances to customers at amortised cost debt allowances of loans and advances to customers at amortised investments at amortised cost and financial guarantees cost debt investments at amortised cost and financial and loan commitments as a key audit matter due to guarantees and loan commitments included the following: the materiality of these items’ balance and significant management judgement and estimates involved in deriving We understood management’s process and tested the the ECL estimates. design and operating effectiveness of key controls across the processes relevant to the ECL estimation of the Group. These As at 31 December 2022 as set out in Note 22(a) the controls included the development validation and review Group reported loans and advances to customers at of the ECL model; the controls over the model data input amortised cost of RMB5443438 million and expected including manual input controls and automated transmission credit loss allowances of RMB255759 million; in Note 23(b) controls; the automated controls over the ECL model the Group reported debt investments at amortised cost of calculation process; the controls over the identification of RMB1599139 million and expected credit loss allowances SICR indicators and credit impairment events.of RMB43682 million; in Note 42 the Group reported the expected credit loss allowances of financial guarantees and We assessed whether the ECL model applied by the loan commitments of RMB20217 million. Group has covered all the exposures that should be taken into consideration. In respect of different portfolios of Key judgements and estimates in respect of the loans and advances to customers at amortised cost debt measurement of ECLs include: the significant management investments at amortised cost and financial guarantees judgement and estimates of model design and its and loan commitments we involved our internal modelling application; the identification of a significant increase in specialist to assist us in assessing the appropriateness of credit risk (SICR); the identification of credit impairment the Group’s methodology of ECL modelling. We reviewed events; the determination of inputs used in the ECL model relevant documents and evaluated the appropriateness and as well as the determination of the forward-looking application of the ECL model.information to incorporate.– F-3 –164 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Key Audit Matters (continued) Key audit matter How our audit addressed the key audit matter Expected credit loss allowances of loans and advances to customers at amortised cost debt investments at amortised cost and financial guarantees and loan commitments Principal accounting policies and significant accounting With the support of our internal modelling specialist we estimates and judgement applied in determining the assessed the key definitions and application of parameters expected credit loss allowances of loans and advances to and assumptions in the ECL model. This included customers at amortised cost debt investments at amortised assessing stage determination probability of default cost and financial guarantees and loan commitments are loss given default exposure at default and forward- set out in Notes 4(5) and 5(4) to the consolidated financial looking information. We selected samples to check statements. whether the calculation in the ECL model is consistent with the methodology. We selected samples to conduct credit reviews in order to assess the appropriateness of the significant judgements made by the management regarding the occurrence of SICR and credit impairment events and whether the identification of such events are proper and timely. In addition we selected samples and tested their data input into the ECL model to evaluate the completeness and accuracy of the data input. For loans and advances at amortised cost and debt investments at amortised cost at stage 3 we selected samples to test the reasonableness of future cash flows from the borrowers estimated by the Group including the expected recoverable amount of collateral to assess whether there were material misstatements in credit loss allowances.– F-4 –China Merchants Bank Chapter VIII Financial Statements 165 Annual Report 2022 (H share) Key Audit Matters (continued) Key audit matter How our audit addressed the key audit matter Consolidation of structured entities We identified consolidation of structured entities as a Our audit procedures in relation to consolidation of key audit matter since significant judgement is applied by structured entities included the following: management to determine whether or not the Group has control over certain structured entities. We understood and tested the design and operating effectiveness of key controls over the management process The structured entities of the Group include wealth in determining the consolidation scope for interests in management products asset management schemes trust structured entities as well as understood the purpose for beneficiary rights assets-backed securities and funds setting up the structured entities.as disclosed in Note 64 to the consolidated financial statements. We reviewed the relevant contract terms on a sample basis and assessed the power of the Group over the structured As described in Note 4(1) the consolidation of structured entities the rights of the Group to variable returns of the entities is determined based on control. Control is structured entities and the ability of the Group to use its achieved when the investor has power over the investee power to affect its return and evaluated management the investor is exposed or has rights to variable returns judgement on whether the Group has control over the from its involvement with the investee; and the investor structured entities and the conclusion about whether or not has the ability to use its power to affect its returns. When the consolidation criteria are met.performing the assessment on whether the Group has control over the structured entities the Group considers several factors including the scope of its decision-making authority over the structured entities the rights held by other parties the remuneration for managing the structured entities and the Group’s exposure to variability of returns from interests that it holds in the structured entities.– F-5 –166 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Other Information The directors of the Bank are responsible for the other information. The other information comprises the information included in the annual report but does not include the consolidated financial statements and our auditor’s report thereon.Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.In connection with our audit of the consolidated financial statements our responsibility is to read the other information and in doing so consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we have performed we conclude that there is a material misstatement of this other information we are required to report that fact. We have nothing to report in this regard.Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements The directors of the Bank are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control as the directors of the Bank determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement whether due to fraud or error.In preparing the consolidated financial statements the directors of the Bank are responsible for assessing the Group’s ability to continue as a going concern disclosing as applicable matters related to going concern and using the going concern basis of accounting unless the directors of the Bank either intend to liquidate the Group or to cease operations or have no realistic alternative but to do so.Those charged with governance are responsible for overseeing the Group’s financial reporting process.Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement whether due to fraud or error and to issue an auditor’s report that includes our opinion solely to you as a body and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.– F-6 –China Merchants Bank Chapter VIII Financial Statements 167 Annual Report 2022 (H share) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements (continued) As part of an audit in accordance with ISAs we exercise professional judgement and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the consolidated financial statements whether due to fraud or error design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion forgery intentional omissions misrepresentations or the override of internal control.* Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.* Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors of the Bank.* Conclude on the appropriateness of the directors of the Bank’s use of the going concern basis of accounting and based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or if such disclosures are inadequate to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However future events or conditions may cause the Group to cease to continue as a going concern.* Evaluate the overall presentation structure and content of the consolidated financial statements including the disclosures and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.* Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction supervision and performance of the group audit. We remain solely responsible for our audit opinion.We communicate with those charged with governance regarding among other matters the planned scope and timing of the audit and significant audit findings including any significant deficiencies in internal control that we identify during our audit.We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable actions taken to eliminate threats or safeguards applied.From the matters communicated with those charged with governance we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when in extremely rare circumstances we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.The engagement partner on the audit resulting in the independent auditor’s report is Shi Chung Fai.Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 24 March 2023 – F-7 –168 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Consolidated Statement of Profit or Loss For the year ended 31 December 2022 (Expressed in millions of Renminbi unless otherwise stated) Notes 2022 2021 Interest income 6 353380 327056 Interest expense 7 (135145) (123137) Net interest income 218235 203919 Fee and commission income 8 103372 102318 Fee and commission expense (9097) (7871) Net fee and commission income 94275 94447 Other net income 9 29705 29011 – Disposal of financial instruments at amortised cost 170 (657) Operating income 342215 327377 Operating expenses 10 (122061) (116879) Operating profit before impairment losses and taxation 220154 210498 Expected credit losses 14 (56751) (65962) Impairment losses on other assets (815) (393) Share of profits of joint ventures 25 1710 2877 Share of profits of associates 26 815 1153 Profit before taxation 165113 148173 Income tax 15 (25819) (27339) Profit for the year 139294 120834 Attributable to: Equity holders of the Bank 138012 119922 Non-controlling interests 1282 912 Earnings per share Basic and diluted (RMB Yuan) 17 5.26 4.61 The notes form part of these consolidated financial statements.– F-8 –China Merchants Bank Chapter VIII Financial Statements 169 Annual Report 2022 (H share) Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2022 (Expressed in millions of Renminbi unless otherwise stated) Note 2022 2021 Profit for the year 139294 120834 Other comprehensive income for the year after tax Items that may be reclassified subsequently to profit or loss 1285 5856 – Share of other comprehensive (expense)/income from equity-accounted investees (1155) 133 – Net fair value (loss)/gain on debt instruments measured at fair value through other comprehensive income (5617) 4156 – Net changes in expected credit losses of debt instruments measured at fair value through other comprehensive income 3471 3036 – Net movement in cash flow hedge reserve 112 105 – Exchange difference on translation of financial statements of foreign operations 4429 (1574) – Other 45 – Items that will not be reclassified to profit or loss 38 1333 – Net fair value gain on equity instruments designated at fair value through other comprehensive income 48 1318 – Remeasurement of defined benefit scheme (10) 15 Other comprehensive income for the year net of tax 16 1323 7189 Attributable to: Equity holders of the Bank 1053 7298 Non-controlling interests 270 (109) Total comprehensive income for the year 140617 128023 Attributable to: Equity holders of the Bank 139065 127220 Non-controlling interests 1552 803 The notes form part of these consolidated financial statements.– F-9 –170 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Consolidated Statement of Financial Position At 31 December 2022 (Expressed in millions of Renminbi unless otherwise stated) Notes 2022 2021 Assets Cash 15209 13310 Precious metals 2962 4639 Balances with central banks 18 587818 553898 Balances with banks and other financial institutions 19 91346 80350 Placements with banks and other financial institutions 20 263576 194421 Amounts held under resale agreements 21 276676 524601 Loans and advances to customers 22 5807154 5335391 Financial investments at fair value through profit or loss 23(a) 423467 348123 Derivative financial assets 60(f) 18671 23390 Debt investments at amortised cost 23(b) 1555457 1185841 Debt investments at fair value through other comprehensive income 23(c) 780349 636038 Equity investments designated at fair value through other comprehensive income 23(d) 13416 6995 Interests in joint ventures 25 14247 14779 Interests in associates 26 9597 8875 Investment properties 27 1268 1372 Property and equipment 28 99919 80415 Right-of-use assets 29(a) 17553 18403 Intangible assets 30 3402 4066 Goodwill 31 9999 9954 Deferred tax assets 32 90848 81639 Other assets 33 55978 122521 Total assets 10138912 9249021 The notes form part of these consolidated financial statements.– F-10 –China Merchants Bank Chapter VIII Financial Statements 171 Annual Report 2022 (H share) Notes 2022 2021 Liabilities Borrowing from central banks 129745 159987 Deposits from banks and other financial institutions 34 645674 753018 Placements from banks and other financial institutions 35 192857 170650 Financial liabilities at fair value through profit or loss 36 63314 63761 Derivative financial liabilities 60(f) 18636 27282 Amounts sold under repurchase agreements 37 107093 157660 Deposits from customers 38 7590579 6385154 Salaries and welfare payable 39(a) 23866 19761 Tax payable 40 19458 22491 Contract liabilities 41 6679 7536 Lease liabilities 29(b) 13013 13812 Provisions 42 22491 14660 Debt securities issued 43 223821 446645 Deferred tax liabilities 32 1510 1353 Other liabilities 44 125938 139570 Total liabilities 9184674 8383340 Equity Share capital 45 25220 25220 Other equity instruments 46 120446 127043 – Preference shares 46(a) 27468 34065 – Perpetual bonds 46(b) 92978 92978 Capital reserve 47 65435 67523 Investment revaluation reserve 48 11815 15047 Hedging reserve 49 151 39 Surplus reserve 50 94985 82137 General reserve 51 132471 115288 Retained earnings 449139 390207 Proposed profit appropriation 52(b) 43832 38385 Exchange reserve 53 2009 (2144) Total equity attributable to shareholders of the Bank 945503 858745 Non-controlling interests 8735 6936 – Non-controlling interest 5948 3300 – Perpetual debt capital 62(a) 2787 3636 Total equity 954238 865681 Total equity and liabilities 10138912 9249021 The notes form part of these consolidated financial statements.Approved and authorised for issue by the Board of Directors on 24 March 2023.Miao Jianmin Wang Liang Director Director – F-11 –172 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Consolidated Statement of Changes in Equity For the year ended 31 December 2022 (Expressed in millions of Renminbi unless otherwise stated) 2022 Total equity attributable to equity holders of the Bank Non-controlling interests Other equity instruments Investment Non- Perpetual Share Preference Perpetual Capital revaluation Hedging Surplus General Retained Proposed profit Exchange controlling debt Notes capital shares bonds reserve reserve reserve reserve reserve earnings appropriation reserve Subtotal interest capital Total At 1 January 2022 25220 34065 92978 67523 15047 39 82137 115288 390207 38385 (2144) 858745 3300 3636 865681 Changes in equity for the year – (6597) – (2088) (3232) 112 12848 17183 58932 5447 4153 86758 2648 (849) 88557 (a) Net profit for the year – – – – – – – – 138012 – – 138012 1080 202 139294 (b) Other comprehensive income for the year 16 – – – – (3212) 112 – – – – 4153 1053 15 255 1323 Total comprehensive income for the year – – – – (3212) 112 – – 138012 – 4153 139065 1095 457 140617 (c) Capital movement from equity holders – (6597) – (2088) – – – – – – – (8685) 1832 (1104) (7957) (i) Capital invested by non-controlling shareholders – – – (1489) – – – – – – – (1489) 1842 – 353 (ii) Decrease in non-controlling interests – – – – – – – – – – – – (10) – (10) (iii) Redemption of preference shares 46(a) – (6597) – (599) – – – – – – – (7196) – – (7196) (iv) Redemption of perpetual debt capital 62(a) – – – – – – – – – – – – – (1104) (1104) (d) Profit appropriations – – – – – – 12848 17183 (79100) 5447 – (43622) (279) (202) (44103) (i) Appropriations to statutory surplus reserve 50 – – – – – – 12848 – (12848) – – – – – – (ii) Appropriations to general reserve 51 – – – – – – – 17183 (17183) – – – – – – (iii) Dividends declared and paid for the year 2021 – – – – – – – – – (38385) – (38385) (279) – (38664) (iv) Distribution to perpetual debt capital 62 – – – – – – – – – – – – – (202) (202) (v) Proposed dividends for the year 2022 – – – – – – – – (43832) 43832 – – – – – (vi) Dividends to preference shares – – – – – – – – (1675) – – (1675) – – (1675) (vii) Distribution to perpetual bonds – – – – – – – – (3562) – – (3562) – – (3562) (e) Transfers within equity upon disposal of equity instruments designated at fair value through other comprehensive income – – – – (20) – – – 20 – – – – – – At 31 December 2022 25220 27468 92978 65435 11815 151 94985 132471 449139 43832 2009 945503 5948 2787 954238 The notes form part of these consolidated financial statements.– F-12 –China Merchants Bank Chapter VIII Financial Statements 173 Annual Report 2022 (H share) 2021 Total equity attributable to equity holders of the Bank Non-controlling interests Other equity instruments Investment Non- Perpetual Share Preference Perpetual Capital revaluation Hedging Surplus General Retained Proposed profit Exchange controlling debt Notes capital shares bonds reserve reserve reserve reserve reserve earnings appropriation reserve Subtotal interest capital Total At 1 January 2021 25220 34065 49989 67523 8207 (66) 71158 98082 338664 31601 (693) 723750 2851 3753 730354 Changes in equity for the year – – 42989 – 6840 105 10979 17206 51543 6784 (1451) 134995 449 (117) 135327 (a) Net profit for the year – – – – – – – – 119922 – – 119922 685 227 120834 (b) Other comprehensive income for the year 16 – – – – 8644 105 – – – – (1451) 7298 8 (117) 7189 Total comprehensive income for the year – – – – 8644 105 – – 119922 – (1451) 127220 693 110 128023 (c) Capital contribution from equity holders – – 42989 – – – – – – – – 42989 – – 42989 Issue of perpetual bonds 46(b) – – 42989 – – – – – – – – 42989 – – 42989 (d) Profit appropriations – – – – – – 10979 17206 (70183) 6784 – (35214) (244) (227) (35685) (i) Appropriations to statutory surplus reserve 50 – – – – – – 10979 – (10979) – – – – – – (ii) Appropriations to general reserve 51 – – – – – – – 17206 (17206) – – – – – – (iii) Dividends declared and paid for the year 2020 – – – – – – – – – (31601) – (31601) (244) – (31845) (iv) Distribution to perpetual debt capital 62 – – – – – – – – – – – – – (227) (227) (v) Proposed dividends for the year 2021 – – – – – – – – (38385) 38385 – – – – – (vi) Dividends to preference shares – – – – – – – – (1638) – – (1638) – – (1638) (vii) Distribution to perpetual bonds – – – – – – – – (1975) – – (1975) – – (1975) (e) Transfers within equity upon disposal of equity instruments designated at fair value through other comprehensive income – – – – (1804) – – – 1804 – – – – – – At 31 December 2021 25220 34065 92978 67523 15047 39 82137 115288 390207 38385 (2144) 858745 3300 3636 865681 The notes form part of these consolidated financial statements.– F-13 –174 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Consolidated Statement of Cash Flows For the year ended 31 December 2022 (Expressed in millions of Renminbi unless otherwise stated) 20222021 Operating activities Profit before taxation 165113 148173 Adjustments for: – Impairment losses on loans and advances 45157 37020 – Impairment losses on investments and other 12409 29335 – Unwinding of discount on the allowances of loans and advances (386) (247) – Depreciation of property and equipment and investment properties 10279 8857 – Depreciation of right-of-use assets 4151 4259 – Amortisation of other assets 1193 1389 – Net gains on debt securities and equity investments (14722) (15388) – Interest income on investments (65808) (56059) – Interest expense on issued debt securities 9662 12532 – Share of profits of associates (815) (1153) – Share of profits of joint ventures (1710) (2877) – Net gains on disposal of properties and equipment and other assets (282) (113) – Interest expense on lease liabilities 510 555 Changes in: Balances with central banks (48851) 12874 Loans and advances to customers (508891) (564924) Other assets 63611 (37395) Deposits from customers 1188664 718742 Amounts due to banks and other financial institutions (135569) 73321 Amounts due from banks and other financial institutions with original maturity over 3 months (46825) 2160 Borrowing from central banks (30073) (170100) Other liabilities (39251) 16596 Cash generated from operating activities before income tax payment 607566 217557 Income tax paid (37423) (35509) Net cash generated from operating activities 570143 182048 Investing activities Payment for the purchases of investments (1898898) (1225385) Proceeds from disposals and redemptions of investments 1334013 1160739 Investment income received 79122 71197 Payment for the acquisition of subsidiaries associates or joint ventures (484) (5342) Payment for the purchases of property and equipment and other assets (34892) (24160) Proceeds from the disposals of property and equipment and other assets 6750 2399 Proceeds from the disposals of subsidiaries associates or joint ventures 463 855 Net cash used in investing activities (513926) (19697) The notes form part of these consolidated financial statements.– F-14 –China Merchants Bank Chapter VIII Financial Statements 175 Annual Report 2022 (H share) Notes 2022 2021 Financing activities Proceeds from the issuance of negotiable interbank certificates of deposit 55(b) 78666 319707 Proceeds from the issuance of certificates of deposit 55(b) 20287 14692 Proceeds from the issuance of debt securities 55(b) 21481 63872 Proceeds from the issuance of perpetual bonds – 42989 Proceeds from non-controlling interests of subsidiaries 2667 – Proceeds from other financing activities 55(b) 10796 6860 Repayment of negotiable interbank certificates of deposit 55(b) (250996) (226012) Repayment of certificates of deposit 55(b) (16504) (21363) Repayment of debt securities 55(b) (78735) (55771) Payment for lease liabilities 55(b) (4932) (4835) Payment for redemption of preference shares (7196) – Payment for redemption of perpetual debt capital (1104) – Distribution paid on perpetual debt capital (202) (227) Payment for dividends distribution (38664) (31845) Distribution paid on preference shares (1675) (1638) Distribution paid on perpetual bonds (3562) (1975) Interest paid on financing activities (12400) (11398) Payment for other financing activities 55(b) (14959) (3697) Net cash (used in)/generated from financing activities (297032) 89359 Net (decrease)/increase in cash and cash equivalents (240815) 251710 Cash and cash equivalents as at 1 January 801754 552790 Effect of foreign exchange rate changes 6259 (2746) Cash and cash equivalents as at 31 December 55(a) 567198 801754 Cash flows from operating activities include: Interest received 285050 269081 Interest paid 108496 111177 The notes form part of these consolidated financial statements.– F-15 –176 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Notes to the Consolidated Financial Statements For the year ended 31 December 2022 (Expressed in millions of Renminbi unless otherwise stated) 1. Organisation and principal activities (1) Organisation China Merchants Bank Co. Ltd. (the “Bank”) is a commercial bank incorporated in Shenzhen the People’s Republic of China (the “PRC”). With the approval of the China Securities Regulatory Commission (the “CSRC”) of the PRC the A-Shares of the Bank were listed on Shanghai Stock Exchange on 9 April 2002. On 22 September 2006 the Bank’s H-Shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “HKEx”).As at 31 December 2022 apart from the Head Office the Bank had 51 branches in the Chinese mainland Hong Kong New York Singapore Luxembourg London and Sydney. In addition the Bank has two representative offices in New York and Taipei. (2) Principal activities The principal activities of the Bank and its subsidiaries (the “Group”) are providing corporate and personal banking services conducting treasury business providing asset management and other financial services. 2. Basis of preparation of consolidated financial statements (1) Statement of compliance and basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) and its interpretations promulgated by the International Accounting Standards Board (“IASB”) and the disclosure requirements of the Hong Kong Companies Ordinance. These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. (2) Basis of measurement These financial statements are presented in Renminbi (“RMB”) and unless otherwise stated rounded to the nearest million. RMB is the functional currency of the domestic operations of the Group. The functional currencies of overseas branches and subsidiaries are determined in accordance with the primary economic environment in which they operate and are translated into RMB for the preparation of these financial statements according to Note 4(16).The consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values at the end of each reporting period and the measurement principles as explained below.– F-16 –China Merchants Bank Chapter VIII Financial Statements 177 Annual Report 2022 (H share) 2. Basis of preparation of consolidated financial statements (continued) (2) Basis of measurement (continued) Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment leasing transactions that are within the scope of IFRS 16 Leases and measurements that have some similarities to fair value but are not fair value such as net realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets .In addition for financial reporting purposes fair value measurements are categorised into Level 1 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability.The preparation of the financial statements in conformity with IFRSs requires management to make judgements estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.Judgements made by management in the application of IFRSs that have significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the future periods are discussed in Note 5.– F-17 –178 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 3. Application of new and amendments to IFRSs Amendments to IFRSs effective in current year applied by the Group Amendments to IFRS 3 Reference to the Conceptual Framework Amendment to IFRS 16 Covid-19-Related Rent Concessions beyond 30 June 2021 Amendments to IAS 16 Property Plant and Equipment – Proceeds before Intended Use Amendments to IAS 37 Onerous Contracts – Cost of Fulfilling a Contract Amendments to IFRSs Annual Improvements to IFRSs 2018-2020 The above-mentioned application of the amendments to IFRSs has had no material impact on the Group’s financial positions and performance for the current and prior years and/or on the disclosures set out in these consolidated financial statements.Standards and amendments that are issued but not yet effective and have not been adopted by the Group Effective for annual period beginning on or after IFRS 17 (including the June 2020 Insurance Contracts 1 January 2023 and December 2021 Amendments to IFRS 17) Amendments to IAS 1 and IFRS Disclosure of Accounting Policies 1 January 2023 Practice Statement 2 Amendments to IAS 8 Definition of Accounting Estimates 1 January 2023 Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising 1 January 2023 from a Single Transaction Amendments to IFRS 16 Lease Liability in a Sale and Leaseback 1 January 2024 Amendments to IAS 1 Classification of Liabilities as Current or Non-current 1 January 2024 Amendments to IAS 1 Non-current Liabilities with Covenants 1 January 2024 Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor the date to be and its Associate or Joint Venture determined The new and amendments to IFRSs mentioned above are not expected to have material impact on the consolidated financial statements in the foreseeable future.– F-18 –China Merchants Bank Chapter VIII Financial Statements 179 Annual Report 2022 (H share) 4. Principal accounting policies (1) Business combination Financial statements include financial statements of the Bank and its subsidiaries. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power only substantive rights (held by the Group and other parties) are considered.An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances transactions and cash flows and any profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. If the intra-group transaction indicates that the relevant assets have impairment losses the losses shall be recognised in full.When necessary adjustments are made by the Group to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies.Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Bank and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Non-controlling interests are presented in the consolidated statement of financial position and consolidated statement of changes in equity within equity separately from equity attributable to the equity holders of the Bank. Non-controlling interests in the results of the Group are presented in the consolidated statement of profit or loss and the consolidated statement of profit or loss and other comprehensive income as an allocation of the net profit or loss and total comprehensive income for the year between non-controlling interests and the equity holders of the Bank.Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests but no adjustments are made to goodwill and no gain or loss is recognised.When the Group loses control of a subsidiary it is accounted for as a disposal of the entire interest in that subsidiary with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 4(5)) or when appropriate the cost on initial recognition of an investment in a joint venture (see Note 4(2)) or an associate (see Note 4(3)).Business combinations or asset acquisitions Optional concentration test The Group can elect to apply an optional concentration test on a transaction-by-transaction basis that permits a simplified assessment of whether an acquired set of activities or assets is not a business. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The gross assets under assessment exclude cash and cash equivalents deferred tax assets and goodwill resulting from the effects of deferred tax liabilities. If the concentration test is met the set of activities or assets is determined not to be a business and no further assessment is needed.Asset acquisitions When the Group acquires a group of assets and liabilities that do not constitute a business the Group identifies and recognises the individual identifiable assets acquired and liabilities assumed by allocating the purchase price first to financial assets/financial liabilities at the respective fair values the remaining balance of the purchase price is then allocated to the other identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction does not give rise to goodwill or bargain purchase gain.– F-19 –180 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (1) Business combination (continued) Business combinations or asset acquisitions (continued) Business combination Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition date fair value of the assets transferred by the Group liabilities incurred or assumed by the Group and any equity interests issued by the Group. Acquisition related costs are recognised in the consolidated statement of profit or loss as incurred.At the acquisition date irrespective of non-controlling interests the identifiable assets acquired and liabilities and contingent liabilities assumed are recognised at their fair values; except that deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively. Non-controlling interests that represent ownership interests in the acquiree and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are initially recognised at either fair value or the non-controlling interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets.The choice of measurement basis is made on a transaction-by-transaction basis. (2) Joint ventures A joint venture is an arrangement in which the Group has joint control whereby the Group has rights to the net assets of the arrangement rather than rights to its assets and obligation for its liabilities.Joint control is the contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.When judging whether there is a joint control the Group usually considers the following cases: – whether any party within the joint arrangement cannot control the relevant activities of the joint ventures; – whether the decisions about the joint ventures’ relevant activities require the unanimous consent of the parties sharing control.The consolidated statement of profit or loss includes the Group’s share of the results of joint ventures for the year and the consolidated statement of financial position includes the Group’s share of the net assets of the joint ventures.Under the equity method the investment is initially recorded at cost adjusted for any excess of the Group’s share of the acquisition-date fair value of the investee’s identifiable net assets over the cost of the investment (if any).Thereafter the investment is adjusted for the post acquisition change in the Group’s share of the joint ventures’ net assets. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investments is recognised immediately in profit or loss in the period in which investment is acquired.The consolidated statement of profit or loss includes post-tax results of the joint ventures for the year including any impairment loss on goodwill relating to the investment in the joint ventures recognised for the year (see Notes 4(4) and 4(11)).When the Group’s share of losses exceeds its interest in the joint ventures the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint ventures. For these purposes the Group’s interest in the joint ventures is the carrying amount of the investment under equity method together with the Group’s interests that in substance form part of the Group’s net investment in the joint ventures.Unrealised profits and losses resulting from transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures except where unrealised losses provide evidence of an impairment of the asset transferred in which case they are recognised immediately in profit or loss.When the Group ceases to have joint control over a joint venture and has no significant influence on it it is accounted for as a disposal of the entire interest in that investee with a resulting gain or loss being recognised in the consolidated statement of profit or loss previous other comprehensive income would be reclassified to profit or loss. Any interest retained in that former investee at the date when joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 4(5)).– F-20 –China Merchants Bank Chapter VIII Financial Statements 181 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (3) Associates Associate is an entity in which the Group has significant influence but not control or joint control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.When judging whether there is any significant influence the Group usually considers the following cases: – representation on the Board of Directors or equivalent governing body of the investee; – participation in policy-making processes; – material transactions between the entity and its investee.Investments in associates are accounted for in the consolidated financial statements under the equity method.Under the equity method the investment is initially recorded at cost adjusted for any excess of the Group’s share of the acquisition-date fair value of the investee’s identifiable net assets over the cost of the investment (if any).Thereafter the investment is adjusted for the post acquisition change in the Group’s share of the associates’ net assets. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investments is recognised immediately in profit or loss in the period in which investment is acquired.The consolidated statement of profit or loss includes the Group’s post-tax results of the associates for the year including any impairment loss on goodwill relating to the investment in the associates recognised for the year (see Notes 4(4) and 4(11)).When the Group’s share of losses exceeds its interest in the associates the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associates. For these purposes the Group’s interest in the associates is the carrying amount of the investment under equity method together with the Group’s interests that in substance form part of the Group’s net investment in the associates.Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates except where unrealised losses provide evidence of an impairment of the asset transferred in which case they are recognised immediately in profit or loss.When the Group ceases to have significant influence over an associate entity it is accounted for as a disposal of the entire interest in that investee with a resulting gain or loss being recognised in the consolidated statement of profit or loss previous other comprehensive income would be reclassified to profit or loss. Any interest retained in that former investee at the date when significant influence is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 4(5)). (4) Goodwill Goodwill represents the excess of (i) the aggregate of the fair value of the consideration transferred the amount of any non-controlling interest based on the fair value of net assets acquired in the acquiree and the fair value of the Group’s previously held equity interests in the acquiree; over (ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.When (ii) is greater than (i) then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.Goodwill is stated at cost less accumulated impairment. Goodwill arising on a business combination is allocated to each cash-generating unit (“CGU”) or group of CGUs that is expected to benefit from the synergies of the combination and tested at least annually for impairment (see Note 4(11)).On disposal of a CGU during the year any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.– F-21 –182 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments Initial recognition A financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.All regular way purchases or sales of financial assets are recognised or derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.At initial recognition financial assets and financial liabilities are initially measured at fair value except for trade receivables arising from contracts with customers which are initially measured in accordance with IFRS 15 Revenue from Contracts with Customers . Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities as appropriate on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability or where appropriate a shorter period to the net carrying amount on initial recognition. When determining the effective interest rate the Group estimates the future cash flow on the basis of considering all contract terms of financial assets or financial liabilities but does not consider the expected credit loss.Classification and measurement of financial assets The Group classifies its financial assets into the following measurement categories at initial recognition: financial assets at amortised cost financial assets at fair value through other comprehensive income and financial assets at fair value through profit or loss.Debt instruments that meet the following conditions are subsequently measured at amortised cost: * the financial asset is held within a business model whose objective is to collect contractual cash flows; and * the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (“SPPI”).– F-22 –China Merchants Bank Chapter VIII Financial Statements 183 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments (continued) Classification and measurement of financial assets (continued) Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (“FVTOCI”): * the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling; and * the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.All other financial assets are subsequently measured at fair value through profit or loss (“FVTPL”) except that at the date of initial application/initial recognition of a financial asset the Group may irrevocably elect to present subsequent changes in fair value of an equity investment which is not held for trading in other comprehensive income (“OCI”).A financial asset is classified as held for trading if: * it has been acquired principally for the purpose of selling in the near term; or * on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or * it is a derivative except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.In addition the Group may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.Financial assets at amortised cost Financial assets measured at amortised cost are subsequently measured with the effective interest method and the gains or losses arising from amortisation or impairment are recognised in profit or loss. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired.Debt instruments classified as at FVTOCI Subsequent changes in the carrying amounts for debt instruments classified as at FVTOCI as a result of interest income calculated using the effective interest method foreign exchange gains and losses are recognised in profit or loss. All other changes in the carrying amount of debt instruments are recognised in OCI and accumulated under the heading of investment revaluation reserve. Impairment losses are recognised in profit or loss with corresponding adjustment to OCI without reducing the carrying amounts of debt instruments. The amounts that are recognised in profit or loss are the same as the amounts that would have been recognised in profit or loss if debt instruments had been measured at amortised cost. When debt instruments are derecognised the cumulative gains or losses previously recognised in investment revaluation reserve are reclassified to profit or loss.– F-23 –184 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments (continued) Classification and measurement of financial assets (continued) Equity instruments designated as at FVTOCI At the date of initial application/initial recognition the Group may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments which are not held for trading as at FVTOCI. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs.Subsequently they are measured at fair value with gains and losses arising from changes in fair value recognised in OCI and accumulated in the investment revaluation reserve; and are not subject to impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments and will be transferred to retained earnings.Dividends from these investments in equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established unless the dividends clearly represent a recovery of part of the cost of the investment. Dividends are included in the “other net income” line item in profit or loss.Financial assets at FVTPL Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as FVTOCI are measured at FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting period with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss includes fair value gains or losses any dividend or interest earned on the financial asset and is included in “other net income”.Impairment under ECL model The Group performs impairment assessment under expected credit loss (“ECL”) model on financial assets which are subject to impairment under IFRS 9 Financial Instruments including financial assets at amortised cost debt instrument assets at fair value through other comprehensive income leases receivable loan commitments and financial guarantee contracts. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.The Group assesses the ECL of financial assets with forward-looking information. 12-month ECL (“12m ECL”) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. In contrast lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. Assessment are done based on the factors that are specific to the debtors general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.For the above financial instruments that apply the ECL model except for the purchased or originated credit-impaired financial assets an assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by the Group to determine whether to recognise lifetime ECL. When the credit risk of these financial instruments does not increase significantly after the initial recognition the Group recognises a loss allowance for the financial instrument at an amount equal to 12-month ECL; in the event of a significant increase in credit risk the Group recognises a loss allowance at an amount equal to lifetime ECL. The Group recognises the loss allowance of receivables that result from transactions that are within the scope of IFRS 15 Revenue from contracts with customers at an amount equal to lifetime ECL.Significant increase in credit risk In assessing whether the credit risk has increased significantly since initial recognition the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment the Group considers both quantitative and qualitative information that is reasonable and supportable including historical experience and forward-looking information that is available without undue cost or effort. The assessment of whether the credit risk has increased significantly is detailed in Note 60(a).– F-24 –China Merchants Bank Chapter VIII Financial Statements 185 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments (continued) Impairment under ECL model (continued) Credit-impaired financial assets The Group defines whether there is credit impairment based on the internal evaluation results of the credit risk management system for relevant financial assets. The Group considers that financial assets have been credit-impaired when its loan classification is substandard doubtful or loss or is more than 90 days overdue.Measurement and recognition of ECL ECL is measured based on the probability of default loss given default and the exposure at default. The measurement and recognition of ECL are detailed in Note 60(a).Generally ECL is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive discounted at the effective interest rate determined at initial recognition.For a lease receivable the cash flows used for determining the ECL is consistent with the cash flows used in measuring the lease receivable in accordance with IFRS 16 Leases .For a financial guarantee contract the Group is required to make payments only in the event of a default by the debtor in accordance with the terms of the instrument that is guaranteed. Accordingly the expected credit losses is the present value of the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that the Group expects to receive from the holder the debtor or any other party.For undrawn loan commitments ECL is the present value of the difference between the contractual cash flows that are due to the Group: * if the holder of the loan commitments draws down the loan and * the cash flows that the Group expects to receive if the loan is drawn down.The loss allowance for loan commitments and financial guarantee contracts is recognised in profit or loss and accumulated in provisions. As for debt instruments measured at FVTOCI the loss allowance is recognised in OCI and accumulated in the investment revaluation reserve without reducing the carrying amounts of these financial assets.The loss allowance for other financial assets which are subject to impairment under IFRS 9 Financial Instruments is recognised in profit or loss through a loss allowance account.Classification and measurement of financial liabilities Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL when the financial liability is (i) held for trading (including derivatives belonging to financial liabilities) or (ii) designated as at FVTPL. Except for hedging accounting financial liabilities measured at FVTPL are subsequently measured at fair value and all changes in fair value are recognised in profit or loss.A financial liability is classified as held for trading if: * it has been acquired principally for the purpose of repurchasing it in the near term; or * on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or * it is a derivative except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.– F-25 –186 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments (continued) Classification and measurement of financial liabilities (continued) Financial liabilities at FVTPL (continued) A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: * such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or * the financial liability forms part of a group of financial assets or financial liabilities or both which is managed and its performance is evaluated on a fair value basis in accordance with the Group’s documented risk management or investment strategy and information about the grouping is provided internally on that basis; or * it forms part of a contract containing one or more embedded derivatives and IFRS 9 Financial Instruments permits the entire combined contract to be designated as at FVTPL.Other financial liabilities Except for financial liabilities at FVTPL financial liabilities formed by the transfer of financial assets that do not meet the conditions for derecognition or by continued involvement in transferred financial assets and financial liabilities financial guarantee contract and loan commitment other financial liabilities are classified as financial liabilities at amortised cost which are subsequently measured at amortised cost and the gains or losses arising from derecognition or amortisation are included in profit or loss.Hedge accounting The Group designates certain derivatives as hedging instruments for fair value hedge and cash flow hedge.The Group documents the relationship between the hedging instruments and hedged items as well as its risk management objective and strategy for undertaking the hedge at the inception of a hedging relationship. The Group also requires documentation of the assessment both at hedge inception and on an ongoing basis of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items attributable to the hedged risks.Fair value hedge The gains or losses on the hedging instrument are recognised in consolidated statement of profit or loss. When the hedging for the risk exposure relates to an non-trading equity instrument designated as at FVTOCI the gains or losses on the hedging instrument are recognised in other comprehensive income.The carrying amount of the hedged item not already measured at fair value is adjusted for the gain or loss attributable to the risk being hedged and is taken to consolidated statement of profit or loss. The adjustment to the carrying amount of the hedged item is based on a recalculated effective interest rate at the date that amortisation begins and shall be amortised to consolidated statement of profit or loss if the hedged item is a financial instrument measured at amortised cost. Amortisation begins as soon as an adjustment exists but no later than when the hedged item ceases to be adjusted for hedging gains and losses. If the hedged item is debt instruments measured at FVTOCI the amounts previously recorded as cumulative adjustments of hedging gains or losses are amortised in similar method and recognised in the consolidated statement of profit or loss. The carrying amount of the hedged item is not adjusted.Cash flow hedge The effective portions of changes in the fair value of derivatives that are designated and qualified as cash flow hedge are recognised in other comprehensive income and accumulated separately in hedging reserve. Any gain or loss relating to an ineffective portion is recognised immediately in the consolidated statement of profit or loss.For cash flow hedge of a recognised asset or liability the associated cumulative gain or loss is reclassified from hedging reserve to the consolidated statement of profit or loss in the same period during which the hedged cash flows affect profit and loss. When a hedging instrument expires or is sold or when a hedge no longer meets the criteria for hedge accounting any cumulative gain or loss at that time remains in hedging reserve until the forecast transaction is ultimately recognised in the consolidated statements of profit or loss. When a forecast transaction is no longer expected to occur the cumulative gain or loss is immediately reclassified to the consolidated statement of profit or loss.– F-26 –China Merchants Bank Chapter VIII Financial Statements 187 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments (continued) Hedge accounting (continued) Hedge effectiveness testing The Group has elected to adopt the general hedge accounting in IFRS 9 Financial Instruments. This requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.For hedge effectiveness assessment the Group considers whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk which is when the hedging relationships meet all of the following hedge effectiveness requirements: * there is an economic relationship between the hedged item and the hedging instrument; * the effect of credit risk does not dominate the value changes that result from that economic relationship; and * the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item.If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same the Group adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.Specific items Cash equivalents Cash equivalents comprise investments that are short term highly liquid readily convertible into known amounts of cash and subject to insignificant risk of changes in value and unrestricted balances with the central banks banks and other financial institutions and amounts held under resale agreements with original maturity of 3 months or less.Balances and placements with banks and other financial institutions Banks refer to those approved by the People’s Bank of China (“PBOC”) and other authorities. Other financial institutions represent finance companies insurance companies investment trust companies leasing companies and insurance companies which are registered with and under the supervision of the China Banking and Insurance Regulatory Commission (the “CBIRC”) and securities firms and investment fund companies which are registered with and under the supervision of other regulatory authorities. Balances and placements with banks and other financial institutions are measured at amortised cost.Resale and repurchase agreementsAmounts for purchase of financial assets under resale agreements are accounted for under “amounts held underresale agreements”. Amounts from sale of financial assets under repurchase agreements are accounted for under “amounts sold under repurchase agreements”.The difference between the purchase and resale consideration or sale and repurchase consideration is amortised over the period of the transaction using the effective interest method and is included in interest income or expense (as appropriate).– F-27 –188 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments (continued) Specific items (continued) Financial investments Equity investments are accounted for as financial assets at fair value through profit or loss or equity investments designated at fair value through other comprehensive income. Debt investments are classified as financial assets at fair value through profit or loss debt investments at amortised cost debt investments at fair value through other comprehensive income in accordance with the entity’s business model contractual cash flow characteristics and the fair value option.Loans and advances to customers Loans and advances directly granted by the Group to customers and finance leases receivables are accounted for as loans and advances to customers.Loans and advances to customers are classified as loans and advances to customers at fair value through profit or loss (loans and advances to customers at FVTPL) loans and advances to customers at amortised cost loans and advances to customers at fair value through other comprehensive income (loans and advances to customers at FVTOCI) in accordance with the entity’s business model contractual cash flow characteristics and the fair value option.Derivative financial instruments The Group’s derivative financial instruments mainly include forward foreign currency swaps interest rate swaps and option contracts undertaken in response to customers’ needs or for the Group’s own risk management purposes.The Group enters into derivative contracts with other banks that can conduct such business and financial institutions to hedge against risks arising from derivative transactions undertaken for customers.Derivative financial instruments are stated at fair value. Except for the gains or losses arising from the effective hedging portion of those derivatives in cash flow hedge and the gains or losses on the hedging instrument that hedges an non-trading equity instrument designated as at FVTOCI are recognised in other comprehensive income all other gains or losses are recognised in the consolidated statement of profit or loss.Embedded derivatives Derivatives embedded in hybrid contracts that contain financial asset hosts within the scope of IFRS 9 Financial Instruments are not separated. The entire hybrid contract is classified and subsequently measured in its entirety as either amortised cost or fair value as appropriate. Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of IFRS 9 Financial Instruments are treated as separate derivatives with the same terms when they meet the definition of a derivative their risks and characteristics are not closely related to those of the host contracts and the hybrid contracts are not measured at FVTPL. Separated embedded derivatives are measured at fair value with all changes in fair value recognised in profit or loss unless they form part of a qualifying cash flow hedging relationship.Equity instruments The consideration received from the issuance of equity instruments net of transaction costs is recognised in shareholders’ equity. Consideration and transaction costs paid by the Group for repurchasing self-issued equity instruments are deducted from shareholders’ equity.– F-28 –China Merchants Bank Chapter VIII Financial Statements 189 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments (continued) Specific items (continued) Equity instruments (continued) A financial instrument is an equity instrument if and only if both conditions (i) and (ii) below are met: (i) the financial instrument includes no contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; and (ii) if the financial instrument will or may be settled in the Group’s own equity instruments it is a non-derivative instrument that includes no contractual obligations for the Group to deliver a variable number of its own equity instruments; or a derivative that will be settled only by the Group exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.At initial recognition the Group classifies the perpetual bonds and perpetual debt capitals issued or their components as financial liabilities or equity instruments based on their contractual terms and their economic substance after considering the definition of financial liabilities and equity instruments.For perpetual bonds and perpetual debt capitals issued that classified as equity instruments any distribution of interests during the instruments’ duration is treated as profit appropriation. When the perpetual bonds and perpetual debt capitals are redeemed the redeemed amount is charged to equity. Relevant transaction expenses are deducted from equity.At initial recognition of preference shares the Group classifies the preference shares issued or their components as financial liabilities or equity instruments based on their contractual terms and their economic substance after considering the definition of financial liabilities and equity instruments.When the Group classifies preference shares issued as an equity instrument fees commissions and other transaction costs of preference shares issuance are deducted from equity. The dividends on preference shares are recognised as profit distribution at the time of declaration.Derecognition of financial instruments (a) Financial assets A financial asset (or where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: * the rights to receive cash flows from the asset have expired; or * the Group has transferred its rights to receive cash flows from the asset; or * has retained its rights to receive cash flows from the asset but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; and either the Group has transferred substantially all the risks and rewards of ownership of the financial asset; or the Group has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset but has transferred control of the asset.Where the Group has transferred its rights to receive cash flows from an asset or has retained its rights to receive cash flows from the asset but has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset the asset is recognised to the extent of the Group’s continuing involvement in the asset.Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.The Group writes off a financial asset (if any) when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.– F-29 –190 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (5) Financial instruments (continued) Derecognition of financial instruments (continued) (b) Securitisation As part of its operational activities the Group securitises credit assets generally through the sale of these assets to structured entities which issue securities to investors. Interests in the securitised financial assets may be retained in the form of senior or junior tranches or other residual interests (retained interests).When applying the accounting policies on securitised financial assets the Group has considered both the degree of transfer of risks and rewards on the transferred financial assets and the degree of control exercised by the Group over the transferred financial assets: * when the Group transfers substantially all the risks and rewards of ownership of the financial assets the Group shall derecognise the financial assets; * when the Group retains substantially all the risks and rewards of ownership of the financial assets the Group shall continue to recognise the financial assets; and * when the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial assets the Group would determine whether it has retained control of the financial assets. If the Group has not retained control it shall derecognise the financial assets and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer. If the Group has retained control it shall continue to recognise the financial assets to the extent of its continuing involvement in the financial assets.When a securitisation of financial assets does not qualify for derecognition the relevant financial assets are not derecognised and the consideration collected from third parties are recorded as a financial liability.When the securitisation results in derecognition or partial derecognition of financial assets the Group allocates the carrying amount of the transferred financial assets between the financial assets derecognised and the retained interests based on their relative fair values at the date of transfer. Gains or losses on securitisation which is the difference between the consideration received and the allocated carrying amount of the financial assets derecognised are recorded in “other net income”. The retained interests continue to be recognised on the same basis before the securitisation.(c) Sales of assets on condition of repurchase Derecognition of financial assets sold on condition of repurchase is determined by the economic substance of the transaction. If a financial asset is sold under an agreement to repurchase the same or substantially the same asset at a fixed price or at the sale price plus a reasonable return the Group will not derecognise the asset. If a financial asset is sold together with an option to repurchase the financial asset at its fair value at the time of repurchase (in case of transferor sells such financial asset) the Group will derecognise the financial asset.(d) Financial liabilities A financial liability (or part of it) is derecognised when the obligation under the liability (or part of it) is discharged cancelled or expired.Offsetting financial instruments Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position when and only when the Group currently has there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.– F-30 –China Merchants Bank Chapter VIII Financial Statements 191 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (6) Property equipment investment property and depreciation Property equipment and investment property are stated at cost or deemed cost less accumulated depreciations and accumulated impairment losses. These also include land held under operating leases and buildings thereon where the fair value of the leasehold interest in the land and buildings cannot be measured separately at the inception of the lease and the building is not clearly held under an operating lease.Depreciation is calculated to write off the cost of property equipment and investment property over the following estimated useful lives after taking into account an estimated residual value on a straight-line basis: Land and buildings 20 years Investment properties 20 years Computer equipment 3 years Leasehold improvements (leased property) the estimated useful lives Leasehold improvements (self-owned property) the estimated useful lives Aircraft vessels and professional equipment no more than 25 years Other 3 – 5 years Construction in progress represents property under construction and is stated at cost less impairment losses. Cost comprises the direct and indirect cost of construction. Construction in progress is transferred to an appropriate class of property or other asset when the asset is ready for its intended use. No depreciation is provided for construction in progress.Subsequent expenditure relating to a property equipment and investment property is capitalised only when it is probable that future economic benefits associated with the property and equipment will flow to the Group. All other expenditure is recognised in the consolidated statement of profit or loss as an expense as incurred.Profits or losses on disposal of property equipment and investment property are determined as the difference between the net disposal proceeds and the carrying amount of the property equipment and investment property and are accounted for in the consolidated statement of profit or loss as they arise. (7) Repossessed assets In the recovery of impaired loans and advances the Group may take possession of assets held as collateral through court proceedings or voluntary delivery of possession by the borrowers. Repossessed assets other than equity instrument are reported in “other assets”.Repossessed assets of equity instruments are detailed in Note 4(5). (8) Intangible assets Intangible assets are stated at cost less accumulated amortisation (only intangible assets with finite useful lives) and accumulated impairment losses (see Note 4(11)). Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives.Intangible assets are not amortised while their useful lives are assessed to be indefinite. The Group does not have intangible assets with useful lives assessed to be indefinite as at the end of the reporting period.The amortisation period of intangible assets is as follows: Software and Other Core deposit 2 – 20 years 28 years Both the periods and method of amortisation are reviewed annually.– F-31 –192 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (9) Leases Definition of a lease A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group assesses whether a contract is or contains a lease based on the definition under IFRS 16 Leases at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.As a lessee (a) Allocation of consideration to components of a contract For a contract that contains a lease component and one or more additional lease or non-lease components the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.(b) Short-term leases and leases of low-value assets The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee except for short-term leases (lease term of 12 months or less and do not contain a purchase option) and leases of low value assets (the value of assets is equivalent to below RMB35000).Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.(c) Right-of-use assets The right-of-use assets are presented as a separate line in the consolidated statement of financial position.The right-of-use asset is initially measured at cost. This cost includes: * the amount of the initial measurement of the lease liability; * any lease payments made at or before the commencement date less any lease incentives received; * any initial direct costs incurred by the lessee; and * whenever the Group incurs an obligation for costs to dismantle and remove a leased asset restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease a provision is recognised and measured under IAS 37 Provisions Contingent Liabilities and Contingent Assets . The costs are included in the related right-of-use asset unless those costs are incurred to produce inventories.After the commencement date the right-of-use assets are measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses adjusted for any remeasurement of the lease liability.The Group recognises the depreciation of right-of-use assets as an operating expense on a straight-line basis.Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers the ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option the related right-of-use asset is depreciated over the useful life of the underlying asset.Accounting policy for any identified right-of-use asset impairment loss are disclosed in Note 4(11).– F-32 –China Merchants Bank Chapter VIII Financial Statements 193 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (9) Leases (continued) As a lessee (continued) (d) Leasehold land and building For payments of a property interest which includes both leasehold land and building elements the entire property is presented as property and equipment of the Group when the payments cannot be allocated reliably between the leasehold land and building elements except for those that are classified and accounted for as investment properties.(e) Lease liabilities Lease liability is presented as a separate line in the consolidated statement of financial position.Except for short-term leases and leases of low-value asset lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date using lessee’s incremental borrowing rate as the discount rate.Lease payments refer to the payment made by the lessee to the lessor in connection with the right to use the leased assets during the lease term. Lease payments included in the measurement of the lease liability comprise: * fixed lease payments (including in-substance fixed payments) less any lease incentives; * variable lease payments that depend on an index or rate initially measured using the index or rate at the commencement date; * the exercise price of purchase options if the lessee is reasonably certain to exercise the options; * payments of penalties for terminating the lease if the lease term reflects the exercise of an option to terminate the lease; and * the amount expected to be payable by the lessee under remaining value guarantees.After the beginning date of the lease term the Group calculates the interest expense of the lease liability in each period of the lease term at a fixed periodic interest rate and recognised it in the current profit and loss or related asset costs.After the commencement date the Group remeasures the lease liability according to the present value calculated by the revised lease payment amount and the revised discount rate and makes a corresponding adjustment to the related right-of-use asset whenever: * the lease term has changed or there is a change in the assessment of exercise of a purchase option in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; or * the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed remaining value in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate. But if the change in lease payments results from a change in floating interest rates the lessee shall use a revised discount rate that reflects changes in the interest rate.– F-33 –194 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (9) Leases (continued) As a lessor Leases for which the Group is a lessor are classified as finance or operating leases. When the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee the contract is classified as a finance lease.All other leases are classified as operating leases.Where the Group is a lessor under finance leases an amount representing the net investment in the lease is included in the consolidated statement of financial position as “loans and advances to customers”. Unrecognised finance income under finance leases are amortised using the effective interest method over the lease term. Accounting policy for impairment losses are disclosed in Note 4(5).When the Group is a lessor of an operating lease income derived from operating lease is recognised in the consolidated statement of profit or loss using the straight-line method over the lease term. If initial direct costs incurred in respect of the assets leased out are material the costs are initially capitalised and subsequently amortised in profit or loss over the lease term on the same basis as the lease income. Contingent lease income is charged to profit or loss in the accounting period in which it is incurred.When a contract includes lease and non-lease components the Group applies IFRS 15 Revenue from Contracts with Customers to allocate the consideration under the contract to each component.As a buyer-lessor in a sale and leaseback transactions For a transfer of asset that does not meet the requirements of IFRS 15 Revenue from Contracts with Customers to account for a sale of asset the Group acting as a buyer-lessor does not recognise the transferred asset and recognises loan and advance to customers at an amount that equals the transfer proceed within the scope of IFRS 9 Financial Instruments . (10) Insurance contracts Insurance contracts classification Insurance contracts are those contracts under which the Group has accepted significant insurance risk relative to an insured event or occurrence. When necessary the Group enters into reinsurance contracts to transfer insurance risks to reinsurer. A significant insurance risk test is performed at inception of the insurance contracts.Insurance income recognition Premiums from long-term life insurance contracts are recognised as revenue when due from policy holders.Premiums related to short-term non-life insurance contracts are recognised when received at the inception of the policy as unearned insurance premiums in liabilities and are amortised on a straight-line basis into the consolidated statement of profit or loss over the term of the policy. When the Group has transferred insurance risk through reinsurance contracts the Group calculates the amount of premium ceded and the reinsurers’ share of expenses and recognises them through the consolidated statement of profit or loss in accordance with the terms of the reinsurance contracts.Insurance contract liabilities Insurance contract liabilities are measured based on a reasonable estimate of the amount of payments that the Group will be required to make to fulfil its obligations under the insurance contracts which represents the difference between expected future cash outflows and inflows related to such contracts. A reasonable estimate of expected future net cash flows is determined based on information currently available as at the end of the reporting period.The Group has considered the impact of time value in the liability calculation for long-term life insurance. The Group performs liability adequacy tests based on information currently available as at the reporting date. Additional insurance contract liabilities should be recorded if any deficiency exists.– F-34 –China Merchants Bank Chapter VIII Financial Statements 195 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (11) Impairment on tangible and intangible assets other than impairment under ECL model The carrying amount of tangible and intangible assets including property and equipment right-of-use assets intangible assets investment properties interests in joint ventures interests in associates goodwill and other non-current assets are reviewed periodically in order to assess whether the recoverable amount has declined below the carrying amount. When such a decline has occurred the carrying amount is reduced to the recoverable amount.The amount of impairment loss is recognised in the consolidated statement of profit or loss. The recoverable amount of an asset is the greater of its fair value less disposal expense and present value of future expected cash flows. In assessing value in use the estimated future cash flows are discounted to their present values.Internal and external sources of information are reviewed at the end of the reporting period to identify any indications that other assets may be impaired.If any such indication exists the asset’s recoverable amount is estimated. In addition for goodwill intangible assets that are not yet available for use and intangible assets that have indefinite useful lives the recoverable amount is estimated by the Group at the end of the reporting period whether or not there is any indication of impairment.– Calculation of recoverable amount The recoverable amount of an asset or a cash-generating unit is the greater of its fair value less disposal expense and the present value of future cash flows. In assessing value in use the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).– Recognition of impairment losses An impairment loss is recognised in the consolidated statement of profit or loss whenever the carrying amount of an asset or the cash-generating unit to which it belongs exceeds its recoverable amount.Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell or value in use if determinable. (12) Precious metals Precious metals that are not related to the Group’s trading activities are initially measured at acquisition cost and subsequently measured at the lower of cost and net realisable value. Precious metals that are related to the Group’s trading activities are initially recognised at fair value with changes in fair value arising from remeasurement recognised directly in the consolidated statement of profit or loss in the period in which they arise.– F-35 –196 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (13) Financial guarantee issued provisions and contingent liabilities Financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. The provision of financial guarantees issued is recognised in the consolidated statement of financial position in accordance with accounting policy set out in Note 4(5).Provisions and contingent liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event it is highly probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material provisions are stated at the present value of the expenditures expected to settle the obligation.Where it is not probable that an outflow of economic benefits will be required or the amount cannot be estimated reliably the obligation is disclosed as a contingent liability unless the probability of outflow of economic benefits is remote. (14) Income recognition Revenue is the inflow of economic benefits that the Group has formed in its daily activities that will result in an increase in shareholders’ equity and have nothing to do with the capital invested by shareholders.Net interest income Interest income and expense for all financial instruments except for those classified as at FVTPL are recognised in “Interest income” and “Interest expense” in the profit or loss account using the effective interest method. Interest on financial instruments measured as at FVTPL is included within the fair value movement during the period which is recognised in “Other net income”.Dividend income Dividend income from investments is recognised when the dividend is declared and approved by the investee.Rental income Income derived from operating leases is recognised in the consolidated statement of profit or loss using the straight-line method over the lease term.Premium income Premium income represents gross insurance premium written less reinsurance ceded as adjusted for unearned premium. Gross premiums written are recognised at the date of risk inception.– F-36 –China Merchants Bank Chapter VIII Financial Statements 197 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (14) Income recognition (continued) Fee and commission income Under IFRS 15 Revenue from Contracts with Customers the Group recognises revenue when (or as) a performance obligation is satisfied i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer.A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same. For contracts that contain more than one performance obligation the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis except for the allocation of discounts and variable consideration.The stand-alone selling price of the distinct goods or service underlying each performance obligation is determined at contract inception. It represents the price at which the Group would sell a promised goods or service separately to a customer. If a stand-alone selling price is not directly observable the Group estimates it using appropriate techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services to the customer.For contracts that contain variable consideration the Group estimates the amount of consideration to which it will be entitled using either (a) the expected value method or (b) the most likely amount depending on which method better predicts the amount of consideration to which the Group will be entitled.The estimated amount of variable consideration is included in the transaction price only to the extent that it is highly probable that such an inclusion will not result in a significant revenue reversal in the future when the uncertainty associated with the variable consideration is subsequently resolved. At the end of each reporting period the Group updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.For each performance obligation identified the Group determines at contract inception whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time. Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: * the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; * the Group’s performance creates and enhances an asset that the customer controls as the Group performs; or * the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.Otherwise revenue is recognised at a point in time.If the revenue is recognised over time the Group recognises revenue in accordance with the progress towards complete satisfaction of a performance obligation. The progress towards complete satisfaction of a performance obligation is measured based on output method which is to recognise revenue on the basis of direct measurements of the value of the goods or services transferred to the customer to date relative to the remaining goods or services promised under the contract that best depicts the Group’s performance in transferring control of goods or services.– F-37 –198 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (14) Income recognition (continued) Fee and commission income (continued) If revenue is recognised at a point in time the Group recognises the revenue when the customer obtains control of the distinct good or service. To determine the point in time at which a customer obtains control of a promised service the following indicators of the transfer of control should also be considered. They include but are not limited to: * the Group has a present right to payment for the goods or services; * the Group has transferred physical possession of the goods; * the customer has the significant risks and rewards of ownership of the goods; * the customer has accepted the goods or services.When another party is involved in providing goods or services to a customer the Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent).The Group is a principal if it can control the goods or service before transferring it to customers. The Group is an agent if its performance obligation is to arrange for the provision of the specified goods or service by another party.In this case the Group does not control the specified goods or service provided by another party before that goods or service is transferred to the customer. When the Group acts as an agent it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party.A contract asset represents the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer that is not yet unconditional. In contrast a receivable represents the Group’s unconditional right to consideration i.e. only the passage of time is required before payment of that consideration is due.A contract liability represents the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. (15) Taxation Current income tax and movements in deferred tax balances are recognised in the consolidated statement of profit or loss except to the extent that it relates to items recognised directly in equity in which case it is recognised in equity.Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years.Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit.Deferred tax assets also arise from unused tax losses and unused tax credits. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates of expected returns of the assets or the repayment of the liabilities. Deferred tax assets and liabilities are not discounted.A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced by the extent that it is no longer probable that the related tax benefit will be realised.The Group shall recognise a deferred tax asset for all deductible temporary differences associated with investments in subsidiaries and interests in associates and joint ventures that both of the following conditions are satisfied: the temporary differences are likely to be reversed in the foreseeable future; and it is probably to obtain the taxable income used to offset the deductible temporary difference in the future. The Group shall recognise a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and interests in associates and joint ventures except where both of the following conditions are satisfied: the investor is able to control the timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future.– F-38 –China Merchants Bank Chapter VIII Financial Statements 199 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (15) Taxation (continued) Current tax balances and deferred tax balances and movements therein are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities and deferred tax assets against deferred tax liabilities if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met: * in the case of current tax assets and liabilities the Group intends either to settle on a net basis or to realise the asset and settle the liability simultaneously; or * in the case of deferred tax assets and liabilities if they relate to income taxes levied by the same taxation authority on either: – the same taxable entity; or – different taxable entities which in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously. (16) Foreign currencies translations In preparing the financial statements of each individual group entity transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value is determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for: * exchange differences on transactions entered into as part of the effective portion of a hedge on certain foreign currency risks; or * exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation) which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items.For the purposes of presenting these consolidated financial statements the assets and liabilities of the Group’s foreign operations are translated into currency units using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly during that period in which case the exchange rates at the dates of the transactions are used.Exchange differences arising if any are recognised in other comprehensive income and accumulated in exchange reserve (and attributed to non-controlling interests as appropriate).On the disposal of a foreign operation all of the exchange differences accumulated in exchange reserve in respect of that operation attributable to the owners of the Bank are reclassified to the consolidated statement of profit or loss.– F-39 –200 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 4. Principal accounting policies (continued) (17) Employee benefits Salaries and staff welfare Salaries bonuses and other benefits are accrued in the period in which the associated services are rendered by employees.Post-employment benefits The Group participates in a number of defined contribution retirement benefit schemes managed by different provincial governments or independent insurance companies. Obligation for contributions to these schemes are jointly borne by the Group and the staff and contributions paid by the Group are recognised as an expense in the consolidated statement of profit or loss as incurred.The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods discounting that amount and deducting the fair value of any plan assets.The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits consideration is given to any applicable minimum funding requirements.Remeasurements of the net defined benefit liability which comprise actuarial gains and losses the return on plan assets (excluding interest) and the effect of the asset ceiling (if any excluding interest) are recognised immediately in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset) taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in personnel expenses in the consolidated statement of profit or loss.When the benefits of a plan are changed or when a plan is curtailed the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.Share-based payment The Group offers H share appreciation rights to its employee namely H Share Appreciation Rights Scheme for the Senior Management (“the Scheme”) which is settled in cash. Cash-settled share-based payments are measured at the fair value of the liabilities incurred by the Group which are determined based on the price of the share. The Group recognises the services for the period as related costs or expenses with a corresponding increase in liability at an amount equal to the fair value of the liability based on the best estimate of the outcome of vesting at the end of each reporting period within the vesting period. Until the liability is settled the Group remeasures the fair value of the liability at each reporting period end and at the date of settlement with any changes in fair value recognised in profit or loss for the period.The fair value of the H share appreciation rights is using Black-Scholes model taking into account the terms and condition upon which the H share appreciation rights were granted.– F-40 –China Merchants Bank Chapter VIII Financial Statements 201 Annual Report 2022 (H share) 4. Principal accounting policies (continued) (18) Related parties For the purposes of these consolidated financial statements parties are considered to be related to the Group if the Group has the ability directly indirectly or jointly to control the party or exercise significant influence over the party in making financial and operating decisions or vice versa or where the Group and the party are subject to control common control or common significant influence (except that the Group and the party are subject to common significant influence of the other party). Related parties may be individuals (being members of key management personnel significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group. (19) Segmental reporting Operating segments and the amounts of each segment item reported in the consolidated financial statements are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to and assessing the performance of the Group’s various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services the nature of production processes the type or class of customers the methods used to distribute the products or provide the services and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they meet most of these criteria. (20) Fiduciary activities The Group acts in a fiduciary capacity in entrusted loan and entrusted investment business. Assets held by the Group and the related undertakings to return such assets to customers are excluded from the consolidated statement of financial position as the risks and rewards of the assets reside with the customers. The Group only charges a relevant commission. (21) Dividends or profit distributions Dividends or profit distributions are recognised as a liability in the year in which they are approved and declared. (22) General reserve The general reserve is an integral part of equity. According to the relevant regulations in addition to the impairment allowances the Bank maintains a general reserve to make up for unidentified potential losses. In principle the balance of general reserve shall not be less than 1.5% of the ending balance of risk assets. In addition the general reserve includes 2.5% of the income of mutual fund custody businesses. The general reserve of the Group also includes the general reserve maintained by the subsidiaries of the Group according to the applicable laws and regulations of their industry or region.– F-41 –202 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 5. Significant accounting estimates and judgements In determining the carrying amounts of some assets and liabilities the Group makes assumptions for the effects of uncertain future events on the assets and liabilities at the end of the reporting period. These estimates involve assumptions about cash flows and the discount rates used. The Group’s estimates and assumptions are based on historical experience and expectations of future events and are reviewed periodically. In addition to the assumptions and estimations of future events judgements are also made during the process of applying the Group’s accounting policies. (1) Control over structured entity Where the Group acts as asset manager of structured entities the Group makes judgement on whether it is the principal or an agent to assess whether the Group controls the structured entities and should consolidate them.When performing this assessment the Group considers several factors including among others the scope of its decision-making authority over the structured entities the rights held by other parties the remuneration to which it is entitled in accordance with the related agreements for the assets management services the Group’s exposure to variability of returns from interests that it holds in the structured entities. (2) Classification of financial assets Business model assessment: Classification and measurement of financial assets of the Group involves significant judgement on business model. The Group determines the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. Specific considerations include how the performance of the assets is evaluated and measured the risks that affect the performance of the assets and how these are managed and how the managers of the assets are compensated. (3) Derecognition of financial assets transferred In its normal course of business the Group transfers its financial assets through various types of transactions including regular way sales and transfers securitisation financial assets sold under repurchase agreements. The Group applies significant judgement and estimate in assessing whether it has transferred these financial assets and qualified for a full derecognition.Where the Group enters into structured transactions by which it transfers financial assets to structured entities the Group analyses whether the substance of the relationship between the Group and these structured entities indicates that it controls these structured entities and the Group needs to consolidate them. This will determine whether the following derecognition analysis should be conducted at the consolidated level or at the entity level from which the financial assets are transferred.The Group analyses the contractual rights and obligations in connection with such transfers to determine whether derecognition criteria are met based on the following considerations: * whether it has transferred the rights to receive contractual cash flows from the financial assets or the transfer qualifies for the “pass through” of those cash flows to independent third parties; * the extent to which the associated risks and rewards of ownership of the financial assets are transferred.Significant judgement and estimate is applied in the Group’s estimation with regard to the cash flows before and after the transfers and other factors that affect the outcomes of the Group’s assessment on the extent that risks and rewards are transferred.– F-42 –China Merchants Bank Chapter VIII Financial Statements 203 Annual Report 2022 (H share) 5. Significant accounting estimates and judgements (continued) (4) Impairment under ECL model * Significant increase in credit risk: ECL is measured as an allowance equal to 12-month ECL for stage 1 assets or lifetime ECL for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk has increased significantly since initial recognition. In assessing whether the credit risk of an asset has significantly increased the Group takes into account qualitative and quantitative reasonable and supportable forward looking information. Refer to Note 60(a)(ii) for more details.* Establishing groups of assets with similar credit risk characteristics: When ECLs are measured on a collective basis the financial instruments are grouped on the basis of shared risk characteristics. Refer to Note 60(a)(v) for details of the characteristics considered in this judgement. The Group monitors the appropriateness of the credit risk characteristics on an ongoing basis to assess whether they continue to be similar. This is required in order to ensure that should credit risk characteristics change there is appropriate re-segmentation of the assets. This may result in new portfolios being created or assets moving to an existing portfolio that better reflects the similar credit risk characteristics of that group of assets.* Models and assumptions used: The Group uses various models and assumptions in estimating ECL. Judgement is applied in identifying the most appropriate model for each type of asset as well as for determining the assumptions used in these models including assumptions that relate to key drivers of credit risk. Refer to Note 60(a)(iii)for more details.* Forward-looking information: When measuring ECL the Group uses reasonable and supportable forward looking information which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other. Refer to Note 60(a)(iv) for more details.* Probability of Default (“PD”): PD constitutes a key input in measuring ECL. PD is an estimate of the likelihood of default over a given time horizon the calculation of which includes historical data assumptions and expectations of future conditions. Refer to Note 60(a) (iii) for more details.* Loss Given Default (“LGD”): LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive taking into account cash flows from collateral and integral credit enhancements. Refer to Note 60(a)(iii) for more details.– F-43 –204 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 5. Significant accounting estimates and judgements (continued) (5) Fair value of financial instruments For a number of financial instruments no quoted prices in an active market exist. The fair value for these financial instruments are established by using valuation techniques. These techniques include using recent arm’s length market transactions reference to the current fair value of similar instruments discounted cash flow analysis or option pricing models. The Group has established a process to ensure that valuation techniques are constructed by qualified personnel and are validated and reviewed by personnel independent of the business unit that constructed the valuation techniques. Valuation techniques are certified before being implemented for valuation and are calibrated to ensure that outputs reflect actual market conditions. Valuation models established by the Group make the maximum use of market inputs and rely as little as possible on the Group’s specific data. However it should be noted that some inputs such as credit and counterparty risk and risk correlations require management estimates.Management estimates and assumptions are reviewed periodically and adjusted if necessary. If the fair value is measured using third party information such as broker quotes or pricing services the valuation team will evaluate the evidence obtained from third party to support the conclusion that the relevant valuation meets the requirements of IFRS including the category of the relevant valuation at the appropriate level in the fair value hierarchy. (6) Income taxes Determining income tax provisions involves judgement on the future tax treatment of certain transactions. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reviewed periodically to take into account all changes in tax legislations. Deferred tax assets are recognised for tax losses not yet used and temporary deductible differences. As those deferred tax assets can only be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax credits can be utilised management’s judgement is required to assess the probability of future taxable profits. Management’s assessment is constantly reviewed and additional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax asset to be recovered. (7) Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis and when circumstances indicate that the carrying value may be impaired. This requires an estimation of the recoverable amount of the CGU or group of CGUs to which the goodwill is allocated. Estimating the recoverable amount requires the Group to make an estimate of the expected future cash flows from CGU or group of CGUs and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Where the actual future cash flows are less than expected or change in facts and circumstances which results in downward revision of future cash flows or upward revision of discount rate a material impairment loss or further impairment loss may arise.– F-44 –China Merchants Bank Chapter VIII Financial Statements 205 Annual Report 2022 (H share) 6. Interest income 20222021 Loans and advances to customers 265601 250662 – Corporate loans 86754 80575 – Retail loans 168174 159124 – Discounted bills 10673 10963 Balances with central banks 8482 7792 Balances with banks and other financial institutions 1242 902 Placements with banks and other financial institutions 7760 5526 Amounts held under resale agreements 4487 6115 Financial investments 65808 56059 – Debt investments at FVTOCI 19654 15875 – Debt investments at amortised cost 46154 40184 Total 353380 327056 Note: For the year ended 31 December 2022 included in the above is the interest income of RMB12668 million accrued on loans and advances to customers at fair value through other comprehensive income (2021: RMB12337 million). 7. Interest expense 20222021 Deposits from customers 105836 84332 Borrowing from central banks 2828 7635 Deposits from banks and other financial institutions 9782 11993 Placements from banks and other financial institutions 4567 3519 Amounts sold under repurchase agreements 1960 2571 Debt securities issued 9662 12532 Lease liabilities 510 555 Total 135145 123137 8. Fee and commission income 20222021 Commissions from wealth management 30903 36053 Commissions from asset management 12457 10856 Bank cards fees 21399 19377 Clearing and settlement fees 15051 13902 Commissions from credit commitment and lending business 5753 6321 Commissions on custodian business 5791 5433 Other 12018 10376 Total 103372 102318In 2022 the Group optimised the grouping criteria for the detailed items of “Commissions from wealthmanagement” and “Other” in the note to fee and commission income and the comparative figures were re- presented accordingly.– F-45 –206 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 9. Other net income 20222021 Net (loss)/gain from fair value change (2675) 92 – financial instruments at fair value through profit or loss (2204) 544 – derivatives instruments (120) 12 – precious metals (351) (464) Net investment income 18013 17822 – financial instruments at FVTPL 12443 14839 – gain/(loss) on disposal of financial assets at amortised cost 170 (657) – gain on disposal of debt instruments at FVTOCI 5161 3516 – of which: gain on disposal of bills 3291 2434 – dividend income from equity investments designated at FVTOCI 153 74 – other 86 50 Foreign exchange gain 3600 3351 Other income 9702 6868 – rental income 9181 6415 – insurance income 521 453 Other 1065 878 Total 29705 29011 10. Operating expenses 20222021 Staff costs 70657 66028 – Salaries and bonuses 55647 51031 – Social insurance and corporate supplemental insurance 8421 8011 – Other 6589 6986 Tax and surcharges 3005 2772 Depreciation of property and equipment and investment properties 10279 8857 Amortisation of intangible assets 1061 1153 Depreciation of right-of-use assets 4151 4259 Short-term leases expense and leases of low-value assets expense 229 250 Charge for insurance claims 360 311 Other general and administrative expenses (note) 32319 33249 Total 122061 116879 Note: Auditors’ remuneration amounting to RMB31 million for the year ended 31 December 2022 (2021: RMB29 million) is included in other general and administrative expenses.– F-46 –China Merchants Bank Chapter VIII Financial Statements 207 Annual Report 2022 (H share) 11. Directors’ and supervisors’ emoluments The emoluments of the Directors and Supervisors during the year were as follows: 2022 Salaries allowances Retirement Directors’ and benefits Discretionary scheme fees in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (i) (i) Executive director Wang Liang – 3625 – – 3625 Subtotal – 3625 – – 3625 The executive director’s emoluments shown above were for his services in connection with the management of the affairs of the Bank and the Group.Non-executive directors Miao Jianmin – – – – – Hu Jianhua (ii) – – – – – Sun Yunfei (ii) – – – – – Zhou Song – – – – – Hong Xiaoyuan – – – – – Zhang Jian – – – – – Su Min – – – – – Chen Dong (ii) – – – – – Subtotal – – – – – The non-executive directors shown above did not receive remuneration from the Bank.Independent non-executive directors and supervisors Wong See Hong 500 – – – 500 Li Menggang 500 – – – 500 Liu Qiao 500 – – – 500 Tian Hongqi 500 – – – 500 Li Chaoxian 500 – – – 500 Shi Yongdong 500 – – – 500 Xiong Liangjun – 3317 – – 3317 Luo Sheng (v) – – – – – Peng Bihong – – – – – Wu Heng – – – – – Xu Zhengjun 400 – – – 400 Cai Hongping (v) 202 – – – 202 Zhang Xiang (v) 202 – – – 202 Wang Wanqing – 2650 – – 2650 Cai Jin – 1548 – – 1548 Subtotal 3804 7515 – – 11319 The independent non-executive directors’ and supervisors’ emoluments shown above were for their services and employment as directors or supervisors of the Bank.– F-47 –208 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 11. Directors’ and supervisors’ emoluments (continued) 2022 Salaries allowances Retirement Directors’ and benefits Discretionary scheme fees in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (i) (i) Former executive non-executive directors and supervisors Fu Gangfeng (iv) – – – – – Tian Huiyu (iii) – – – – – Wang Daxiong (iii) – – – – – Luo Sheng (iii) – – – – – Guo Xikun (vi) – – – – – Ding Huiping (vi) 167 – – – 167 Han Zirong (vi) 167 – – – 167 Subtotal 334 – – – 334 The former executive non-executive directors’ and supervisors’ emoluments shown above were for their services as directors or supervisors of the Bank.Total 4138 11140 – – 15278 Notes: (i) The total remuneration before tax for the full-time directors supervisors and executive officers of the Group is not yet finalised. Details of their remaining compensation will be disclosed separately when their total remuneration is confirmed.(ii) In June 2022 according to the relevant resolutions passed at the 2021 Annual General Meeting of the Bank Mr. Hu Jianhua Mr. Sun Yunfei and Mr. Chen Dong were elected as Non-Executive Directors of the Bank whose qualifications as the Directors were approved by the CBIRC in October 2022.(iii) In June 2022 Mr. Wang Daxiong and Mr. Luo Sheng ceased to be Non-Executive Directors of the Bank after the end of the 2021 Annual General Meeting due to the expiry of their terms of office and Mr. Tian Huiyu ceased to be an Executive Director of the Bank after the end of the 2021 Annual General Meeting.(iv) In November 2022 Mr. Fu Gangfeng ceased to be the Vice Chairman and Non-Executive Director of the Bank due to change of work arrangement.(v) In June 2022 according to the relevant resolutions passed at the 2021 Annual General Meeting of the Bank Mr. Luo Sheng was elected as the Shareholder Supervisor of the Bank and Mr. Cai Hongping and Mr. Zhang Xiang were elected as External Supervisors of the Bank.(vi) In June 2022 Mr. Guo Xikun ceased to be the Shareholder Supervisor of the Bank due to the expiry of his terms of office and Mr. Ding Huiping and Mr. Han Zirong ceased to serve as External Supervisors of the Bank due to the expiry of their terms of office.(vii) As of 31 December 2022 the Group had offered 10 phases of H share appreciation rights under the Scheme. Details of the Scheme are set out in Note 39 (a)(iii).– F-48 –China Merchants Bank Chapter VIII Financial Statements 209 Annual Report 2022 (H share) 11. Directors’ and supervisors’ emoluments (continued) 2021 Salaries allowances Retirement Directors’ and benefits Discretionary scheme fees in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (i) Executive directors Tian Huiyu – 4158 – 40 4198 Wang Liang – 3302 1403 40 4745 Subtotal – 7460 1403 80 8943 The executive directors’ emoluments shown above were for their services in connection with the management of the affairs of the Bank and the Group.Non-executive directors Miao Jianmin – – – – – Fu Gangfeng – – – – – Zhou Song – – – – – Hong Xiaoyuan – – – – – Zhang Jian – – – – – Su Min – – – – – Wang Daxiong – – – – – Luo Sheng – – – – – Subtotal – – – – – The non-executive directors shown above did not receive remuneration from the Bank.Independent non-executive directors and supervisors Wong See Hong 500 – – – 500 Li Menggang 500 – – – 500 Liu Qiao 500 – – – 500 Tian Hongqi 500 – – – 500 Li Chaoxian (ii) 183 – – – 183 Shi Yongdong (ii) 183 – – – 183 Xiong Liangjun (iii) – 3164 1344 48 4556 Peng Bihong – – – – – Wu Heng – – – – – Guo Xikun (iv) – – – – – Ding Huiping 400 – – – 400 Han Zirong 400 – – – 400 Xu Zhengjun 400 – – – 400 Wang Wanqing – 2747 – 48 2795 Cai Jin (v) – 123 – 48 171 Subtotal 3566 6034 1344 144 11088 The independent non-executive directors’ and supervisors’ emoluments shown above were for their services and employment as directors or supervisors of the Bank.– F-49 –210 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 11. Directors’ and supervisors’ emoluments (continued) 2021 Salaries allowances Retirement Directors’ and benefits Discretionary scheme fees in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (i) Former executive non-executive directors and supervisors Liu Jianjun (vi) – 1373 531 19 1923 Leung Kam Chung Antony (ii) 317 – – – 317 Zhao Jun (ii) 317 – – – 317 Liu Yuan (vii) – 2368 898 31 3297 Wen Jianguo (viii) – – – – – Liu Xiaoming (ix) – 1979 – 48 2027 Subtotal 634 5720 1429 98 7881 The former executive non-executive directors’ and supervisors’ emoluments shown above were for their services as directors or supervisors of the Bank.Total 4200 19214 4176 322 27912 Notes: (i) On 29 September 2022 the Board of Directors approved the discretionary bonuses of the Bank’s directors supervisors and executive officers for 2021.(ii) In June 2021 according to the relevant resolutions passed at the 2020 Annual General Meeting of the Bank Mr. Li Chaoxian and Mr. Shi Yongdong were elected as the Independent Non-Executive Directors of the Bank whose qualifications as the Independent Non-Executive Directors were approved by the CBIRC in August 2021. At the same time Mr. Leung Kam Chung Antony and Mr. Zhao Jun ceased to be the Independent Non-Executive Directors of the Bank due to the expiry of their terms of office.(iii) In August 2021 Mr. Xiong Liangjun was elected as the Employee Supervisor of the Bank at the employee representative meeting of the Bank.According to the resolutions passed at the 21st meeting of the Eleventh Session of the Board of Supervisors of the Bank Mr. Xiong Liangjun was elected as the Chairman of the Board of Supervisors of the Bank.(iv) In June 2021 according to the relevant resolutions passed at the 2020 Annual General Meeting of the Bank Mr. Guo Xikun was elected as the Shareholder Supervisor of the Bank.(v) In December 2021 Ms. Cai Jin was elected as the Employee Supervisor of the Bank at the employee representative meeting of the Bank.(vi) In May 2021 Mr. Liu Jianjun ceased to be the Executive Director Executive Vice President and Secretary of the Board of Directors of the Bank due to change of work arrangement.(vii) In August 2021 Mr. Liu Yuan ceased to be the Chairman of Board of Supervisors and Employee Supervisor of the Bank due to change of work arrangement.(viii) In April 2021 Mr. Wen Jianguo ceased to be the Shareholder Supervisor of the Bank due to change of work arrangement.(ix) In December 2021 Mr. Liu Xiaoming ceased to be the Employee Supervisor of the Bank due to change of work arrangement.(x) As of 31 December 2021 the Group had offered 10 phases of H share appreciation rights under the Scheme. Details of the Scheme are set out in Note 39 (a)(iii).During the year of 2022 and 2021 no emoluments were paid by the Group to any of the persons who are directors or supervisors as an inducement to join or upon joining the Group or as compensation for loss of office.During the year of 2022 and 2021 there was no arrangement under which a director or a supervisor waived or agreed to waive any remuneration.– F-50 –China Merchants Bank Chapter VIII Financial Statements 211 Annual Report 2022 (H share) 12. Five highest paid individuals During the year ended 31 December 2022 the five highest paid individuals included six persons in total two of them were with the same emoluments and being the third highest paid individuals and two of them were with the same emoluments and being the fourth highest paid individuals. During the year ended 31 December 2021 the five highest paid individuals included five persons in total two of them were with the same emoluments and being the fourth highest paid individuals. Of these highest paid individuals two (2021: three) were directors or supervisors of the Bank whose emoluments were included in Note 11 above. The aggregate emolument of the remaining four (2021: two) highest paid individuals who were neither directors nor supervisors of the Bank is as follows: 20222021 RMB’000 RMB’000 Salaries and other emoluments 11764 6048 Discretionary bonuses – 2568 Contributions to defined contribution retirement schemes – 85 Total 11764 8701 These highest paid individuals who were neither directors nor supervisors of the Bank whose emoluments fell within the following bands is set out below: 20222021 HKD 3000001–35000004– 3500001–4000000–2 4000001–4500000–– 4500001–5000000–– 5000001–5500000–– 13. Loans to directors supervisors and executive officers Loans to directors supervisors and executive officers of the Group are as follows: 20222021 Aggregate amount of relevant loans made by the Group outstanding at year end 34 61 Maximum aggregate amount of relevant loans made by the Group outstanding during the year 47 66 – F-51 –212 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 14. Expected credit losses 20222021 Loans and advances to customers 45157 37020 – Loans and advances at amortised cost (Note 22(c)(i)) 40175 35678 – Loans and advances at FVTOCI (Note 22(c)(ii)) 4982 1342 Amounts due from banks and other financial institutions (3284) 6110 Financial investments 3879 15848 – Debt investments at amortised cost (Note 23(b)(iii)) 4234 13201 – Debt investments at FVTOCI (Note 23(c)(ii)) (355) 2647 Financial guarantees and loan commitments 7112 5639 Other 3887 1345 Total 56751 65962 15. Income tax (a) Income tax in the consolidated statement of profit or loss represents: 20222021 Current income tax expense 34276 38141 – Chinese mainland 33133 37222 – Hong Kong 973 767 – Overseas 170 152 Deferred taxation (8457) (10802) Total 25819 27339 (b) A reconciliation of income tax expense in the consolidated statement of profit or loss and that calculated at the applicable statutory tax rate is as follows: 20222021 Profit before taxation 165113 148173 Tax at the PRC statutory income tax rate of 25% (2021: 25%) 41278 37043 Tax effects of the following items: – Effects of non-deductible expenses 1593 1392 – Effects of non-taxable income (17114) (12053) – Effects of different applicable rates in other jurisdictions (215) (258) – Transfer out of previously recognised deferred tax assets 955 1716 – Tax effect of perpetual bond interest expense (942) (550) – Other 264 49 Income tax expense 25819 27339 Note: Taxation for Hong Kong and overseas operations are charged at the applicable rates of tax prevailing in relevant regions.– F-52 –China Merchants Bank Chapter VIII Financial Statements 213 Annual Report 2022 (H share) 16. Other comprehensive income (a) Income tax effects relating to each component of other comprehensive income 20222021 Before-tax Tax benefit/ Net-of-tax Before-tax Tax benefit/ Net-of-tax amount (expense) amount amount (expense) amount Items that may be reclassified to profit or loss 732 553 1285 8382 (2526) 5856 – Net fair value (loss)/gain on debt instruments measured at FVTOCI (7353) 1736 (5617) 5675 (1519) 4156 – Net changes in expected credit losses of debt instruments measured at FVTOCI 4631 (1160) 3471 4060 (1024) 3036 – Net movement in cash flow hedge reserve 135 (23) 112 88 17 105 – Share of other comprehensive (expense)/ income from equity-accounted investees (1155) – (1155) 133 – 133 – Exchange difference on translation of financial statements of foreign operations 4429 – 4429 (1574) – (1574) – Other 45 – 45 – – – Items that will not be reclassified subsequently to profit or loss 40 (2) 38 1176 157 1333 – Net fair value gain on equity instruments designated at FVTOCI 52 (4) 48 1158 160 1318 – Remeasurement of defined benefit scheme (12) 2 (10) 18 (3) 15 Other comprehensive income 772 551 1323 9558 (2369) 7189 (b) Movements relating to components of other comprehensive income are as follows: 20222021 Net fair value (loss)/gain on debt instruments measured at FVTOCI Changes in fair value recognised during the year (1746) 6793 Reclassification adjustments for amounts transferred to profit or loss upon disposal (3871) (2637) Net movement in investment revaluation reserve during the year recognised in other comprehensive income (5617) 4156 Net changes in expected credit losses of debt instruments measured at FVTOCI Changes in expected credit losses recognised during the year 3471 3036 Net movement in investment revaluation reserve during the year recognised in other comprehensive income 3471 3036 Net fair value gain on equity instruments designated at FVTOCI Changes in fair value recognised during the year 48 1318 Net movement in investment revaluation reserve during the year recognised in other comprehensive income 48 1318 Net movement in cash flow hedge reserve Effective portion of changes in fair value of hedging instruments 112 74 Reclassification adjustment for realised gain to profit or loss – 31 Net movement in hedging reserve during the year recognised in other comprehensive income 112 105 – F-53 –214 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 17. Earnings per share The calculation of basic earnings per share is based on the net profit attributable to ordinary shareholders of the Bank and the weighted average number of shares in issue for the year. As there were no diluted potential ordinary shares for the years of 2022 and 2021 there was no difference between basic and diluted earnings per share for both years. 20222021 Net profit attributable to equity holders of the Bank 138012 119922 Less: Net profit attributable to preference shareholders of the Bank (1675) (1638) Net profit attributable to holders of perpetual bonds (3562) (1975) Net profit attributable to ordinary shareholders of the Bank 132775 116309 Weighted average number of shares in issue (in million shares) 25220 25220 Basic and diluted earnings per share (in RMB Yuan) 5.26 4.61 Note: The Bank issued non-cumulative preference shares in 2017 and non-cumulative perpetual bonds in 2020 and 2021. For the purpose of calculating basic earnings per share dividends on non-cumulative preference shares and interests on non-cumulative perpetual bonds declared during the year should be deducted from the amounts attributable to equity holders of the Bank.The conversion feature of preference shares is considered to be contingently issuable ordinary shares. The triggering events of conversion did not occur as of 31 December 2022 and 2021. Therefore the conversion feature of preference shares has no effect on the diluted earnings per share calculation for both years. 18. Balances with central banks 20222021 Statutory deposit reserve (note (i)) 534232 484878 Surplus deposit reserve (note (ii)) 50846 65819 Other deposits with central banks (note (iii)) 2455 2958 Interest receivable 285 243 Total 587818 553898 Notes: (i) The Group places statutory deposit reserves with the People’s Bank of China (“PBOC”) and overseas central banks where it has operations.The statutory deposit reserves are not available for the Group’s daily operations. The statutory deposit reserve funds of the Bank’s institutions located in the Chinese mainland are calculated at 7.5% and 6% of eligible RMB deposits and foreign currency deposits respectively as at 31 December 2022 (31 December 2021: 8% and 9% of eligible RMB deposits and foreign currency deposits respectively). Eligible deposits include deposits from government authorities and other organisations retail deposits corporate deposits and net credit balances of entrusted business and RMB deposits placed by financial institutions outside the Chinese mainland. The amounts of statutory deposit reserves placed with the central banks of overseas countries are determined by local jurisdictions.(ii) Surplus deposit reserve maintained with the PBOC and central banks outside the Chinese mainland are mainly for clearing and settlement purposes.(iii) Other deposits with central banks primarily represent fiscal deposits and foreign exchange reserve placed with the PBOC.– F-54 –China Merchants Bank Chapter VIII Financial Statements 215 Annual Report 2022 (H share) 19. Balances with banks and other financial institutions 20222021 Principal (a) 91587 80664 Impairment allowances (a)(b) (509) (378) Subtotal 91078 80286 Interest receivable 268 64 Total 91346 80350 (a) Analysed by nature of counterparties 20222021 Balances in the Chinese mainland 57809 37453 – Banks 54808 35620 – Other financial institutions 3001 1833 Balances outside the Chinese mainland 33778 43211 – Banks 33390 41430 – Other financial institutions 388 1781 Total 91587 80664 Less: Impairment allowances (509) (378) – Banks (490) (329) – Other financial institutions (19) (49) Net carrying amount 91078 80286 (b) Movements of allowances for impairment losses are as follows: 20222021 Balance as at the beginning of the year 378 277 Charge for the year (note 14) 120 109 Exchange difference 11 (8) Balance as at the end of the year 509 378 – F-55 –216 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 20. Placements with banks and other financial institutions 20222021 Principal (a) 264782 196351 Impairment allowances (a)(c) (2658) (2860) Subtotal 262124 193491 Interest receivable 1452 930 Total 263576 194421 (a) Analysed by nature of counterparties 20222021 Placements in the Chinese mainland 202381 127959 – Banks 65018 19213 – Other financial institutions 137363 108746 Placements outside the Chinese mainland 62401 68392 – Banks 61880 68102 – Other financial institutions 521 290 Total 264782 196351 Less: Impairment allowances (2658) (2860) – Banks (163) (136) – Other financial institutions (2495) (2724) Net carrying amount 262124 193491 (b) Analysed by remaining maturity 20222021 Maturing – Within one month (inclusive) 89368 66842 – Between one month and one year (inclusive) 158086 115906 – Over one year 14670 10743 Total 262124 193491 (c) Movements of allowances for impairment losses are as follows: 20222021 Balance as at the beginning of the year 2860 376 (Release)/charge for the year (note 14) (235) 2481 Exchange difference 33 3 Balance as at the end of the year 2658 2860 – F-56 –China Merchants Bank Chapter VIII Financial Statements 217 Annual Report 2022 (H share) 21. Amounts held under resale agreements 20222021 Principal (a) 277561 528564 Impairment allowances (a)(d) (1094) (4263) Subtotal 276467 524301 Interest receivable 209 300 Total 276676 524601 (a) Analysed by nature of counterparties 20222021 Amounts held under resale agreements in the Chinese mainland 277382 528447 – Banks 42077 60323 – Other financial institutions 235305 468124 Amounts held under resale agreements outside the Chinese mainland 179 117 – Other financial institutions 179 117 Total 277561 528564 Less: Impairment allowances (1094) (4263) – Banks (216) (175) – Other financial institutions (878) (4088) Net carrying amount 276467 524301 (b) Analysed by remaining maturity 20222021 Maturing – Within one month (inclusive) 268890 524301 – Between one month and one year (inclusive) 7577 – Total 276467 524301 (c) Analysed by underlying assets 20222021 Bonds 256129 522202 Bills 20338 2099 Total 276467 524301 (d) Movements of allowances for impairment losses are as follows: 20222021 Balance as at the beginning of the year 4263 743 (Release)/charge for the year (note 14) (3169) 3520 Balance as at the end of the year 1094 4263 – F-57 –218 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 22. Loans and advances to customers (a) Loans and advances to customers 20222021 Gross amount of loans and advances to customers at amortised cost (i) 5432112 5075052 Interest receivable 11326 10548 Subtotal 5443438 5085600 Less: Loss allowances of loans and advances to customers at amortised cost (i) (254913) (244523) Loss allowances of interest receivable (846) (971) Subtotal (255759) (245494) Loans and advances to customers at amortised cost 5187679 4840106 Loans and advances to customers at FVTOCI (ii) 614481 488004 Loans and advances to customers at FVTPL (iii) 4994 7281 Total 5807154 5335391 (i) Loans and advances to customers at amortised cost 20222021 Corporate loans and advances 2270323 2087247 Retail loans and advances 3161789 2987791 Discounted bills – 14 Gross amount of loans and advances to customers at amortised cost 5432112 5075052 Less: Loss allowances (254913) (244523) – Stage 1 (12-month ECL) (159932) (169347) – Stage 2 (Lifetime ECL – not credit-impaired) (44898) (32007) – Stage 3 (Lifetime ECL – credit-impaired) (50083) (43169) Net amount of loans and advances to customers at amortised cost 5177199 4830529 (ii) Loans and advances to customers at FVTOCI 20222021 Corporate loans and advances 100430 56713 Discounted bills 514051 431291 Loans and advances to customers at FVTOCI 614481 488004 Loss allowances (6563) (1581) – Stage 1 (12-month ECL) (6311) (1289) – Stage 2 (Lifetime ECL – not credit-impaired) (252) (292) – Stage 3 (Lifetime ECL – credit-impaired) – – No loss allowance is recognised in the consolidated statement of financial position for loans and advances to customers at FVTOCI as the carrying amount is at fair value.(iii) Loans and advances to customers at FVTPL 20222021 Corporate loans and advances 4863 6978 Discounted bills 3 – Interest receivable 128 303 Total 4994 7281 – F-58 –China Merchants Bank Chapter VIII Financial Statements 219 Annual Report 2022 (H share) 22. Loans and advances to customers (continued) (b) Analysis of loans and advances to customers (i) Analysed by industry sector and category: Operations in the Chinese mainland 20222021 Transportation storage and postal services 461434 412417 Manufacturing 445218 309635 Property development 349682 367642 Production and supply of electric power heating power gas and water 203870 187611 Wholesale and retail 171786 138352 Leasing and commercial services 158320 170009 Construction 103998 117453 Telecommunications software and IT services 78950 58267 Finance 75593 57988 Water environment and public utilities management 64886 64427 Mining 34421 28854 Other 67677 66364 Subtotal of corporate loans and advances 2215835 1979019 Discounted bills 514054 431305 Residential mortgage 1379825 1364534 Credit cards 884395 840254 Micro-finance loans 629857 560657 Other 213599 173527 Subtotal of retail loans and advances 3107676 2938972 Gross amount of loans and advances to customers 5837565 5349296 Operations outside the Chinese mainland 20222021 Finance 36521 37345 Transportation storage and postal services 30814 33186 Property development 26298 34062 Manufacturing 20494 23763 Telecommunications software and IT services 10908 7727 Production and supply of electric power heating power gas and water 9023 7077 Wholesale and retail 8923 8920 Mining 6074 5651 Leasing and commercial services 3430 4749 Construction 1772 3481 Water environment and public utilities management 110 821 Other 5414 5137 Subtotal of corporate loans and advances 159781 171919 Discounted bills – – Residential mortgage 9383 9872 Credit cards 124 117 Micro-finance loans 1181 1214 Other 43425 37616 Subtotal of retail loans and advances 54113 48819 Gross amount of loans and advances to customers 213894 220738 As at 31 December 2022 over 90% of the Group’s loans and advances to customers were conducted in the Chinese mainland (31 December 2021: over 90%).– F-59 –220 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 22. Loans and advances to customers (continued) (b) Analysis of loans and advances to customers (continued) (ii) Analysed by type of guarantees: 20222021 Credit loans 2219635 1977014 Guaranteed loans 836550 752744 Collateralised loans 2132337 2075639 Pledged loans 348883 333332 Subtotal 5537405 5138729 Discounted bills 514054 431305 Gross amount of loans and advances to customers 6051459 5570034 (iii) Analysed by overdue term: 2022 Overdue Overdue Overdue from from Overdue Total within 3 months 1 year up to more than overdue 3 months up to 1 year 3 years 3 years loans Credit loans 22260 12382 2365 880 37887 Guaranteed loans 6533 7537 3581 762 18413 Collateralised loans 5180 6177 2913 1696 15966 Pledged loans 3234 573 951 1261 6019 Gross amount of loans and advances to customers 37207 26669 9810 4599 78285 2021 Overdue Overdue Overdue from from Overdue Total within 3 months 1 year up to more than overdue 3 months up to 1 year 3 years 3 years loans Credit loans 18097 10269 2972 944 32282 Guaranteed loans 1141 2650 3476 1403 8670 Collateralised loans 2616 2733 3610 2142 11101 Pledged loans 473 687 791 3422 5373 Gross amount of loans and advances to customers 22327 16339 10849 7911 57426 Note: Loans are classified as overdue when the principal or interest is overdue more than one day.Among the above-mentioned overdue loans and advances to customers collateralised loans and pledged loans that are overdue but not impaired at the reporting date are as follows: 20222021 Collateralised loans that are overdue but not impaired 4198 1517 Pledged loans that are overdue but not impaired 1819 473 Total 6017 1990 – F-60 –China Merchants Bank Chapter VIII Financial Statements 221 Annual Report 2022 (H share) 22. Loans and advances to customers (continued) (b) Analysis of loans and advances to customers (continued) (iv) Analysed by ECL 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Loans and advances measured at amortised cost 5217868 156240 58004 5432112 Less: Loss allowances of loans and advances to customers at amortised cost (159932) (44898) (50083) (254913) Net amount of loans and advances to customers at amortised cost 5057936 111342 7921 5177199 Loans and advances to customers at FVTOCI 612660 1821 – 614481 Loss allowances of loans and advances to customers at FVTOCI (6311) (252) – (6563) 2021 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Loans and advances measured at amortised cost 4912836 111354 50862 5075052 Less: Loss allowances of loans and advances to customers at amortised cost (169347) (32007) (43169) (244523) Net amount of loans and advances to customers at amortised cost 4743489 79347 7693 4830529 Loans and advances to customers at FVTOCI 485735 2269 – 488004 Loss allowances of loans and advances to customers at FVTOCI (1289) (292) – (1581) – F-61 –222 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 22. Loans and advances to customers (continued) (c) Movements of allowance for expected credit loss (i) Reconciliation of allowance for expected credit loss for loans and advances to customers measured at amortised cost: 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 169347 32007 43169 244523 Transfer to – Stage 1 3039 (2965) (74) – – Stage 2 (7699) 7879 (180) – – Stage 3 (3693) (4681) 8374 – (Release)/charge for the year (note 14) (1694) 12653 29216 40175 Write-offs/disposals – (71) (39016) (39087) Unwinding of discount on allowance – – (386) (386) Recovery of loans and advances written off – – 8972 8972 Exchange difference 632 76 8 716 Balance as at the end of the year 159932 44898 50083 254913 2021 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 159918 27401 47107 234426 Transfer to – Stage 1 5848 (5743) (105) – – Stage 2 (1137) 1592 (455) – – Stage 3 (1001) (4972) 5973 – Charge for the year (note 14) 5766 13763 16149 35678 Write-offs/disposals – – (35105) (35105) Unwinding of discount on allowance – – (247) (247) Recovery of loans and advances written off – – 9893 9893 Exchange difference (47) (34) (41) (122) Balance as at the end of the year 169347 32007 43169 244523 (ii) Reconciliation of allowance for expected credit loss for loans and advances to customers measured at FVTOCI: 20222021 Balance as at the beginning of the year 1581 238 Charge for the year (note 14) 4982 1342 Exchange difference – 1 Balance as at the end of the year 6563 1581 – F-62 –China Merchants Bank Chapter VIII Financial Statements 223 Annual Report 2022 (H share) 22. Loans and advances to customers (continued) (d) Finance leases receivable The table below provides an analysis of finance leases receivable included in loans and advances to customers for leases of assets in which the Group is a lessor: 20222021 Total minimum leases receivable Within 1 year (inclusive) 13323 15035 Over 1 year but within 2 years (inclusive) 11035 11225 Over 2 years but within 3 years (inclusive) 6074 8519 Over 3 years but within 4 years (inclusive) 6089 5323 Over 4 years but within 5 years (inclusive) 3860 5580 Over 5 years 17448 13980 Subtotal 57829 59662 Unearned finance income (9665) (8378) Present value of minimum leases receivable 48164 51284 Less: Impairment allowances (3671) (3237) – Stage 1 (12-month ECL) (1308) (1872) – Stage 2 (Lifetime ECL – not credit-impaired) (1646) (632) – Stage 3 (Lifetime ECL – credit-impaired) (717) (733) Net carrying amount of finance leases receivable 44493 48047 23. Financial investments Notes 2022 2021 Financial investments at fair value through profit or loss 23(a) 423467 348123 Debt investments at amortised cost 23(b) 1555457 1185841 Debt investments at FVTOCI 23(c) 780349 636038 Equity investments designated at FVTOCI 23(d) 13416 6995 Total 2772689 2176997 (a) Financial investments at fair value through profit or loss Notes 2022 2021 Financial investments measured at FVTPL (i) 411591 318245 Financial assets designated at fair value through profit or loss (ii) 11876 29878 Total 423467 348123 – F-63 –224 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 23. Financial investments (continued) (a) Financial investments at fair value through profit or loss (continued) (i) Financial investments measured at FVTPL Financial investments held for trading 20222021 Bonds: Classified by issuer 182416 129792 – Government bonds 81781 46721 – Bonds issued by policy banks 21871 9861 – Bonds issued by commercial banks and other financial institutions 35999 21245 – Other debt securities 42765 51965 Classified by listing 182416 129792 – Listed in the Chinese mainland 167998 113762 – Listed outside the Chinese mainland 12215 15796 – Unlisted 2203 234 Other investments: Classified by underlying assets 1971 1949 – Equity investments 17 – – Fund investments 814 811 – Wealth management products 1032 1036 – Long position in precious metal contracts 108 102 Classified by listing 1971 1949 – Listed outside the Chinese mainland 134 111 – Unlisted 1837 1838 Total financial investments held for trading 184387 131741 – F-64 –China Merchants Bank Chapter VIII Financial Statements 225 Annual Report 2022 (H share) 23. Financial investments (continued) (a) Financial investments at fair value through profit or loss (continued) (i) Financial investments measured at FVTPL (continued) Other financial investments measured at FVTPL 20222021 Bonds: Classified by issuer 20789 17094 – Bonds issued by commercial banks and other financial institutions 14039 9784 – Other debt securities 6750 7310 Classified by listing 20789 17094 – Listed in the Chinese mainland 18216 15388 – Listed outside the Chinese mainland 1872 1333 – Unlisted 701 373 Other investments: Classified by underlying assets 206415 169410 – Equity investments 4362 4909 – Fund investments 199725 161959 – Wealth management products 1511 1360 – Other 817 1182 Classified by listing 206415 169410 – Listed in the Chinese mainland 330 62 – Listed outside the Chinese mainland 653 1118 – Unlisted 205432 168230 Total other financial investments measured at FVTPL 227204 186504 Total financial investments measured at FVTPL 411591 318245 (ii) Financial investments designated at fair value through profit or loss 20222021 Bonds: Classified by issuer 11876 29878 – Government Bonds 218 41 – Bonds issued by policy banks 4559 17970 – Bonds issued by commercial banks and other financial institutions 6370 11251 – Other debt securities 729 616 Classified by listing 11876 29878 – Listed in the Chinese mainland 11656 28793 – Listed outside the Chinese mainland 220 1060 – Unlisted – 25 – F-65 –226 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 23. Financial investments (continued) (b) Debt investments at amortised cost 20222021 Debt investments at amortised cost (i)(ii) 1579845 1209359 Interest receivable 19294 16368 Subtotal 1599139 1225727 Impairment losses of principal (i)(ii)(iii) (43448) (39707) Impairment losses of interest receivable (234) (179) Subtotal (43682) (39886) Total 1555457 1185841 (i) Debt investments at amortised cost: 20222021 Bonds: Classified by issuer 1452499 1078888 – Government bonds 993624 768537 – Bonds issued by policy banks 394126 280129 – Bonds issued by commercial banks and other financial institutions 56913 20064 – Other debt securities 7836 10158 Classified by listing 1452499 1078888 – Listed in the Chinese mainland 1395184 1068300 – Listed outside the Chinese mainland 33319 4740 – Unlisted 23996 5848 Fair value for the listed bonds 1457373 1099251 Other investments: Classified by underlying assets 127346 130471 – Non-standard assets – Loans and advances to customers 108616 115022 – Non-standard assets – Creditor’s beneficiary rights to other commercial banks 5500 100 – Non-standard assets – Other 12582 14729 – Other 648 620 Classified by listing 127346 130471 – Unlisted 127346 130471 Total 1579845 1209359 Less: Loss allowances (43448) (39707) Stage 1 (12-month ECL) (10120) (14974) Stage 2 (Lifetime ECL – not credit-impaired) (960) (712) Stage 3 (Lifetime ECL – credit-impaired) (32368) (24021) Net debt investments at amortised cost 1536397 1169652 – F-66 –China Merchants Bank Chapter VIII Financial Statements 227 Annual Report 2022 (H share) 23. Financial investments (continued) (b) Debt investments at amortised cost (continued) (ii) Analysed by stage of ECL: 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Debt investments at amortised cost 1543652 2073 34120 1579845 Less: Loss allowances of debt investments at amortised cost (10120) (960) (32368) (43448) Net debt investments at amortised cost 1533532 1113 1752 1536397 2021 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Debt investments at amortised cost 1183320 1962 24077 1209359 Less: Loss allowances of debt investments at amortised cost (14974) (712) (24021) (39707) Net debt investments at amortised cost 1168346 1250 56 1169652 (iii) Movements of allowances for expected credit loss 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 14974 712 24021 39707 Transfer to: – Stage 1 – – – – – Stage 2 (27) 27 – – – Stage 3 (153) (298) 451 – (Release)/charge for the year (note 14) (4674) 518 8390 4234 Write-offs/disposals – – (531) (531) Recovery of debt previously written off – – 28 28 Exchange difference – 1 9 10 Balance as at the end of the year 10120 960 32368 43448 – F-67 –228 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 23. Financial investments (continued) (b) Debt investments at amortised cost (continued) (iii) Movements of allowances for expected credit loss (continued) 2021 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 11832 326 13960 26118 Transfer to: – Stage 1 – – – – – Stage 2 (5) 5 – – – Stage 3 – – – – Charge for the year (note 14) 3156 381 9664 13201 Write-offs/disposals – – (10) (10) Recovery of debt previously written off – – 419 419 Exchange difference (9) – (12) (21) Balance as at the end of the year 14974 712 24021 39707 (c) Debt investments at FVTOCI 20222021 Debt investments at FVTOCI (i) 771271 628355 Interest receivable 9078 7683 Total 780349 636038 Impairment losses of debt investments at FVTOCI (ii) (6540) (6622) Impairment losses of interest receivable (80) (84) Total (6620) (6706) No impairment allowances are recognised in the consolidated statement of financial position for debt investments at FVTOCI as the carrying amount is at fair value.(i) Debt investments at FVTOCI: 20222021 Bonds: Classified by issuer 771271 628355 – Government bonds 524651 390419 – Bonds issued by policy banks 74072 82427 – Bonds issued by commercial banks and other financial institutions 119602 106139 – Other debt securities 52946 49370 Classified by listing 771271 628355 – Listed in the Chinese mainland 611110 522889 – Listed outside the Chinese mainland 90148 65439 – Unlisted 70013 40027 – F-68 –China Merchants Bank Chapter VIII Financial Statements 229 Annual Report 2022 (H share) 23. Financial investments (continued) (c) Debt investments at FVTOCI (continued) (ii) Movements of allowances for expected credit loss 20222021 Balance as at the beginning of the year 6622 4014 (Release)/charge for the year (note 14) (355) 2647 Exchange difference 273 (39) Balance as at the end of the year 6540 6622 (d) Equity investments designated at FVTOCI 20222021 Repossessed equity instruments 3266 901 Other 10150 6094 Total 13416 6995 Classified by listing – Listed in the Chinese mainland 1412 65 – Listed outside the Chinese mainland 2744 2204 – Unlisted 9260 4726 Total 13416 6995 During the year ended 31 December 2022 the Group disposed part of the equity investments designated at FVTOCI. The fair value of the equity investments disposed at the date of derecognition was RMB2879 million (2021: RMB2186 million). The cumulative net of tax gain of RMB20 million (2021: cumulative net of tax gain of RMB1804 million) was transferred from investment revaluation reserve to retained earnings on disposal. 24. Particulars of principal subsidiaries of the bank The following list contains particulars of subsidiaries which principally affected the financial results assets or liabilities of the Group. Unless otherwise stated the class of all shares held is ordinary. All of these companies are subsidiaries as defined under Note 4(1) and have been included in the scope of the consolidated financial statements of the Group.% of Place of Particulars of ownership incorporation the issued and held by Economic Legal Name of company and operation paid up capital the Bank Principal activities nature representative (in millions) CMB International Capital Holdings Hong Kong HKD4129 100% Investment bank Limited liability Wang Liang Corporation Limited (note (i)) and investment management CMB Financial Leasing Company Shanghai RMB12000 100% Finance leasing Limited liability Shi Shunhua Limited (note (ii)) CMB Wing Lung Bank Limited (note (iii)) Hong Kong HKD1161 100% Banking Limited liability Liu Yuan China Merchants Fund Management Co. Ltd. Shenzhen RMB1310 55% Fund management Limited liability Wang Xiaoqing (note (iv)) CMB Wealth Management Co. Ltd (note (v)) Shenzhen RMB5556 90% Asset management Limited liability Chen Yisong China Merchants Europe S.A. (note (vi)) Luxembourg EUR50 100% Banking Limited liability Li Biao Cigna & CMB Asset Management Company Beijing RMB500 (note (vii)) Asset management Limited liability Wang Xiaoqing Limited (note (vii)) – F-69 –230 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 24. Particulars of principal subsidiaries of the bank (continued) Notes: (i) CMB International Capital Holdings Corporation Limited (“CMBIC”) formerly known as Jiangnan Finance Company Limited and CMB International Capital Corporation Limited is the Bank’s wholly-owned subsidiary approved for setting up by the PBOC through its Yin Fu 〔1998〕 No. 405. In 2014 the Bank made an additional capital contribution of HKD750 million in CMBIC. The capital of CMBICH increased toHKD1000 million and the Bank’s shareholding percentage remained unchanged. The Board of Directors passed “The Resolution regarding theCapital Increase and Restructuring of CMBIC” which agreed that the Bank made capital contribution of USD400 million (or its equivalent) to CMBIC on 28 July 2015. The capital contribution was completed on 20 January 2016.(ii) CMB Financial Leasing Company Limited (“CMBFL”) is a wholly-owned subsidiary of the Bank approved for setting up by the CBIRC through its Yin Jian Fu〔 2008〕 No. 110 and commenced its operation in April 2008. In 2014 the Bank made an additional capital contribution of RMB2000 million in CMBFL. The capital of CMBFL increased to RMB6000 million and the Bank’s shareholding percentage remains unchanged.In August 2021 CMBFL converted RMB6000 million of its retained earnings into share capital and the capital of CMBFL increased to RMB12000 million. The Bank’s shareholding percentage remained unchanged.(iii) CMB Wing Lung Bank Limited (“CMB WLB”) was formerly known as Wing Lung Bank Limited. On 30 September 2008 the Bank acquired a 53.12% equity interests in CMB WLB. CMB WLB became a wholly owned subsidiary of the Bank on 15 January 2009. CMB WLB had withdrawn from listing on the HKEx as of 16 January 2009. The Chairman of CMB WLB changed from Liu Yuan to Wang Liang on February 242023. (iv) In 2012 the Bank acquired 21.60% equity interests in China Merchants Fund Management Co. Ltd. (“CMFM”) its former associate from ING Asset Management B.V. at a consideration of EUR63567567.57. Following the settlement of the above consideration in cash the Bank’s shareholding in CMFM increased from 33.40% to 55.00% in 2013. As a result the Bank obtained the control over CMFM which became the Bank’s subsidiary on 28 November 2013. In December 2017 the Bank made an additional capital contribution of RMB605 million in CMFM and other shareholders of CMFM also made capital contribution of RMB495 million proportionally. The capital of CMFM increased to RMB1310 million and the Bank’s shareholding percentage remained unchanged.(v) CMB Wealth Management Co. Ltd. (“CMBWM”) is a wholly-owned subsidiary of the Bank approved for setting up by the CBIRC with Yin Bao Jian Fu〔 2019〕 No. 981. It was formally established on November 1 2019. In accordance with the approval of CBIRC (Yin Bao Jian Fu〔 2021〕No.920)” JPMorgan Asset Management (Asia Pacific) Limited (“JPMorgan Asset Management“) has subscribed for a 10% stake in CMBWMin 2022 with an investment of RMB2667 million. After the completion of capital injection CMBWM’s registered capital has been increased to approximately RMB5556 million from RMB5000 million and the Bank’s and JPMorgan Asset Management’s shareholdings are 90% and 10% respectively.(vi) China Merchants Europe S.A. (“CMB Europe S.A.”) is a wholly-owned subsidiary of the Bank approved by the CBIRC with Yin Jian Fu〔 2016〕 No. 460. The Bank received an approval from the European Central Bank (ECB) for the establishment of CMB Europe S.A. in Luxembourg in May 2021.(vii) Cigna & CMB Asset Management Company Limited (“CIGNA & CMAM”) was registered and established on 18 October 2020 with the approval for setting up by the CBIRC with Yin Bao Jian Fu〔 2020〕 No.708. CIGNA & CMAM is an indirectly controlled subsidiary of the Bank with 87.3458% held by CIGNA & CMB Life Insurance Co. Ltd. a joint venture of the Bank and 12.6542% held by CMBIC a subsidiary of the Bank.– F-70 –China Merchants Bank Chapter VIII Financial Statements 231 Annual Report 2022 (H share) 25. Interests in joint ventures 20222021 Share of net assets 14247 14779 Share of profits for the year 1710 2877 Share of other comprehensive (expense)/income for the year (997) 133 Details of the Group’s interests in major joint ventures are as follows: Place of Particulars of Group’s Percentage of incorporation issued and effective ownership held Name of joint ventures Economic nature and operation paid up capital interest by the Bank Principal activity (in millions) CIGNA & CMB Life Insurance Co. Ltd. (note(i)) Limited liability Shenzhen RMB2800 50.00% 50.00% Life insurance business Merchants Union Consumer Finance Company Limited liability Shenzhen RMB10000 50.00% 50.00% Consumer finance Limited (note(ii)) Notes: (i) The Group holds 50.00% equity interests in CIGNA & CMB Life Insurance Co. Ltd.(“CIGNA & CMB Life”) and Cigna Health and Life Insurance Company (“CHLIC”) holds the other 50.00% equity interests. The Bank and CHLIC share the joint venture’s risk profits and losses based on their shareholding proportionally. The Bank’s investment in CIGNA & CMB Life is accounted for as an investment in a joint venture.(ii) CMB WLB one of the Group’s wholly-owned subsidiaries and China United Network Communications Limited (“CUNC”) a subsidiary of China Unicom Limited jointly set up Merchants Union Consumer Finance Company Limited (“MUCFC”). CBIRC approved the operation of MUCFC on 3 March 2015. CMB WLB and CUNC each held 50% equity interests in MUCFC and share the risks profits and losses proportionally based on their shareholdings. In December 2017 the Bank and CUNC made a capital contribution of RMB600 million in MUCFC respectively. After the capital injection the capital of MUCFC increased to RMB2859 million with the Bank’s shareholding percentage becoming 15% CMB WLB’s shareholding percentage becoming 35% and the Group’s total shareholding percentage remained at 50%. In December 2018 the Bank made another capital contribution of RMB1000 million in MUCFC and CUNC made the same amount of capital injection. After that the share capital of MUCFC has reached 3869 million. The Bank and CMB WLB then held 24.15% and 25.85% of equity interests in MUCFC respectively and the Group’s total shareholding percentage remained at 50%.In July 2021 CMB WLB transferred all its shares of MUCFC to the Bank. After the transfer the Bank and CUNC each held 50% of equity interests in MUCFC and the Group’s total shareholding percentage remained unchanged. In October 2021 MUCFC converted RMB1331 million of its capital reserve and RMB4800 million of its retained earnings into share capital and the share capital of MUCFC increased to RMB10000 million after the conversion.– F-71 –232 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 25. Interests in joint ventures (continued) Summarised financial information with necessary adjustments in accordance with the Group’s accounting policies of the joint ventures which are individually material to the Group is as follows: (i) CIGNA & CMB Life Other Total comprehensive comprehensive Cash Depreciation Net (expense)/ (expense)/ and cash and Assets Liabilities Equity Revenue profit income income equivalents amortisation Income tax 2022 CIGNA & CMB Life 130758 121145 9613 31841 730 (1996) (1266) 1071 147 (475) Group’s effective interest 65116 60573 4543 15921 336 (997) (661) 536 74 (238) 2021 CIGNA & CMB Life 108815 97686 11129 26635 1174 268 1442 1290 151 (43) Group’s effective interest 54172 48843 5329 13318 565 133 698 645 76 (22) (ii) MUCFC: Total Cash Depreciation Net comprehensive and cash and Income Assets Liabilities Equity Revenue profit income equivalents amortisation tax 2022 MUCFC 164346 147279 17067 17501 3329 3329 5425 47 500 Group’s effective interest 82174 73640 8534 8751 1665 1665 2713 24 250 2021 MUCFC 149698 135660 14038 15933 3015 3015 4655 42 477 Group’s effective interest 74849 67830 7019 7967 1507 1507 2328 21 239 Summarised financial information of the joint ventures that are not individually material to the Group is as follows: Total Other comprehensive Net (loss)/ comprehensive (expense)/ profit expense income 2022 Other joint ventures (2874) – (2874) Group’s effective interest (291) – (291) 2021 Other joint ventures 4675 (3) 4672 Group’s effective interest 805 – 805 – F-72 –China Merchants Bank Chapter VIII Financial Statements 233 Annual Report 2022 (H share) 26. Interests in associates 20222021 Share of net assets 9597 8875 Share of profits for the year 815 1153 Share of other comprehensive expense for the year (158) – Details of the Group’s interest in major associate are as follows: Place of Particulars of Group’s Percentage of incorporation issued and effective ownership held Economic nature and operation paid up capital interest by the Bank Principal activity (in millions) Bank of Taizhou Co. Ltd. (Note) Limited liability Taizhou RMB1800 24.8559% 24.8559% Commercial Bank Note: The Bank which originally held a 10% stake in Bank of Taizhou acquired a total of 14.8559% stake from Ping An Trust Co. Ltd. and Ping An Life Insurance Company of China Ltd. at a total consideration of RMB3121 million on 31 May 2021. Upon the completion of the transaction the Bank held 24.8559% stake of Bank of Taizhou. The Bank can exercise significant influence on Bank of Taizhou and therefore this investment is converted from equity investments designated at FVTOCI to interests in associates.Summarised financial information of the associate which is individually material to the Group is as follows: Other Total Cash Depreciation Net comprehensive comprehensive and cash and Income Assets Liabilities Equity Revenue profit expense income equivalents amortisation tax 2022 Bank of Taizhou Co.Ltd. 372578 343254 29324 11034 4445 (138) 4307 20368 522 1196 Group’s effective interest 91509 85319 6190 2743 1004 (35) 969 5063 130 297 Other Total Cash Depreciation Net comprehensive comprehensive and cash and Income Assets Liabilities Equity Revenue profit expense income equivalents amortisation tax 2021(note) Bank of Taizhou Co.Ltd. 316172 289731 26441 6775 2215 30 2245 11665 287 604 Group’s effective interest 77536 72015 5521 1684 490 9 499 2899 71 150 Note: The period of 2021 for profit or loss and other comprehensive income is from 1 June 2021 to 31 December 2021.Summarised financial information of the associates that are not individually material to the Group is as follows: Total Other comprehensive Net (loss)/ comprehensive (expense)/ profit expense income 2022 Other associates (11527) (737) (12264) Group’s effective interest (189) (123) (312) 2021 Other associates 37958 (65) 37893 Group’s effective interest 663 (9) 654 – F-73 –234 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 27. Investment properties 20222021 Cost: At 1 January 3135 3276 Transfers in/(out) 13 (86) Exchange difference 153 (55) At 31 December 3301 3135 Accumulated depreciation: At 1 January 1763 1653 Depreciation 132 155 Transfers in/(out) 33 (7) Exchange difference 105 (38) At 31 December 2033 1763 Net carrying amount: At 31 December 1268 1372 At 1 January 1372 1623 As at 31 December 2022 no impairment allowance was considered necessary for investment properties by the Group (2021: Nil).Investment properties of the Group mainly represent the leased properties of CMB WLB and the Bank that have been leased out under operating leases. The fair value of the Group’s investment properties is determined by the market approach and the method of capitalisation of net rental income. As at 31 December 2022 the fair value of these properties was RMB5534 million (31 December 2021: RMB5279 million).The Group’s total future minimum leases receivable under non-cancellable operating leases are as follows: 20222021 Within 1 year (inclusive) 289 313 1 year to 2 years (inclusive) 240 170 2 year to 3 years (inclusive) 184 127 3 year to 4 years (inclusive) 153 106 4 year to 5 years (inclusive) 102 105 Over 5 years 275 359 Total 1243 1180 The fair value hierarchy of the investment properties of the Group are listed as follows: Fair Value as at 31 December Level 1 Level 2 Level 3 2022 Located in the Chinese mainland – 3140 – 3140 Located overseas – – 2394 2394 Total – 3140 2394 5534 Fair Value as at 31 December Level 1 Level 2 Level 3 2021 Located in the Chinese mainland – 3076 – 3076 Located overseas – – 2203 2203 Total – 3076 2203 5279 In estimating the fair value of the properties the highest and best use of the properties is their current use.– F-74 –China Merchants Bank Chapter VIII Financial Statements 235 Annual Report 2022 (H share) 28. Property and equipment Aircraft vessels and Land and Construction Computer Leasehold professional buildings in progress equipment improvements equipment Other Total Cost: At 1 January 2022 28876 3502 16860 10925 61327 5909 127399 Additions 24 1910 1898 649 26872 357 31710 Reclassification and transfers 1490 (1625) 162 122 – (162) (13) Disposals (150) – (517) (100) (7912) (643) (9322) Exchange difference 261 – 113 82 5454 17 5927 At 31 December 2022 30501 3787 18516 11678 85741 5478 155701 Accumulated depreciation: At 1 January 2022 12998 – 12924 7028 9051 4465 46466 Depreciation 1286 – 2174 1103 5027 557 10147 Reclassification and transfers (33) – 113 – – (113) (33) Disposals (87) – (497) (70) (1653) (578) (2885) Exchange difference 175 – 77 (16) 686 13 935 At 31 December 2022 14339 – 14791 8045 13111 4344 54630 Impairment loss: At 1 January 2022 20 – – – 498 – 518 Charge – – – – 778 – 778 Disposals – – – – (194) – (194) Exchange difference – – – – 50 – 50 At 31 December 2022 20 – – – 1132 – 1152 Net carrying amount: At 31 December 2022 16142 3787 3725 3633 71498 1134 99919 At 1 January 2022 15858 3502 3936 3897 51778 1444 80415 – F-75 –236 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 28. Property and equipment (continued) Aircraft vessels and Land and Construction Computer Leasehold professional buildings in progress equipment improvements equipment Other Total Cost: At 1 January 2021 28279 3107 15149 9661 48124 6299 110619 Additions 539 743 2420 1106 17879 563 23250 Reclassification and transfers 169 (348) 20 223 – 22 86 Disposals (19) – (698) (18) (3415) (971) (5121) Exchange difference (92) – (31) (47) (1261) (4) (1435) At 31 December 2021 28876 3502 16860 10925 61327 5909 127399 Accumulated depreciation: At 1 January 2021 11750 – 11489 6132 6729 4813 40913 Depreciation 1314 – 2097 950 3822 519 8702 Reclassification and transfers 6 – 17 – – (16) 7 Disposals (14) – (661) (15) (1290) (848) (2828) Exchange difference (58) – (18) (39) (210) (3) (328) At 31 December 2021 12998 – 12924 7028 9051 4465 46466 Impairment loss: At 1 January 2021 – – – – 236 – 236 Charge 20 – – – 267 – 287 Exchange difference – – – – (5) – (5) At 31 December 2021 20 – – – 498 – 518 Net carrying amount: At 31 December 2021 15858 3502 3936 3897 51778 1444 80415 At 1 January 2021 16529 3107 3660 3529 41159 1486 69470 (a) As at 31 December 2022 the process of obtaining the registration certificate for the Group’s properties with an aggregate net carrying value of RMB1108 million (31 December 2021: RMB1026 million) was still in progress. Management is of the view that the aforesaid matter would neither affect the rights of the Group to these assets nor have any significant impact on the business operation of the Group.(b) As at 31 December 2022 the Group had no significant unused property and equipment (31 December 2021: None).(c) As at 31 December 2022 the carrying value of mortgaged aircraft and vessels for placements from banks and other financial institutions of the CMBFL was RMB24512 million (31 December 2021: RMB15075 million).(d) The Group’s total future minimum lease receivables under non-cancellable operating leases are as follows: 20222021 Within 1 year (inclusive) 11306 7765 1 year to 2 years (inclusive) 9601 7148 2 year to 3 years (inclusive) 8134 5796 3 year to 4 years (inclusive) 7087 4862 4 year to 5 years (inclusive) 6151 4253 Over 5 years 19876 13357 Total 62155 43181 – F-76 –China Merchants Bank Chapter VIII Financial Statements 237 Annual Report 2022 (H share) 29. Lease contracts (a) Right-of-use assets Motor Land Computer vehicles use rights Buildings equipment and other Total Cost: At 1 January 2022 5985 23070 7 16 29078 Additions – 3656 4 7 3667 Decrease – (2848) (1) (12) (2861) Exchange difference 15 48 – – 63 At 31 December 2022 6000 23926 10 11 29947 Accumulated depreciation: At 1 January 2022 1190 9414 3 9 10616 Depreciation (note 10) 181 3965 3 2 4151 Decrease – (2458) (1) (9) (2468) Exchange difference 4 32 – – 36 At 31 December 2022 1375 10953 5 2 12335 Impairment loss: At 1 January 2022 59 – – – 59 At 31 December 2022 59 – – – 59 Net carrying amount: At 31 December 2022 4566 12973 5 9 17553 At 1 January 2022 4736 13656 4 7 18403 Motor Land Computer vehicles use rights Buildings equipment and other Total Cost: At 1 January 2021 5957 21122 4 16 27099 Additions 33 4071 5 1 4110 Decrease – (2107) (2) (1) (2110) Exchange difference (5) (16) – – (21) At 31 December 2021 5985 23070 7 16 29078 Accumulated depreciation: At 1 January 2021 1009 6978 2 6 7995 Depreciation (note 10) 182 4070 3 4 4259 Decrease – (1629) (2) (1) (1632) Exchange difference (1) (5) – – (6) At 31 December 2021 1190 9414 3 9 10616 Impairment loss: At 1 January 2021 – – – – – Charge 59 – – – 59 At 31 December 2021 59 – – – 59 Net carrying amount: At 31 December 2021 4736 13656 4 7 18403 At 1 January 2021 4948 14144 2 10 19104 The Group mainly leases land use rights and buildings for its operations. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the length of the non-cancellable period the Group reassesses whether it is reasonably certain to exercise an extension option or not to exercise a termination option upon the occurrence of either a significant event or a significant change in circumstances that is within the control of the lessee.– F-77 –238 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 29. Lease contracts (continued) (b) Lease liabilities Analysis of the Group’s lease liabilities by remaining maturity is as follows: 20222021 Within 1 month (inclusive) 503 506 1 month to 3 months (inclusive) 591 536 3 months to 1 year (inclusive) 3091 2989 1 year to 2 years (inclusive) 3038 3228 2 year to 5 years (inclusive) 4612 4925 Over 5 years 1178 1628 Total 13013 13812 Interest expense on lease liabilities are set out in note 7.(c) Short-term leases and leases of low-value assets Short-term lease expense and leases of low-value assets expense are disclosed in note 10. The Group entered into short-term leases for buildings computer equipment motor vehicles and other.(d) During the year of 2022 total cash outflow of the Group’s leases amounted to RMB4932 million (2021: RMB4835 million).(e) As at 31 December 2022 and 2021 the leases committed but not yet commenced were not significant.– F-78 –China Merchants Bank Chapter VIII Financial Statements 239 Annual Report 2022 (H share) 30. Intangible assets Software and other Core deposits Total Cost/appraisal value: At 1 January 2022 10045 1083 11128 Additions 347 – 347 Disposals (13) – (13) Exchange difference 14 98 112 At 31 December 2022 10393 1181 11574 Accumulated amortisation: At 1 January 2022 6550 512 7062 Charge for the year (note 10) 1021 40 1061 Disposals (10) – (10) Exchange difference 11 48 59 At 31 December 2022 7572 600 8172 Net carrying amount: At 31 December 2022 2821 581 3402 At 1 January 2022 3495 571 4066 Software and other Core deposits Total Cost/appraisal value: At 1 January 2021 9576 1118 10694 Additions 479 – 479 Exchange difference (10) (35) (45) At 31 December 2021 10045 1083 11128 Accumulated amortisation: At 1 January 2021 5442 489 5931 Charge for the year (note 10) 1114 39 1153 Exchange difference (6) (16) (22) At 31 December 2021 6550 512 7062 Net carrying amount: At 31 December 2021 3495 571 4066 At 1 January 2021 4134 629 4763 – F-79 –240 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 31. Goodwill As at Addition Decrease As at 31 December during during 31 December 2021 the year the year 2022 CMB WLB (note (i)) 10177 – – 10177 CMFM (note (ii)) 355 – – 355 CMI (note (iii)) – 45 – 45 Zhaoyin Internet (note (iv)) 1 – – 1 Total 10533 45 – 10578 Less: Impairment allowances – CMB WLB (579) – – (579) Net carrying amount 9954 45 – 9999 Notes: (i) On 30 September 2008 the Bank acquired a 53.12% equity interests in CMB WLB. On the acquisition date the fair value of CMB WLB’s identifiable net assets was RMB12898 million of which the Bank accounted for RMB6851 million. A sum of RMB10177 million being the excess of acquisition cost over the fair value of the identifiable net assets was recognised as goodwill. The details about CMB WLB are set out in Note 24.(ii) On 28 November 2013 the Bank acquired a 55.00% equity interests in CMFM. On the acquisition date the fair value of CMFM’s identifiable net assets was RMB752 million of which the Bank accounted for RMB414 million. A sum of RMB355 million being the excess of acquisition cost of RMB769 million over the fair value of the identifiable net assets was recognised as goodwill. The details about CMFM are set out in Note 24.(iii) On 30 December 2022 CMB Wing Lung Insurance Company Limited a subsidiary of CMB WLB issued shares to purchase the business of China Merchants Insurance Company Limited (“CMI”). On the acquisition date the fair value of CMI ‘s identifiable net assets was RMB357 million. A sum of RMB45 million being the excess of acquisition cost of RMB402 million over the fair value of the identifiable net assets was recognised as goodwill.(iv) On 1 April 2015 CMBIC acquired the 100% equity interests in Zhaoyin Internet Technology (Shenzhen) Corporation Limited (“ZhaoyinInternet”). On the acquisition date the fair value of Zhaoyin Internet’s identifiable net assets was RMB3 million. A sum of RMB1 million being the excess of acquisition cost over the fair value of the identifiable net assets was recognised as goodwill. Zhaoyin Internet’s scope of business comprises development and sales of computer software and hardware; sales of communication and office automation equipment; and IT consulting.Impairment test for goodwill The recoverable amounts of the CGUs are determined based on value in use calculations. These calculations use cash flow projections based on financial forecasts approved by management covering a 5-year period. Cash flows beyond the 5-year period are extrapolated using a steady growth rate. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates.In assessing the impairment of goodwill the Group assumed that the terminal growth rate is comparable to the forecast long-term economic growth rate issued by authoritative institutions. A pre-tax discount rates of CMB WLB and CMFM adopted by the Group are 11% and 10% (2021: 7% and 10%). The Group believes any reasonably possible change in the key assumptions on which recoverable amounts are based would not cause the carrying amounts of the CGUs to exceed their recoverable amounts.– F-80 –China Merchants Bank Chapter VIII Financial Statements 241 Annual Report 2022 (H share) 32. Deferred tax assets and deferred tax liabilities 20222021 Deferred tax assets 90848 81639 Deferred tax liabilities (1510) (1353) Net amount 89338 80286 (a) Analysed by nature of deferred tax assets and liabilities The components of deferred tax assets/liabilities are as follows: 20222021 Deductible/ Deductible/ (taxable) (taxable) temporary Deferred temporary Deferred difference tax difference tax Deferred tax assets Impairment allowances on loans and advances to customers and other assets at amortised cost 301706 75228 284360 71191 Financial assets at FVTOCI (3332) (1016) (11092) (2763) Financial instruments at FVTPL 730 183 92 23 Salaries and welfare payable and other 65626 16453 53510 13188 Total 364730 90848 326870 81639 Deferred tax liabilities Impairment allowances on loans and advances to customers and other assets at amortised cost 356 50 – – Financial assets at FVTOCI 15 4 (5) (1) Financial instruments at FVTPL 215 54 (144) (27) Salaries and welfare payable and other (10235) (1618) (7755) (1325) Total (9649) (1510) (7904) (1353) – F-81 –242 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 32. Deferred tax assets and deferred tax liabilities (continued) (b) Movements of deferred tax Impairment allowances on loans and advances to Salaries and customers and Financial Financial welfare other assets at assets instruments payable and amortised cost at FVTOCI at FVTPL other Total At 1 January 2022 71191 (2764) (4) 11863 80286 Recognised in profit or loss 4061 1160 243 2993 8457 Recognised in other comprehensive income – 578 – (21) 557 Exchange difference 26 14 (2) – 38 At 31 December 2022 75278 (1012) 237 14835 89338 Impairment allowances on loans and advances to Salaries and customers and Financial Financial welfare other assets at assets instruments payable and amortised cost at FVTOCI at FVTPL other Total At 1 January 2021 61340 (1404) 1579 10305 71820 Recognised in profit or loss 9850 1020 (1584) 1516 10802 Recognised in other comprehensive income – (2383) – 14 (2369) Exchange difference 1 3 1 28 33 At 31 December 2021 71191 (2764) (4) 11863 80286 Note: No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not be reversed in the foreseeable future.– F-82 –China Merchants Bank Chapter VIII Financial Statements 243 Annual Report 2022 (H share) 33. Other assets 20222021 Amounts pending for settlement 15387 78719 Continuing involvement assets 5274 5274 Interest receivable 4154 3913 Prepaid lease payments 209 257 Repossessed assets (a) 456 513 Guarantee deposits 465 519 Receivable from reinsurers 329 186 Prepayment for leasehold improvement and other miscellaneous items 7569 4987 Premium receivables 196 135 Post-employment benefits: defined benefit plan (note 39(b)) 50 65 Other 21889 27953 Total 55978 122521 (a) Repossessed assets 20222021 Land and buildings 606 623 Other repossessed assets 6 31 Total 612 654 Less: Impairment allowances (156) (141) Net repossessed assets 456 513 Note: In 2022 the Group disposed of repossessed assets with a total carrying value of RMB44 million (2021: RMB66 million). 34. Deposits from banks and other financial institutions 20222021 Principal (a) 644618 751254 Interest payable 1056 1764 Total 645674 753018 (a) Analysed by nature of counterparties 20222021 In the Chinese mainland 633178 701085 – Banks 103250 77788 – Other financial institutions 529928 623297 Outside the Chinese mainland 11440 50169 – Banks 10779 48301 – Other financial institutions 661 1868 Total 644618 751254 – F-83 –244 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 35. Placements from banks and other financial institutions 20222021 Principal (a) 191872 170257 Interest payable 985 393 Total 192857 170650 (a) Analysed by nature of counterparties 20222021 In the Chinese mainland 124533 114496 – Banks 123934 107214 – Other financial institutions 599 7282 Outside the Chinese mainland 67339 55761 – Banks 67130 55570 – Other financial institutions 209 191 Total 191872 170257 36. Financial liabilities at fair value through profit or loss 20222021 Financial liabilities held for trading (a) 18247 17017 Financial liabilities designated at fair value through profit or loss (b) 45067 46744 Total 63314 63761 (a) Financial liabilities held for trading 20222021 Financial liabilities related to precious metal 17634 16406 Short position on bonds 613 611 Total 18247 17017 (b) Financial liabilities designated at fair value through profit or loss 20222021 In the Chinese mainland 36217 34677 – Precious metal contracts with other banks 14170 11596 – Other 22047 23081 Outside the Chinese mainland 8850 12067 – Certificates of deposit issued 383 377 – Debt securities issued 7709 7600 – Other 758 4090 Total 45067 46744 As at 31 December 2022 and 2021 the difference between the fair values of the Group’s financial liabilities designated at fair value through profit or loss and the contractual payable amount at maturity is not significant. The amounts of changes in the fair value of these liabilities that are attributable to changes in credit risk of the Group are not significant during the years ended 31 December 2022 and 2021 and as at 31 December 2022 and 2021.– F-84 –China Merchants Bank Chapter VIII Financial Statements 245 Annual Report 2022 (H share) 37. Amounts sold under repurchase agreements 20222021 Principal (a)(b) 107024 157572 Interest payable 69 88 Total 107093 157660 (a) Analysed by nature of counterparties 20222021 In the Chinese mainland 103452 155322 – Banks 103446 147410 – Other financial institutions 6 7912 Outside the Chinese mainland 3572 2250 – Banks 2801 1854 – Other financial institutions 771 396 Total 107024 157572 (b) Analysed by underlying assets 20222021 Debt securities 95999 152071 – Government bonds 73335 90956 – Bonds issued by policy banks 15330 48833 – Bonds issued by commercial banks and other financial institutions 3476 2774 – Other debt securities 3858 9508 Discounted bills 11025 5501 Total 107024 157572 – F-85 –246 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 38. Deposits from customers 20222021 Principal (a) 7535742 6347078 Interest payable 54837 38076 Total 7590579 6385154 (a) Analysed by nature of counterparties 20222021 Corporate customers 4431553 4058924 – Demand deposits 2762671 2652817 – Time deposits 1668882 1406107 Retail customers 3104189 2288154 – Demand deposits 1983364 1557861 – Time deposits 1120825 730293 Total 7535742 6347078 (b) The deposits taken from customers as collateral or for the purpose of guarantees are as follows: 20222021 Guarantee for acceptance bills 199384 134858 Guarantee for loans 6888 18878 Guarantee for issuing letters of credit 29366 21574 Deposit for letters of guarantee 44732 32412 Other 42490 31208 Total 322860 238930 – F-86 –China Merchants Bank Chapter VIII Financial Statements 247 Annual Report 2022 (H share) 39. Staff welfare scheme (a) Salaries and welfare payable 2022 Charge for the year Payment/ Beginning arising from Charge transfers Ending balance combination for the year in the year balance Short-term employee benefits (i) 18065 151 58583 (53724) 23075 Post-employment benefits – defined contribution plans (ii) 1629 – 5110 (5974) 765 Other long-term employee benefits(iii) 67 – (41) – 26 Total 19761 151 63652 (59698) 23866 2021 Payment/ Beginning Charge transfers Ending balance for the year in the year balance Short-term employee benefits (i) 14155 53827 (49917) 18065 Post-employment benefits – defined contribution plans (ii) 1240 4884 (4495) 1629 Other long-term employee benefits(iii) 67 17 (17) 67 Total 15462 58728 (54429) 19761 (i) Short-term employee benefits 2022 Charge for the year Payment/ Beginning arising from Charge transfers Ending balance combination for the year in the year balance Salaries and bonus 14318 151 48682 (44263) 18888 Welfare expense 19 – 2310 (2312) 17 Social insurance 530 – 3311 (3470) 371 – Medical insurance 515 – 3192 (3354) 353 – Injury insurance 6 – 34 (34) 6 – Maternity insurance 9 – 85 (82) 12 Housing reserve 166 – 2309 (2318) 157 Labour union and employee education expenses 3032 – 1971 (1361) 3642 Total 18065 151 58583 (53724) 23075 2021 Payment/ Beginning Charge transfers Ending balance for the year in the year balance Salaries and bonus 11121 43716 (40519) 14318 Welfare expense 24 2908 (2913) 19 Social insurance 408 3158 (3036) 530 – Medical insurance 391 3046 (2922) 515 – Injury insurance 6 27 (27) 6 – Maternity insurance 11 85 (87) 9 Housing reserve 191 2119 (2144) 166 Labour union and employee education expenses 2411 1926 (1305) 3032 Total 14155 53827 (49917) 18065 – F-87 –248 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 39. Staff welfare scheme (continued) (a) Salaries and welfare payable (continued) (ii) Post-employment benefits-defined contribution plans 2022 Payment/ Beginning Charge transfers Ending balance for the year in the year balance Basic retirement insurance 157 2821 (2827) 151 Supplementary pension 1450 2221 (3080) 591 Unemployment insurance 22 68 (67) 23 Total 1629 5110 (5974) 765 2021 Payment/ Beginning Charge transfers Ending balance for the year in the year balance Basic retirement insurance 130 2566 (2539) 157 Supplementary pension 1088 2257 (1895) 1450 Unemployment insurance 22 61 (61) 22 Total 1240 4884 (4495) 1629 In accordance with the regulations in the PRC the Group participates in statutory pension schemes organised by the municipal and provincial governments for its employees (endowment insurance). During the year ended 31 December 2022 the Group’s contributions to these pension schemes are determined by local governments and vary at a range of 14% to 16% (2021: 14% to 16%) of the staff salaries.In addition to the above statutory pension schemes the Group has established a supplementary defined contribution plan for its employees (annuity insurance) in accordance with relevant annuity policies for corporate entities in the PRC. During the year ended 31 December 2022 the Group’s annual contributions to this plan are determined based on 0% to 8.33% of the staff salaries and bonuses (2021: 0% to 8.33%).For its employees outside the Chinese mainland the Group participates in defined contribution retirement schemes at funding rates determined in accordance with the local practices and regulations.(iii) Other long-term employee benefits 2022 Beginning Charge Payment Ending balance for the year in the year balance Cash settled share-based transactions 67 (41) – 26 2021 Beginning Charge Payment Ending balance for the year in the year balance Cash settled share-based transactions 67 17 (17) 67 The Group has offered 10 phases of H share appreciation rights under the Scheme the remaining eighth to tenth phases have not been exercised as of 31 December 2022. The share appreciation rights of the Scheme vest after 3 years from the grant date and are then exercisable within a period of 7 years. Each of the share appreciation right is linked to one H share.– F-88 –China Merchants Bank Chapter VIII Financial Statements 249 Annual Report 2022 (H share) 39. Staff welfare scheme (continued) (a) Salaries and welfare payable (continued) (iii) Other long-term employee benefits (continued) (1) All share appreciation rights shall be settled in cash. The terms and conditions of the Scheme are listed below: Number of unexercised share Contract period of appreciation rights share appreciation at the end of 2022 Exercise conditions rights (in millions) Share appreciation rights granted on 22 Jul 2015 (Phase VIII) 0.157 3 years after the grant date 10 years Share appreciation rights granted on 24 Aug 2016 (Phase IX) 0.210 3 years after the grant date 10 years Share appreciation rights granted on 25 Aug 2017 (Phase X) 0.240 3 years after the grant date 10 years (2) The number and weighted average exercise prices of share appreciation rights are as follows: 20222021 Number Number Weighted of share Weighted of share average appreciation average appreciation exercise price rights exercise price rights (HKD) (in million) (HKD) (in million) Outstanding as at the beginning of the year 16.21 1.76 18.34 2.87 Exercised during the year – – 17.23 (0.42) Forfeited during the year 13.65 (1.15) 19.11 (0.69) Outstanding at the end of the year 15.91 0.61 16.21 1.76 Exercisable at the end of the year 15.25 0.55 14.92 1.35 The share appreciation rights outstanding at 31 December 2022 had a weighted average exercise price of HKD15.91 (2021: HKD16.21) and a weighted average remaining contractual life of 3.70 years (2021: 4.36 years). Pursuant to the requirements set out in the Scheme if there are any dividends distributed capital reserve converted into shares share split or dilution adjustments to the exercise price will be applied.– F-89 –250 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 39. Staff welfare scheme (continued) (a) Salaries and welfare payable (continued) (iii) Other long-term employee benefits (continued) (3) Fair value of share appreciation rights and assumptions The fair value of services received in return for share appreciation rights granted are measured by reference to the fair value of share appreciation rights granted. The estimate of the fair value of the share appreciation rights granted is measured based on the Black-Scholes model. The contractual life of the rights are used as an input to the model. 2022 Phase VIII Phase IX Phase X Fair value at measurement date (in RMB Yuan) 24.94 25.27 17.75 Share price (in HKD) 43.30 43.30 43.30 Exercise price (in HKD) 12.81 11.38 21.92 Expected volatility 48.34% 48.34% 48.34% Share appreciation rights remaining life (year) 2.50 3.58 4.58 Expected dividends yield 2.93% 2.93% 2.93% Risk-free interest rate 1.43% 1.43% 1.43% 2021 Phase VII Phase VIII Phase IX Phase X Fair value at measurement date (in RMB Yuan) 40.54 33.66 33.40 25.98 Share price (in HKD) 61.75 61.75 61.75 61.75 Exercise price (in HKD) 7.44 14.59 13.16 23.70 Expected volatility 37.41% 37.41% 37.41% 37.41% Share appreciation rights remaining life (year) 2.50 3.50 4.58 5.58 Expected dividends yield 3.36% 3.36% 3.36% 3.36% Risk-free interest rate 1.43% 1.43% 1.43% 1.43% The expected volatility is based on the historical volatility (calculated based on the weighted average remaining life of the share appreciation rights) and adjusted for any expected changes to future volatility based on publicly available information. Expected dividend yield is based on historical dividend yields. Changes in the subjective input assumptions could materially affect the fair value estimate.Share appreciation rights were granted under service conditions. The conditions have not been taken into account in the grant date fair value measurement of the services received. There were no market conditions associated with the share appreciation rights granted. (4) The number of share appreciation rights granted: 2022 Exercised/ Phase VIII Phase IX Phase X Total Forfeited (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) Tian Huiyu – – – – 1230 Wang Liang 157 210 240 607 203 Total 157 210 240 607 1433 2021 Exercised/ Phase VII Phase VIII Phase IX Phase X Total Forfeited (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) Tian Huiyu 225 300 300 330 1155 75 Liu Jianjun – – – – – 870 Wang Liang – 157 210 240 607 203 Xiong Liangjun – – – – – 660 Total 225 457 510 570 1762 1808 Note: In 2022 senior management did not exercise any appreciation rights (2021: 0.42 million at a weighted average exercise price of HKD17.23).– F-90 –China Merchants Bank Chapter VIII Financial Statements 251 Annual Report 2022 (H share) 39. Staff welfare scheme (continued) (b) Post-employment benefits – defined benefit plan The Group’s subsidiary CMB WLB operates a defined benefit plan (the “plan”) for the staff which includes a defined benefit scheme and a defined benefit pension scheme. Contributions to the plan are determined based on periodic valuations by qualified actuaries on the assets and liabilities of the plan. The plan provides benefits based on members’ final salary. The costs are solely funded by CMB WLB.The latest actuarial valuation of the plan as at 31 December 2022 was performed by Towers Watson Hong Kong Limited a professional actuarial firm in accordance with IAS 19 Employee Benefits. The present values of the defined benefit obligation and current service cost of the plan are calculated based on the projected unit credit method. At the valuation date the plan had a funding level of 121%(2021: 123%).The amounts recognised in the consolidated statement of financial position as at 31 December 2022 and 2021 are analysed as follows: 20222021 Fair value of the plan assets 285 349 Present value of the funded defined benefit obligation (235) (284) Net asset recognised in the consolidated statement of financial position 50 65 A portion of the above asset is expected to be recovered after more than one year. However it is not practicable to segregate this amount from the amounts receivable in the next twelve months as future contributions will also relate to future services rendered and future changes in actuarial assumptions and market conditions. No contribution to the plan is expected to be paid in 2022.There was no plan amendment curtailment or settlement impact for the years ended 31 December 2022 and 2021.The amounts recognised in the consolidated statement of profit or loss are as follows: 20222021 Current service cost (9) (10) Net interest income 1 – Net expense for the year included in retirement benefit costs (8) (10) The actual loss on the plan assets for the year ended 31 December 2022 was RMB42 million (2021: gain of RMB2 million).The movements in the defined benefit obligation during the year are as follows: 20222021 Present value of obligation at 1 January 284 341 Current service cost 9 10 Interest cost 4 1 Actual benefits paid (49) (42) Actuarial gains or losses due to liability experience (4) (6) Actuarial gains or losses due to financial assumption changes (31) (22) Actuarial gains or losses due to demographic assumption changes – 10 Exchange difference 22 (8) Actual obligation at 31 December 235 284 The movements in the fair value of the plan assets during the year are as follows: 20222021 Fair value of the plan assets at 1 January 349 401 Interest income 5 1 Expected return on plan assets (47) 1 Actual benefits paid (49) (42) Exchange difference 27 (12) Fair value of the plan assets at 31 December 285 349 – F-91 –252 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 39. Staff welfare scheme (continued) (b) Post-employment benefits – defined benefit plan (continued) The major categories of the plan assets are as follows: 20222021 Amount % Amount % Equities 153 53.7 202 57.9 Bonds 50 17.5 71 20.3 Cash 82 28.8 76 21.8 Total 285 100.0 349 100.0 As at 31 December 2022 deposit with the Bank included in the amount of the plan assets was RMB58 million (2021: RMB53 million).The principal actuarial assumptions adopted in the valuation are as follows: 20222021 %% Discount rate – Defined benefit scheme 3.3 1.4 – Defined benefit pension scheme 4.6 0.4 Long-term average rate of salary increase for the plan 5.0 5.0 Pension increase rate for the defined benefit pension plan – – In 2022 and 2021 there were no significant change in the amount of retirement benefit plan liabilities due to changes in the above-mentioned actuarial assumptions. 40. Tax payable 20222021 Corporate income tax 13392 16539 Value added tax 4141 4399 Other 1925 1553 Total 19458 22491 41. Contract liabilities 20222021 Credit card points 5319 6065 Other deferred fee and commission income 1360 1471 Total 6679 7536 42. Provisions 20222021 Expected credit loss on provisions 20217 12790 Other 2274 1870 Total 22491 14660 The expected credit loss for loan commitments and financial guarantee contracts by stages are as follows: 20222021 Expected credit loss provisions 20217 12790 – Stage 1 (12-month ECL) 12082 8210 – Stage 2 (Lifetime ECL – not credit-impaired) 7569 3724 – Stage 3 (Lifetime ECL – credit-impaired) 566 856 – F-92 –China Merchants Bank Chapter VIII Financial Statements 253 Annual Report 2022 (H share) 43. Debt securities issued Notes 2022 2021 Subordinated bonds issued (a) 19994 34236 Long-term debt securities issued (b) 120971 159306 Negotiable interbank certificates of deposit issued 65719 240284 Certificates of deposit and other debt securities issued (note) 15604 10715 Interest payable 1533 2104 Total 223821 446645 Note: Other debt securities issued are notes issued by overseas subsidiaries of the Bank.(a) Subordinated bonds issued As at the end of the reporting period subordinated bonds issued by the Bank were as follows: Issue Discount or Term to Date of Nominal Beginning during premium Repayment Debt type maturity issuance Annual interest rate value balance the year amortisation during the year Ending balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Fixed rate bond 180 months 27 Dec 2012 5.20 RMB11700 11696 – 4 (11700) – Fixed rate bond 120 months 15 Nov 2018 4.65 RMB20000 19994 – – – 19994 Total 31690 – 4 (11700) 19994 As at the end of the reporting period subordinated bond issued by CMB WLB was as follows: Discount or Term to Date of Nominal Beginning premium Exchange Repayment Debt type maturity issuance Annual interest rate value balance amortisation difference during the year Ending balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Fixed to floating 120 months 22 Nov 2017 3.75 (for the first 5 years); USD400 2546 3 116 (2665) – rate bond T*+1.75% (from 6th year onwards if the notes are not called by the Bank) Total 2546 3 116 (2665) – * T represents the 5 years US Treasury rate.– F-93 –254 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 43. Debt securities issued (continued) (b) Long-term debt securities issued As at the end of the reporting period debt securities issued by the Bank was as follows: Discount or Term to Date of Annual Nominal Beginning Issue during premium Exchange Repayment Ending Debt type maturity issuance interest rate value balance the year amortisation difference during the year balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Medium term note 36 months 19 Jun 2019 0.25 EUR300 2164 – (1) 30 (2193) – Medium term note 36 months 19 Jun 2019 3M Libor*+0.74 USD600 3823 – – 97 (3920) – Fixed rate bond 36 months 5 Jul 2019 3.45 RMB30000 29990 – 10 – (30000) – Fixed rate bond 36 months 24 Sep 2019 3.33 RMB20000 19997 – 3 – (20000) – Medium term note 33 months 27 Sep 2019 3M Libor*+0.74 USD60 382 – – 10 (392) – Medium term note 36 months 25 Sep 2020 1.10 USD400 2546 – (2) 236 – 2780 Medium term note 36 months 25 Sep 2020 0.95 USD300 1908 – (4) 183 – 2087 Fixed rate bond 36 months 6 Nov 2020 3.48 RMB10000 9998 – 1 – – 9999 Fixed rate bond 36 months 11 Mar 2021 3.40 RMB10000 9998 – – – – 9998 Fixed rate bond 36 months 3 Jun 2021 3.18 RMB20000 19995 – – – – 19995 Fixed rate bond 36 months 24 Aug 2021 2.90 RMB10000 9998 – – – – 9998 Medium term note 24 months 1 Sep 2021 SOFR*+0.50 USD300 1912 – (1) 176 – 2087 Medium term note 60 months 1 Sep 2021 1.25 USD300 1912 – (1) 178 – 2089 Medium term note 36 months 2 Mar 2022 2.00 USD400 – 2534 9 255 – 2798 Fixed rate bond 36 months 11 May 2022 2.65 RMB5000 – 4998 1 – – 4999 Fixed rate bond 36 months 1 Sep 2022 2.40 RMB10000 – 10000 (3) – – 9997 Total 114623 17532 12 1165 (56505) 76827 * Libor represents London InterBank Offered Rate. SOFR represents Secured Overnight Financing Rate.Note: Financial bonds issued by the Bank that were held by CMB WLB amounted to a total of 555 million RMB equivalent as of 31 December 2022 (31 December 2021: 1142 million RMB equivalent). – F-94 –China Merchants Bank Chapter VIII Financial Statements 255 Annual Report 2022 (H share) 43. Debt securities issued (continued) (b) Long-term debt securities issued (continued) As at the end of the reporting period debt securities issued by CMBFL were as follows: Discount or Term to Date of Annual Nominal Beginning Issue during premium Exchange Repayment Ending Debt type maturity issuance interest rate value balance the year amortisation difference during the year balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Fixed rate bond 36 months 13 Mar 2019 3.50 RMB1500 1500 – – – (1500) – Fixed rate bond 60 months 13 Mar 2019 4.00 RMB500 499 – 1 – – 500 Fixed rate bond 36 months 27 May 2019 3.68 RMB3000 2999 – 1 – (3000) – Fixed rate bond 60 months 3 Jul 2019 3.00 USD900 5705 – 10 550 – 6265 Fixed rate bond 120 months 3 Jul 2019 3.63 USD100 633 – 1 60 – 694 Fixed rate bond 36 months 17 Jul 2019 3.60 RMB3000 2998 – 2 – (3000) – Fixed rate bond 120 months 14 Jul 2020 4.25 RMB2000 1993 – 1 – – 1994 Fixed rate bond 60 months 12 Aug 2020 1.88 USD800 5078 – 5 488 – 5571 Fixed rate bond 120 months 12 Aug 2020 2.75 USD400 2526 – 3 242 – 2771 Fixed rate bond 36 months 17 Nov 2020 3.85 RMB4000 3993 – 4 – – 3997 Fixed rate bond 36 months 28 Jan 2021 3.60 RMB4000 3992 – 4 – – 3996 Fixed rate bond 60 months 4 Feb 2021 2.00 USD400 2539 – 2 244 – 2785 Fixed rate bond 120 months 5 Feb 2021 2.88 USD400 2520 – 3 242 – 2765 Fixed rate bond 18 months 19 Mar 2021 1.16 USD50 318 – – 30 (348) – Fixed rate bond 36 months 24 Mar 2021 3.58 RMB2000 1996 – 2 – – 1998 Fixed rate bond 60 months 24 Mar 2021 2.00 USD20 126 – – 12 – 138 Fixed rate bond 36 months 16 Sep 2021 1.25 USD600 3805 – 5 369 – 4179 Fixed rate bond 60 months 16 Sep 2021 1.75 USD300 1893 – 3 185 – 2081 Fixed rate bond 36 months 16 Sep 2021 0.50 EUR100 721 – 1 19 – 741 Floating rate bond 12 months 13 Dec 2021 3M Libor+0.55 USD60 382 – – 35 (417) – Fixed rate bond 24 months 22 Dec 2021 0.50 EUR30 216 – – 6 – 222 Floating rate bond 12 months 2 Mar 2022 SOFR+0.80 USD115 – 728 1 73 – 802 Floating rate bond 12 months 6 May 2022 SOFR+0.85 USD45 – 298 – 16 – 314 Floating rate bond 12 months 6 May 2022 SOFR+1.00 USD75 – 497 – 26 – 523 Floating rate bond 12 months 13 Jun 2022 SOFR+0.95 USD120 – 805 – 32 – 837 Fixed rate bond 12 months 9 Sep 2022 1.95 EUR80 – 554 – 38 – 592 Floating rate bond 6 months 13 Oct 2022 SOFR+0.75 USD50 – 346 – 3 – 349 Fixed rate bond 12 months 17 Nov 2022 3.21 RMB300 – 300 – – – 300 Floating rate bond 12 months 7 Dec 2022 SOFR+0.83 USD45 – 315 – (1) – 314 Floating rate bond 60 months 12 Dec 2022 SOFR+1.40 USD100 – 695 – 3 – 698 Fixed rate bond 12 months 14 Dec 2022 2.90 EUR57 – 420 – 1 – 421 Total 46432 4958 49 2673 (8265) 45847 Note: Financial bonds issued by CMBFL that were held by the Bank amounted to a total of 1370 million RMB equivalent as of 31 December 2022 (31 December 2021: 1370 million RMB equivalent). Financial bonds issued by CMB International Leasing Management Limited (CMBILM) a wholly-owned subsidiary of CMBFL that were held by the Bank amounted to a total of 2268 million RMB equivalent as of 31 December 2022 (31 December 2021: 2085 million RMB equivalent). Financial bonds issued by CMBILM that were held by CMB WLB amounted to a total of 1602 million RMB equivalent as of 31 December 2022 (31 December 2021: 900 million RMB equivalent). As at the end of the reporting period long-term debt securities issued by CMBIC were as follows: Discount or Term to Date of Annual Nominal Beginning Issue during premium Exchange Repayment Ending Debt type maturity issuance interest rate value balance the year amortisation difference during the year balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Fixed rate bond 36 months 2 June 2021 1.38 USD600 3816 – (21) 371 – 4166 Total 3816 – (21) 371 – 4166 Note: Financial bond issued by CMBIC that was held by CMB WLB amounted to a total of 74 million RMB equivalent as of 31 December 2022 (31 December 2021: 68 million RMB equivalent).– F-95 –256 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 44. Other liabilities 20222021 Clearing and settlement accounts 31534 50565 Salary risk allowances (note) 45500 38500 Continuing involvement liability 5274 5274 Insurance liabilities 2902 2063 Collecting on behalf of customers 827 951 Cheques and remittances returned 39 47 Other payable 39862 42170 Total 125938 139570 Note: Salary risk allowances are specific funds withheld from the employees’ annual remunerations of which the payments are delayed for the purpose of risk management. The allocation of the funds is based on performance assessment and risk management results taking into account the short term and long term benefit. In the event of a decline in the asset quality a sharp deterioration of risk profiles and profitability the occurrence of legal case or a significant regulatory violation identified by any regulatory authorities the relevant employees will be restricted from the allocation of these allowances. 45. Share capital By type of shares: 2022 and 2021 No.of shares (in million) Listed shares – A Shares 20629 – H Shares 4591 Total 25220 All H Shares are ordinary shares and rank pari passu with the A Shares. There is no restriction on these shares.Capital No. of shares Amount (in million) At 1 January 2022 and at 31 December 2022 25220 25220 – F-96 –China Merchants Bank Chapter VIII Financial Statements 257 Annual Report 2022 (H share) 46. Other equity instruments (a) Preference Shares Accounting Dividend Conversion Issuance date classification rate Issue price No. Amount Due date conditions Conversion (millions of shares) (RMB in million) Offshore Preference Shares in 2017 25 Oct 2017 Equity instruments 4.40% USD20/Share 50 6597 Perpetual existence Note (iii) None (note (i)) Domestic Preference Shares in 2017 22 Dec 2017 Equity instruments 4.81% RMB100/Share 275 27468 Perpetual existence Note (iii) None (note (ii)) Total 325 34065 The changes of Preference Shares issued were as follows: 1 January 2022 Increase/decrease 31 December 2022 No. Amount No. Amount No. Amount Issuance (RMB in (RMB in (RMB in date (millions of shares) million) (millions of shares) million) (millions of shares) million) Offshore Preference Shares (note (i)) 25 Oct 2017 50 6597 (50) (6597) – – Domestic Preference Shares (note (ii)) 22 Dec 2017 275 27468 – – 275 27468 Total 325 34065 (50) (6597) 275 27468 Notes: (i) Pursuant to the approvals by the relevant regulatory authorities in China the Bank issued US Dollar traded and settled non-cumulative Offshore Preference Shares in the aggregate nominal value of USD1000 million on 25 October 2017. Each Offshore Preference Share has a nominal value of USD20 and 50 million Offshore Preference Shares were issued in total. The dividend rate is initially at 4.40% and subject to reset per agreement subsequently but not exceeds 16.68%. With the approval of the CBIRC the Bank redeemed all of the above Offshore Preference Shares during the year.(ii) Pursuant to the approvals by the relevant regulatory authorities in China the Bank issued non-cumulative Domestic Preference Shares in the aggregate nominal value of RMB27500 million on 22 December 2017. Each Domestic Preference Share has a nominal value of RMB100 and 275 million Domestic Preference Shares were issued in total. The dividend rate is initially at 4.81% and subject to reset per agreement subsequently but not exceeds 16.68%.(iii) Both Domestic and Offshore Preference Shares have clauses that state certain events would trigger mandatory conversion those clauses are as follows: (1) Upon the occurrence of any additional Tier-1 Capital Instrument Trigger Event that is the Core Tier-1 Capital Adequacy Ratio drops to 5.125% or below the Bank shall have the right to convert without the consent of the holders of Preference Shares all or part of the Preference Shares then issued and outstanding into Ordinary A Shares (Domestic Preference Shares) or Ordinary H Shares (Offshore Preference Shares) based on the total nominal value of the Preference Shares in order to restore the Core Tier-1 Capital Adequacy Ratio of the Bank to above 5.125%. In the case of partial conversion the Preference Shares shall be converted on a pro rata basis and on identical conditions. (2) Upon the occurrence of a Tier-2 Capital Trigger Event the Bank shall have the right to convert without the consent of the holders of Preference Shares all or part of the Preference Shares then issued and outstanding into Ordinary A Shares (Domestic Preference Shares) or Ordinary H Shares (Offshore Preference Shares) based on the total nominal value of the Preference Shares. A Tier-2 Capital Trigger Event refers to the earlier of the following events: 1) CBIRC having concluded that without a conversion or write-off the Bank would become non-viable and 2) the relevant authorities having concluded that without a public sector injection of capital or equivalent support the Bank would become non-viable.Upon the occurrence of the above mandatory conversion events the Bank shall report to the CBIRC for review and determination. The Bank shall fulfil the relevant information disclosure requirements of the Securities Law the CSRC’s and Hong Kong’s relevant laws and regulations such as making provisional reports or announcements in accordance with relevant regulatory requirements.– F-97 –258 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 46. Other equity instruments (continued) (a) Preference Shares (continued) Dividends on the Offshore and Domestic Preference Shares shall be paid in cash. Save for such dividend at the agreed dividend rate the holders of the above Preference Shares are not entitled to share the remaining profits of the Bank with the ordinary shareholders. Dividend is non-cumulative. The Bank has the right to cancel any dividend on Preference Shares and such cancellation shall not be deemed as a default. After the cancellation of all or part of the dividend to preference shareholders the Bank shall not make any ordinary shares distribution until the Preference Shares dividend is resumed in full. As the dividends on the Offshore and Domestic Preference Shares are non-cumulative the Bank will not distribute the dividends that were cancelled in prior years to Preference Shares holders.The Offshore and Domestic Preference Shares have no maturity date. However after the fifth anniversary of the issuance date subject to the satisfaction of the redemption conditions and having obtained the prior approval of the CBIRC the Offshore and Domestic Preference Shares may be redeemed in whole or in part at the discretion of the Bank but the Bank does not have the obligation to redeem preference shares. The holders of Preference Shares do not have the right to demand the Bank to redeem the Preference Shares and shall not expect that Preference Shares will be redeemed.After deducting the issuance expenses from the Preference Shares above the total net proceeds have been included in additional Tier 1 capital of the Bank.(b) Perpetual Bonds Issuance Accounting Interest Conversion date classification rate Issue price No. Amount Due date conditions Conversion (millions of units) (RMB in million) Domestic Perpetual Bonds (note (i)) 9 Jul 2020 Equity instruments 3.95% RMB100/Unit 500 49989 Perpetual existence None None Domestic Perpetual Bonds (note (ii)) 7 Dec 2021 Equity instruments 3.69% RMB100/Unit 430 42989 Perpetual existence None None Total 930 92978 The changes of Perpetual Bonds issued were as follows: 1 January 2022 Increase 31 December 2022 No. Amount No. Amount No. Amount Issuance (RMB in (RMB in (RMB in date (millions of units) million) (millions of units) million) (millions of units) million) Domestic Perpetual Bonds (note (i)) 9 Jul 2020 500 49989 – – 500 49989 Domestic Perpetual Bonds (note (ii)) 7 Dec 2021 430 42989 – – 430 42989 Total 930 92978 – – 930 92978 Notes: (i) With the approval of the relevant regulatory authorities in China the Bank issued RMB50000 million of 2020 China Merchants Bank Co. Ltd.Undated Additional Tier-1 Capital Bonds (Series 1) (the “Perpetual Bonds 2020”) in the national inter-bank bond market on 9 July 2020. The unit face value is RMB100. The coupon rate adjusted period is every 5 years from the issuance of the Perpetual Bonds 2020. In any coupon rate adjusted period the coupon rate of the Perpetual Bonds will remain at a prescribed fixed rate. The Perpetual Bonds 2020 will continue to be outstanding so long as the Bank continues to operate.(ii) With the approval of the relevant regulatory authorities in China the Bank issued RMB43000 million of 2021 China Merchants Bank Co. Ltd.Undated Additional Tier-1 Capital Bonds (the “Perpetual Bonds 2021 together with Perpetual Bonds 2020 Perpetual Bonds”) in the national inter-bank bond market on 7 December 2021. The unit face value is RMB100. The coupon rate adjusted period is every 5 years from the issuance of the Perpetual Bonds 2021. In any coupon rate adjusted period the coupon rate of the Perpetual Bonds will remain at a prescribed fixed rate. The Perpetual Bonds 2021 will continue to be outstanding so long as the Bank continues to operate.– F-98 –China Merchants Bank Chapter VIII Financial Statements 259 Annual Report 2022 (H share) 46. Other equity instruments (continued) (b) Perpetual Bonds (continued) From the fifth anniversary since the issuance of the Perpetual Bonds the Bank has the right to redeem in whole or in part the Perpetual Bonds on the annual interest payment date (including the interest payment date on the fifth year since the issuance date) subject to the approval of the CBIRC and the satisfaction of the redemption preconditions. If after the issuance the Perpetual Bonds no longer qualify as additional Tier 1 capital as a result of an unforeseeable change to relevant provisions of supervisory regulation the Bank has the right to redeem the whole but not part of the Perpetual Bonds. The investors do not have the right to sell back the Perpetual Bonds to the Bank.The claims in respect of the Perpetual Bonds will be subordinated to the claims of depositors general creditors and subordinated debts that rank senior to the Perpetual Bonds and will rank in priority to all classes of shares held by the Bank’s shareholders and rank pari passu with the claims in respect of any other additional Tier-1 capital instruments of the Bank that rank pari passu with the Perpetual Bonds.The coupon rate will be reset on each benchmark rate reset date (i.e. the date of every five years from the issuance date). The adjusted coupon rate will be determined based on the benchmark interest rate at adjustment date plus the fixed spread as determined at the time of issuance. The Perpetual Bonds do not contain interest rate step-up mechanism or any other redemption incentives. The Bank has the right to cancel in whole or in part distributions on the Perpetual Bonds and any such cancellation will not constitute an event of default. The bond interests are non-cumulative and any cancelled distribution is not carried to the following year. The Bank will fully consider the interests of bondholders when exercising this right. The Bank can use the cancelled bond interest for the current period at its discretion to repay other due debts. Cancellation of any distributions to the Perpetual Bonds no matter in whole or in part will not impose any other restriction on the Bank except in relation to dividend distributions to ordinary shares.Upon the occurrence of a Non-Viability Trigger Event the Bank has the right to write off in whole or in part without the need for the consent of the bond holders the principal amount of the Perpetual Bonds. A Non-Viability Trigger Event refers to the earlier of the following events: (i) the CBIRC having concluded that without a write-off the Bank would become non-viable; (ii) the relevant authorities having concluded that without a public sector injection of capital or equivalent support the Bank would become non-viable. The write-off will not be restored.After deducting the issuance expenses the funds raised by the bonds have been used to supplement additional Tier 1 capital of the Bank in accordance with applicable laws and the approval of the relevant authorities. (c) Relative Information Attributed to Equity Instrument Holders 20222021 Equity attributed to shareholders of the Bank 945503 858745 – Equity attributed to ordinary shareholders of the Bank 825057 731702 – Equity attributed to other equity instrument holders of the Bank 120446 127043 Including: Net profit 5237 3613 Total comprehensive income 5237 3613 Distributions in current year (5237) (3613) Cumulative undistributed dividends – – Equity attributed to non-controlling interests 8735 6936 – Equity attributed to non-controlling holders of ordinary shares 5948 3300 – Equity attributed to non-controlling holders of perpetual debt capital (note 62(a)) 2787 3636 – F-99 –260 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 47. Capital reserve Capital reserve primarily represents share premium of the Bank and can be converted into share capital with the shareholders’ approval. 20222021 At 1 January 67523 67523 Decrease (2088) – At 31 December 65435 67523 48. Investment revaluation reserve 20222021 Debt instruments measured at FVTOCI: investment revaluation reserve 9319 11459 Fair value gain on equity instruments designated at FVTOCI 2606 2578 Remeasurement of defined benefit scheme 78 88 Share of other comprehensive (expense)/income of equity-accounted investees (233) 922 Other 45 – Total 11815 15047 49. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges. Subsequent recognition of the hedged cash flow is accounted for in accordance with the accounting policy adopted for cash flow hedge in Note 4(5). 50. Surplus reserve Statutory surplus reserve is calculated according to the requirements of the Accounting Standards for Business Enterprises and other relevant regulations issued by the Ministry of Finance (“MOF”) and is provided at 10% of the audited profit after tax of the Bank. Surplus reserve can be used to offset accumulated losses or capitalised as paid- up capital with the approval of shareholders. 20222021 At 1 January 82137 71158 Provided for the year 12848 10979 At 31 December 94985 82137 – F-100 –China Merchants Bank Chapter VIII Financial Statements 261 Annual Report 2022 (H share) 51. General reserve The general reserve is an integral part of equity. According to the relevant regulations in addition to the impairment allowances the Bank maintains a general reserve to make up for unidentified potential losses. In principle the balance of general reserve shall not be less than 1.5% of the ending balance of risk assets. In addition the general reserve includes 2.5% of the income of mutual fund custody businesses. The general reserve of the Group also includes the general reserve maintained by the subsidiaries of the Group according to the applicable laws and regulations of their industry or region. 20222021 At 1 January 115288 98082 Provided for the year 17183 17206 At 31 December 132471 115288 52. Profit appropriations (a) Dividends approved/declared by shareholders 20222021 Ordinary share dividends in 2021 approved and declared: RMB1.522 per share 38385 – Ordinary share dividends in 2020 approved and declared: RMB1.253 per share – 31601 (b) Proposed profit appropriations 20222021 Statutory surplus reserve 12848 10979 General reserve 17183 17206 Dividends – cash dividend: RMB1.738 per share (2021: RMB1.522 per share) 43832 38385 Total 73863 66570 2022 final dividends is proposed in accordance with the resolution passed at the meeting of the Board of Directors held on 24 March 2023 and will be submitted to the 2022 Annual General Meeting for approval. 53. Exchange reserve Exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of operations outside the Chinese mainland.– F-101 –262 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 54. The bank’s statement of financial position and changes in the bank’s equity 20222021 Assets Cash 14787 12794 Precious metals 2884 4554 Balances with central banks 585338 543652 Balances with banks and other financial institutions 47791 41632 Placements with banks and other financial institutions 247340 188376 Amounts held under resale agreements 276292 523516 Loans and advances to customers 5482692 5023050 Financial assets at fair value through profit or loss 369391 290941 Derivative financial assets 17859 23179 Debt investments at amortised cost 1533546 1183662 Debt investments at fair value through other comprehensive income 675484 552498 Equity investments designated at fair value through other comprehensive income 10724 6392 Investments in subsidiaries 50767 49495 Interests in joint ventures 13341 12582 Interests in associates 6190 5521 Investment properties 907 945 Property and equipment 26541 26833 Right-of-use assets 16764 17701 Intangible assets 2422 3228 Deferred tax assets 88056 79712 Other assets 41440 109871 Total assets 9510556 8700134 Liabilities Borrowing from central banks 129745 159987 Deposits from banks and other financial institutions 621621 732631 Placements from banks and other financial institutions 43319 55710 Financial liabilities at fair value through profit or loss 40035 36105 Derivative financial liabilities 18207 26866 Amounts sold under repurchase agreements 95970 137857 Deposits from customers 7327974 6150241 Salaries and welfare payable 19136 15853 Tax payable 17221 20926 Contract liabilities 6653 7536 Lease liabilities 12285 13164 Provisions 22410 14503 Debt securities issued 172402 398672 Other liabilities 96680 119395 Total liabilities 8623658 7889446 Equity Share capital 25220 25220 Other equity instruments 120446 127043 Capital reserve 76082 76681 Investment revaluation reserve 13144 14866 Surplus reserve 94985 82137 General reserve 121230 105941 Retained earnings 391579 340271 Proposed profit appropriation 43832 38385 Exchange reserve 380 144 Total equity 886898 810688 Total equity and liabilities 9510556 8700134 – F-102 –China Merchants Bank Chapter VIII Financial Statements 263 Annual Report 2022 (H share) 54. The bank’s statement of financial position and changes in the bank’s equity (continued) Details of the changes in the Bank’s equity are as follows: Other equity instruments Investment Proposed Share Preference Perpetual Capital revaluation Surplus General Retained profit Exchange capital shares bonds reserve reserve reserve reserve earnings appropriation reserve Total At 1 January 2022 25220 34065 92978 76681 14866 82137 105941 340271 38385 144 810688 Changes in equity for the year – (6597) – (599) (1722) 12848 15289 51308 5447 236 76210 Net profit for the year – – – – – – – 128484 – – 128484 Other comprehensive income for the year – – – – (1692) – – – – 236 (1456) Total comprehensive income for the year – – – – (1692) – – 128484 – 236 127028 Redemption of preference shares – (6597) – (599) – – – – – – (7196) Profit appropriations – – – – – 12848 15289 (77206) 5447 – (43622) Appropriation to statutory surplus reserve – – – – – 12848 – (12848) – – – Appropriation to general reserve – – – – – – 15289 (15289) – – – Dividends paid for the year 2021 – – – – – – – – (38385) – (38385) Proposed dividends for the year 2022 – – – – – – – (43832) 43832 – – Dividends to preference shares – – – – – – – (1675) – – (1675) Distribution to perpetual bonds – – – – – – – (3562) – – (3562) Transfers within equity upon disposal of equity instruments designated at FVTOCI – – – – (30) – – 30 – – – At 31 December 2022 25220 27468 92978 76082 13144 94985 121230 391579 43832 380 886898 Other equity instruments Investment Proposed Share Preference Perpetual Capital revaluation Hedging Surplus General Retained profit Exchange capital shares bonds reserve reserve reserve reserve reserve earnings appropriation reserve Total At 1 January 2021 25220 34065 49989 76681 7951 (26) 71158 94067 293523 31601 228 684457 Changes in equity for the year – – 42989 – 6915 26 10979 11874 46748 6784 (84) 126231 Net profit for the year – – – – – – – – 109794 – – 109794 Other comprehensive income for the year – – – – 8720 26 – – – – (84) 8662 Total comprehensive income for the year – – – – 8720 26 – – 109794 – (84) 118456 Issue of perpetual bonds – – 42989 – – – – – – – – 42989 Profit appropriations – – – – – – 10979 11874 (64851) 6784 – (35214) Appropriation to statutory surplus reserve – – – – – – 10979 – (10979) – – – Appropriation to general reserve – – – – – – – 11874 (11874) – – – Dividends paid for the year 2020 – – – – – – – – – (31601) – (31601) Proposed dividends for the year 2021 – – – – – – – – (38385) 38385 – – Dividends to preference shares – – – – – – – – (1638) – – (1638) Distribution to perpetual bonds – – – – – – – – (1975) – – (1975) Transfers within equity upon disposal of equity instruments designated at FVTOCI – – – – (1805) – – – 1805 – – – At 31 December 2021 25220 34065 92978 76681 14866 – 82137 105941 340271 38385 144 810688 – F-103 –264 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 55. Notes to consolidated cash flow statement (a) Analysis of the balances of cash and cash equivalents (including assets with original maturity within 3 months): 20222021 Cash and Balances with central banks 66055 79129 Balance with banks and other financial institutions 81928 75919 Placements with banks and other financial institutions 93704 65897 Amounts held under resale agreements 275051 527341 Debt securities investments 50460 53468 Total 567198 801754 (b) Reconciliation of liabilities arising from financing activities The table below details changes in the Group’s liabilities from financing activities including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were classified in the Group’s consolidated cash flows statement as cash flows from financing activities.Negotiable Certificates Debt interbank of deposit securities Interest Other certificates issued issued payable Dividend financial Lease of deposit (Note) (Note) on bonds payable liabilities liabilities Total At 1 January 2022 240284 11092 201142 2104 26 26650 13812 495110 Cash changes: Proceeds from the issue 78666 20287 21481 – – 10796 – 131230 Repayment (250996) (16504) (78735) – – (14959) (4932) (366126) Interest/dividend paid (5714) – – (6686) (44103) – – (56503) Non-cash changes: Additions of lease liabilities – – – – – – 3623 3623 Accrued interest – – – 6115 – – 510 6625 Dividend declared – – – – 44103 – – 44103 Discount or premium amortisation 3479 31 37 – – – – 3547 Fair value adjustments – (26) (544) – – (9) – (579) Exchange difference – 1107 5293 – – 241 – 6641 At 31 December 2022 65719 15987 148674 1533 26 22719 13013 267671 Negotiable Certificates Debt interbank of deposit securities Interest Other certificates issued issued payable Dividend financial Lease of deposit (Note) (Note) on bonds payable liabilities liabilities Total At 1 January 2021 144816 19084 194775 1985 26 23047 14242 397975 Cash changes: Proceeds from the issue 319707 14692 63872 – – 6860 – 405131 Repayment (226012) (21363) (55771) – – (3697) (4835) (311678) Interest/dividend paid (3768) – – (7630) (35685) – – (47083) Non-cash changes: Additions of lease liabilities – – – – – – 3850 3850 Accrued interest – – – 7749 – – 555 8304 Dividend declared – – – – 35685 – – 35685 Discount or premium amortisation 5541 (811) 53 – – – – 4783 Fair value adjustments – (15) (257) – – 656 – 384 Exchange difference – (495) (1530) – – (216) – (2241) At 31 December 2021 240284 11092 201142 2104 26 26650 13812 495110 Note： Including financial liabilities designated at fair value through profit or loss.(c) Significant non-cash transactions There were no significant non-cash transactions during the years ended 31 December 2022 and 2021.– F-104 –China Merchants Bank Chapter VIII Financial Statements 265 Annual Report 2022 (H share) 56. Operating segments The Group’s principal activities are providing corporate and personal banking services conducting treasury business providing asset management and other financial services.The Group manages its businesses by divisions which are organised by both business lines and geography. (1) Wholesale finance business The financial services for corporate clients government agencies and financial institutions include: loan and deposit service settlement and cash management service trade finance and offshore business investment banking business inter-bank business such as placement and repurchase asset custody business financial market business and other services. (2) Retail finance business The financial services provided to retail customers include: loan and deposit service bank card service wealth management services private banking and other services. (3) Other Business Other business covers investment properties subsidiaries except for CMB WLB and CMBFL associates and joint ventures. None of these segments meet any of the quantitative thresholds so far for segment division.During the year of 2022 the Group reallocated CMBFL from the other business segment to the wholesale financial business segment. The comparative figures were re-presented accordingly.For the purpose of operating segment analysis external net interest income/expense represents the net interest income earned or expense incurred on banking services provided to external parties. Internal net interest income/ expense represents the assumed profit or loss by the internal funds transfer pricing mechanism which has taken into account the structure and market returns of the assets and liabilities portfolio. Cost allocation is based on direct costs attributable to each reporting segment and apportion according to the relevant factors.The accounting policies of the operating segments are the same as the Group’s accounting policies as stated in Note 4. Operating segment income represents income generated from external customers inter-segment transactions are offset. No customer contributed 10% or more to the Group’s revenue for 2022 and 2021. Internal transactions are conducted at fair value.– F-105 –266 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 56. Operating segments (continued) (a) Segment results assets and liabilities Wholesale Retail finance business finance business Other business Total 20222021202220212022202120222021 External net interest income 28165 21026 140443 135412 49627 47481 218235 203919 Internal net interest income/(expense) 62294 69222 (9054) (18571) (53240) (50651) – – Net interest income 90459 90248 131389 116841 (3613) (3170) 218235 203919 Net fee and commission income 25540 25290 57279 60155 11456 9002 94275 94447 Other net income 26095 27080 2747 2018 863 (87) 29705 29011 Operating income 142094 142618 191415 179014 8706 5745 342215 327377 Operating expenses – Property and equipment and investment properties depreciation (7103) (5740) (2942) (2860) (234) (257) (10279) (8857) – Right-of-use assets depreciation (1676) (1672) (2250) (2367) (225) (220) (4151) (4259) – Other (43495) (41317) (58079) (56451) (6057) (5995) (107631) (103763) Reportable segment profit before impairment losses 89820 93889 128144 117336 2190 (727) 220154 210498 Expected credit losses and impairment losses on other assets (22671) (26503) (33966) (39627) (929) (225) (57566) (66355) Share of profits of associates and joint ventures – – – – 2525 4030 2525 4030 Reportable segment profit before taxation 67149 67386 94178 77709 3786 3078 165113 148173 Capital expenditure (note) 28884 20158 2660 3278 513 326 32057 23762 Wholesale finance business Retail finance business Other business Total 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 20222021202220212022202120222021 Reportable segment assets 5633640 5203529 3081290 2908405 1314820 1037190 10029750 9149124 Of which: Interest in associates and joint ventures – – – – 23844 23654 23844 23654 Reportable segment liabilities 5495463 5142042 3157321 2329192 446949 811434 9099733 8282668 Note: Capital expenditure represents the amount incurred for acquiring segment assets which are expected to be used for more than one year.– F-106 –China Merchants Bank Chapter VIII Financial Statements 267 Annual Report 2022 (H share) 56. Operating segments (continued) (b) Reconciliations of reportable segment revenue profit or loss assets liabilities and other material items 20222021 Operating income for reportable segments 342215 327377 Total profit before income tax for reportable segments 165113 148173 31 December 2022 31 December 2021 Assets Total assets for reportable segments 10029750 9149124 Goodwill 9999 9954 Intangible assets 581 571 Deferred tax assets 90848 81639 Other unallocated assets 7734 7733 Consolidated total assets 10138912 9249021 Liabilities Total liabilities for reportable segments 9099733 8282668 Tax payable 19458 22491 Deferred tax liabilities 1510 1353 Other unallocated liabilities 63973 76828 Consolidated total liabilities 9184674 8383340 – F-107 –268 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 56. Operating segments (continued) (c) Geographical segments The Group operates principally in the PRC with branches located in major provinces autonomous regions and municipalities directly under the central government in the Chinese mainland. The Group also has branches operating in Hong Kong New York Singapore Luxembourg London and Sydney subsidiaries operating in Hong Kong Shenzhen Shanghai Beijing and Luxembourg and representative offices in New York and Taipei.In presenting information on the basis of geographical segments operating income is allocated based on the location of the branches and subsidiaries that generate the revenue. Segment assets and non-current assets are allocated based on the location of the underlying assets.To support the Bank’s operations and management’s assessments the geographical segments are defined as follows: – “Headquarter” refers to the Group headquarter credit card centres and fund operation centres; – “Yangtze River Delta region” refers to branches in Shanghai municipality Zhejiang province and Jiangsu province; – “Bohai Rim region” refers to branches in Beijing municipality Tianjin municipality Shandong province and Hebei province; – “Pearl River Delta and West Coast region” refers to branches in Guangdong province and Fujian province; – “Northeast region” refers to branches in Liaoning province Heilongjiang province and Jilin province; – “Central region” refers to branches in Henan province Anhui province Hunan province Hubei province Jiangxi province Shanxi province and Hainan province; – “Western region” refers to branches in Sichuan province Chongqing municipality Guizhou province Yunnan province Shaanxi province Gansu province Ningxia Hui Autonomous region Xinjiang Uyghur autonomous region Guangxi Zhuang autonomous region Inner Mongolia autonomous region Qinghai province and Tibet autonomous region; – “Overseas” refers to overseas branches in Hong Kong New York Singapore Luxembourg London Sydney and representative offices in New York and Taipei; and – “Subsidiaries” refers to subsidiaries wholly owned or controlled by the Group including CMB WLB CMBIC CMBFL CMFM CMBWM CMB Europe S.A. and CIGNA & CMAM.Total assets Total liabilities Non-current assets Profit before tax Operating income 31 December 31 December 31 December 31 December 31 December 31 December Geographical information 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Headquarter 4580315 4155509 3841548 3492876 52166 51220 51396 42939 140083 145403 Yangtze River Delta region 1304806 1199329 1283400 1177342 5774 6198 22939 24092 45768 41451 Bohai Rim region 827394 725595 811449 711389 4354 4319 19759 17971 34105 31286 Pearl River Delta and West Coast region 1083521 997986 1063334 979018 4232 4432 26479 22252 37583 35379 Northeast region 170632 169282 166486 166933 1505 1617 4075 2919 6485 6108 Central region 636801 567191 628361 559499 3602 3958 10740 9744 20989 19448 Western region 632766 590272 623631 580623 3497 3877 11755 12191 20931 20192 Overseas 194412 210633 193651 208569 707 861 2046 1575 3557 2632 Subsidiaries 708265 633224 572814 507091 80148 61382 15924 14490 32714 25478 Total 10138912 9249021 9184674 8383340 155985 137864 165113 148173 342215 327377 Note: Non-current assets include interests in joint ventures interests in associates property and equipment investment properties right-of-use assets intangible assets and goodwill.– F-108 –China Merchants Bank Chapter VIII Financial Statements 269 Annual Report 2022 (H share) 57. Assets pledged as security The following assets have been pledged as collateral for borrowing from central banks and liabilities under repurchase or placement arrangements: 20222021 Borrowing from central banks 129438 159357 Placements from banks and other financial institutions 8620 7517 Amounts sold under repurchase agreements 107024 157572 Total 245082 324446 Assets pledged – Financial assets at fair value through profit or loss 24093 29241 – Debt investments at amortised cost 99199 195166 – Debt investments at fair value through other comprehensive income 25267 34441 – Loans and advances to customers 105531 81357 Total 254090 340205 The transactions under repurchase or placement agreements are conducted under terms that are usual and customary to standard borrowing and placing activities. 58. Contingent liabilities and commitments (a) Credit commitments At any given time the Group has outstanding commitments to extend credit. These commitments take the form of approved loans and credit card limits.The Group provides financial guarantees and letters of credit to guarantee the performance of customers to third parties. Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be settled simultaneously with the reimbursement from the customers.The contractual amounts of commitments and contingent liabilities are set out in the following table by category.The amounts reflected in the table for commitments assume that amounts are fully advanced. The amounts reflected in the table for guarantees and letters of credit represent the maximum potential loss that would be recognised at the end of the reporting period if counterparties default. 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Irrevocable guarantees 245003 9818 272 255093 Of which: Financial guarantees 44805 7341 3 52149 Non-financing letters of guarantees 200198 2477 269 202944 Irrevocable letters of credit 231849 1344 – 233193 Bills of acceptances 427150 3733 500 431383 Irrevocable loan commitments 155775 1607 – 157382 – with an original maturity within 1 year (inclusive) 22638 4 – 22642 – with an original maturity over 1 year 133137 1603 – 134740 Credit card unused commitments 1406911 9613 85 1416609 Other 81225 245 – 81470 Total 2547913 26360 857 2575130 – F-109 –270 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 58. Contingent liabilities and commitments (continued) (a) Credit commitments (continued) 2021 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Irrevocable guarantees 197208 7353 254 204815 Of which: Financial guarantees 52198 6337 3 58538 Non-financing letters of guarantees 145010 1016 251 146277 Irrevocable letters of credit 162320 1711 188 164219 Bills of acceptances 339155 5684 790 345629 Irrevocable loan commitments 141727 4896 2 146625 – with an original maturity within 1 year (inclusive) 26611 – 2 26613 – with an original maturity over 1 year 115116 4896 – 120012 Credit card unused commitments 1231831 7903 122 1239856 Other 126995 1555 – 128550 Total 2199236 29102 1356 2229694 As at 31 December 2022 the Group’s irrevocable letters of credit included sight letters of credit of RMB22525 million (31 December 2021: RMB16974 million) usance letters of credit of RMB6965 million (31 December 2021: RMB9552 million) and other commitments of RMB203703 million (31 December 2021: RMB137693 million).Irrevocable loan commitments include credit limits granted to offshore customers by overseas branches subsidiaries and onshore and offshore syndicated loans etc.Apart from the irrevocable loan commitments the Group had loan commitments of RMB5159127 million at 31 December 2022 (31 December 2021: RMB4441835 million) which are unconditionally cancellable by the Group or automatically cancellable due to deterioration in the creditworthiness of the borrower as stipulated in respective lending agreements. The Group will not assume any risks on the unused credit limits for these loan customers. As a result such balances are not included in the above contingent liabilities and commitments. 20222021 Credit risk weighted amounts of contingent liabilities and commitments 595977 593062 The Group calculated the credit risk weighted amount of its contingent liabilities and commitments in accordance with the requirements of the Administrative Measures on Capital of Commercial Banks (Provisional) issued by the CBIRC. The amount within the scope approved by the CBIRC in April 2014 is calculated using the Internal Ratings- Based Approach and the Weighted Approach is used to calculate those that are not eligible for the Internal Ratings- Based Approach.– F-110 –China Merchants Bank Chapter VIII Financial Statements 271 Annual Report 2022 (H share) 58. Contingent liabilities and commitments (continued) (b) Capital commitments The authorised capital commitments of the Group were as follows: 20222021 – Contracted for 370 480 – Authorised but not contracted for 189 234 Total 559 714 The lease commitments of the Group as a lessor are detailed in note 58 (e).(c) Outstanding litigations At 31 December 2022 the Bank or other group entities was a defendant in certain outstanding litigations with total gross claims of RMB1910 million (2021: RMB1678 million). The Group considers that no material losses would be incurred by the Group as a result of these outstanding litigations and therefore no provision has been made in the consolidated financial statements.(d) Redemption obligations As an underwriting agent of PRC government bonds the Group has the responsibility to make advances to bond holders if the holders decide to early redeem the bonds held. The redemption price for the bonds at any time before their maturity date is based on the nominal value plus any interest unpaid and accrued up to the redemption date.Accrued interest payables to the bond holders are calculated in accordance with relevant requirements set by the MOF or the PBOC. The redemption price may be different from the fair value of similar instruments traded at the redemption date.The redemption obligations below represent the nominal value of government bonds underwritten and sold by the Group but not yet matured at the end of the reporting period: 20222021 Redemption obligations 27401 30020 The Group expects that the amount of redemption before the maturity date of these government bonds through the Group will not be material.(e) Lease commitments Operating lease commitments and financial lease commitments where the Group is a lessor at the end of the reporting period are as follows: 20222021 Operating lease commitments 30519 13750 Financial lease commitments 8025 7421 Total 38544 21171 – F-111 –272 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 59. Transactions on behalf of customers (a) Entrusted lending business The Group’s entrusted lending business refers to activities where principals such as government departments business entities and individuals provide capital for loan advances through the Group to their specified targets on their behalf in accordance with specific terms and conditions with the help of the Group in monitoring loan usage and seeking loan recovery. The entrusted lending business does not expose the Group to any credit risk. As instructed by these principals the Group holds and manages underlying assets and liabilities only in the capacity of an agent and charges handling fees for related services.Entrusted lending are not assets of the Group and are not recognised in the consolidated statement of financial position. Income received and receivable for providing these services are recognised in the consolidated statement of profit or loss as fee and commission income.At the end of the reporting period the entrusted assets and liabilities were as follows: 20222021 Entrusted loans 231266 263589 Entrusted funds (231266) (263589) (b) Wealth management services The Group’s wealth management services to customers mainly represent sales of wealth management products to corporate and personal banking customers by the Bank and CMBWM. The funds obtained from wealth management services are invested in investment products including government bonds policy bank bonds short term corporate debt instruments and trust loans. The Group initiated the launch of wealth management products. The investment risk associated with these products is borne by the customers who invest in these products. The Group does not consolidate these wealth management products. The Group earns commission which represents the charges on customers in relation to the provision of custody sales and management services.The wealth management products and funds obtained are not assets and liabilities of the Group and are not recognised in the consolidated statement of financial position. The funds received from customer for wealth management business that yet to be invested are recorded under other liabilities.At the end of the reporting period funds received from customers under unconsolidated non-principal-guaranteed wealth management services were RMB2552408 million as at 31 December 2022 (31 December 2021: RMB2683636 million).(c) Entrusted management of insurance funds The entrusted management of insurance funds mainly refers to the business that the Group carries out investment activities on funds entrusted by insurance companies according to the regulatory policies and the investment guidelines from insurance companies and charges fees for providing such services.At the end of the reporting period the balance of entrusted funds were as follows: 20222021 Entrusted management of insurance funds 108868 86098 – F-112 –China Merchants Bank Chapter VIII Financial Statements 273 Annual Report 2022 (H share) 60. Risk management (a) Credit risk Credit risk represents the potential losses that may arise from the failure of a counterparty or a debtor to meet its obligation or commitment to the Group. Credit risk increases when all counterparties are concentrated in a single industry or a geographical region as different counterparties in the same region or industry may be affected by the same economic factors which may eventually affect their repayment abilities.The Group designs its organisation framework credit policies and processes with an objective to identify evaluate and manage its credit risk effectively. The Risk and Capital Management Committee set up and appointed by the board of directors is responsible for supervising and evaluating the set-up organisational structure work process and effectiveness of various risk management functions.With respect to daily operations the Risk Management Department as directed by the Risk and Capital Management Committee participates in coordinates and monitors the work of other risk management functions including each business unit and the Legal and Compliance Department. The Group manages credit risk throughout the entire credit process including pre-lending evaluations credit approval and post-lending monitoring. According to Implementation Rules on Expected Credit Loss Approach of Commercial Banks (CBIRC〔 2022〕 No.10) the Group has further optimised the workflow related to the implementation and management of ECL measures during the year.With respect to the credit risk management of wholesale financial business the Group formulates credit policy guidelines enhances the standards on credit acceptance and management requirements for corporate interbank and institutional clients and implements limits in key risk areas to improve the quality of credit exposure.With respect to credit risk management of retail financial business the Group mainly relies on the credit assessment of applicants as the basis for loan approval which takes into consideration the income level credit history and repayment ability of the applicant. The Group monitors post-lending conditions by focusing on borrowers’ repayment ability the status of collateral and any changes to collateral value. Once a loan becomes overdue the Group starts the collection process according to standard retail loans collection procedures.To mitigate risks the Group requests customers to provide collateral and guarantees when necessary. Certain guidelines have been set for the acceptability of specific types of collateral or risks mitigating measures. Collateral portfolio and legal covenants are reviewed regularly to ensure that they remain sufficient for the given risks and be consistent with market practices.In respect of asset quality classification the Group adopts a risk based asset quality classification methodology.Currently the Group categorises its loans on a ten-grade loan classification basis in order to refine internal risk classification management (normal (grades 1-5) special mention (grades 1-2) substandard doubtful and loss).The risks involved in contingent liabilities and commitments are essentially the same as the credit risk involved in loans and advances to customers. These transactions are therefore subject to the same credit application post- lending monitoring and collateral requirements as for customers applying for loans.Concentration of credit risk: when certain number of customers carry out the same business activities locate in the same geographical region or their industries share similar economic characteristics their ability to meet their obligations may be affected by the same economic factors. The level of concentration of credit risk reflects the sensitivity of the Group’s operating result to a specific industry or geographical region. To prevent concentration of credit risk the Group has formulated a limit management policy to monitor and analyse its loan portfolio.Analysis of loans and advances by industry and loan portfolio are presented in Note 22.– F-113 –274 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (a) Credit risk (continued) (i) Internal credit risk rating The Group classifies credit risk based on probability of default. The internal credit risk rating is based on the forecasted default risk taking into consideration qualitative and quantitative factors. For customers of wholesale business such factors include net profit growth rate sales growth rate industry etc. For customers of retail business such factors include maturity ageing collateral ratio etc.(ii) Significant increase in credit risk As describe in Note 4(5) the Group recognises lifetime ECL if there are significant increases in credit risk.In assessing whether the credit risk has increased significantly since initial recognition the Group compares the risk of default occurring on the financial instrument and other items at the reporting date with that at the date of initial recognition. In making this assessment the Group considers an actual or expected significant deterioration in the financial instrument’s internal credit risk rating (Note 60(a)(i)) as well as internal early warning signal the result of 5-tier classification and overdue information. The Group regularly reviews whether the evaluation criteria are applicable to the current situation.For wholesale business credit risk is considered as significantly increased if any of the following conditions is met: the 5-tier classification is special mention; more than 30 days (inclusive) overdue; the internal credit risk rating of the customer has been downgraded to certain level; the early warning signal of the customer has reached a certain level; or the customer has other significant risk signals identified by the Group.For retail and credit card business credit risk is considered as significantly increased if any of the following conditions is met: the 5-tier classification is special mention; more than 30 days (inclusive) overdue; the customer or the debt has credit risk early warning signal; or the customer has other significant risk signals identified by the Group.A debt instrument is determined to have low credit risk if i) it has a low risk of default ii) the borrower has a strong capability to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and business conditions in the longer term may not necessarily reduce the ability of the borrower to fulfil its contractual cash flow obligations.For loan commitment and financial guarantee the date when the commitment becomes irrevocable is considered as the initial recognition date.The Group considers that a debt instrument is impaired when the debt instrument is more than 90 days (inclusive) overdue or the 5-tier classification of this debt instrument is substandard doubtful or loss (these three categories include debt instruments with more than 90 days (inclusive) overdue).(iii) Measurement of ECL The key inputs used for measuring ECL are: * probability of default (PD): is an estimate of the likelihood of default over 12 months or lifetime horizon; * loss given default (LGD): is the proportion of the loss arising on default to the exposure at default; * exposure at default (EAD): is the risk exposure on a debt.These figures are generally derived from internally developed statistical models and other historical data and they are adjusted to reflect forward-looking information.– F-114 –China Merchants Bank Chapter VIII Financial Statements 275 Annual Report 2022 (H share) 60. Risk management (continued) (a) Credit risk (continued) (iv) Incorporation of forward-looking information The Group divides financial assets into different asset groups based on their different risk characteristics. According to the risk characteristics of the asset group the Group collects external data released by authoritative institutions and internal risk data without undue cost or effort for modelling. Apart from the common economic indicators such as Gross Domestic Product (“GDP”) Consumer Price Index (“CPI”) Producer Price Index (“PPI”) and Broad Money Supply (“M2”) various other categories of indicators such as industry index interest and exchange rate and survey index are also included. Based on statistical analysis and expert judgements the Group sets up multiple forward-looking scenarios to predict macroeconomic indicators and risk parameters. The Group will firstly refer to the forecasts issued by external authoritative institutions as the forecasts of economic indicators under the baseline scenario. If there is no external forecasts the Group will refer to the forecasts issued by the professionals of the Bank and the outputs of the models. For the forecasts of economic indicators under the remaining scenarios the Group will refer to the actual historical data for analysis and forecast. Taking GDP (year-on-year growth rate) and CPI (month-on-month increase) as an example the forecasts adopted by the Group for 2023 under the baseline scenario are 4.80% (2022: 5.34%) and 2.80% (2022: 2.43%) respectively.Combined with quantitative measurement and expert judgement the Group sets the weighting of multiple scenarios based on the principle of taking the baseline scenario as the main and the other scenarios as supplement. The weight of the baseline scenario of the Group as at 31 December 2022 is the highest. According to the sensitivity test results of the Group when the weighting of the optimistic scenario increases by 10% and the weighting of the baseline scenario decreases by 10% the ECL amount at 31 December 2022 will decrease by approximately 3.1% compared to the current result (at 31 December 2021: will decrease by approximately 3.4%). When the weighting of the pessimistic scenario increases by 10% and the weighting of the baseline scenario decreases by 10% the ECL amount at 31 December 2022 will increase by approximately 5.2% compared to the current result (at 31 December 2021: will increase by approximately 1.5%). The Group periodically forecasts macroeconomic indicators and calculates the ECL based on a weighted 12-month expected credit loss (stage 1) or a weighted lifetime expected credit loss (stage 2 and stage 3).(v) Groupings based on shared risk characteristics The Group divides the primary business into wholesale business retail business and credit card business. The models are divided based on shared risk characteristics and the reference indicators include the 5-tier classification business type and collateral type.(vi) Maximum exposure The Group’s maximum exposure to credit risk without taking into account of any collateral held or other credit enhancements is the carrying amount of the relevant financial assets (including derivatives) as disclosed in the consolidated statement of financial position and the contract amount of the off balance sheet items disclosed in Note 58(a). At 31 December 2022 the amount of the Group’s maximum credit risk exposure was RMB12440314 million (31 December 2021: RMB11235033 million).– F-115 –276 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (a) Credit risk (continued) (vii) Renegotiated loans and advances to customers The carrying amount of loans and advances that were credit-impaired and the terms had been renegotiated was RMB12076 million as at 31 December 2022 (31 December 2021: RMB16517 million).(viii) Non-performing loans Under the 5-tier loan classification system non-performing loans of the Group are divided into substandard loans doubtful loans and loss loans. As at 31 December 2022 the Group had balance of non-performing loans of RMB58004 million (31 December 2021: RMB50862 million).(ix) Credit quality of bond investments rating results At the end of the reporting period the analysis of the credit quality of bond investments by designated external credit assessment institution Standard & Poor’s is as follows: 20222021 Impaired gross amount of debt investments 398 340 Impairment allowances (243) (228) Subtotal 155 112 Neither overdue nor impaired AAA 1750057 1345363 AA+ to AA- 53526 29468 A+ to A- 562475 422427 Lower than A- 33429 28415 Unrated 38966 57994 Impairment allowances (5958) (10935) Subtotal 2432495 1872732 Total 2432650 1872844 Notes: (i) Bonds issued by the governments and policy banks held by the Group amounted to RMB2094902 million as at 31 December 2022 (31 December 2021: RMB1596105 million).(ii) The impairment allowances above is for debt investments at amortised cost only.– F-116 –China Merchants Bank Chapter VIII Financial Statements 277 Annual Report 2022 (H share) 60. Risk management (continued) (a) Credit risk (continued) (x) Collateral An estimate of the fair value of collateral and other credit enhancements held against financial assets that are overdue but not impaired is as follows: 20222021 Estimate of the fair value of collateral and other credit enhancements held against following financial assets – Loans and advances to customers 25148 4124 (xi) Movements of loans and advances and debt investments measured at amortised cost Loans and advances measured at amortised cost: 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 4912836 111354 50862 5075052 Net changes for the year 425054 (27002) (1831) 396221 Transfer to – Stage 1 18758 (18644) (114) – – Stage 2 (103532) 103794 (262) – – Stage 3 (35248) (13117) 48365 – Write-offs – (145) (39016) (39161) Balance as at the end of the year 5217868 156240 58004 5432112 2021 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 4517239 76286 53615 4647140 Net changes for the year 468264 (4154) (1093) 463017 Transfer to – Stage 1 20436 (20293) (143) – – Stage 2 (69411) 69966 (555) – – Stage 3 (23692) (10451) 34143 – Write-offs – – (35105) (35105) Balance as at the end of the year 4912836 111354 50862 5075052 – F-117 –278 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (a) Credit risk (continued) (xi) Movements of loans and advances and debt investments measured at amortised cost (continued) Debt investments at amortised cost: 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 1183320 1962 24077 1209359 Net changes for the year 361916 (275) 9395 371036 Transfer to – Stage 1 3 (3) – – – Stage 2 (1276) 1276 – – – Stage 3 (311) (887) 1198 – Write-offs – – (550) (550) Balance as at the end of the year 1543652 2073 34120 1579845 2021 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 1044826 971 14590 1060387 Net changes for the year 140141 (656) 9487 148972 Transfer to – Stage 1 – – – – – Stage 2 (1647) 1647 – – – Stage 3 – – – – Write-offs – – – – Balance as at the end of the year 1183320 1962 24077 1209359 – F-118 –China Merchants Bank Chapter VIII Financial Statements 279 Annual Report 2022 (H share) 60. Risk management (continued) (a) Credit risk (continued) (xii) Credit quality of financial instruments The staging analysis for loans and advances to customers and debt investments at amortised cost are disclosed in note 22 note 23(b) and 60(a)(xi) respectively. The staging analysis for credit commitments and the expected credit loss allowances of financial guarantees and loan commitments are disclosed in notes 58(a) and 42 respectively. The staging analysis for other financial instruments is as follows: 2022 Principal Expected credit loss Stage 2 Stage 2 (Lifetime Stage 3 (Lifetime Stage 3 Stage 1 ECL – not (Lifetime Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- (12-month credit- ECL – credit- ECL) impaired) impaired) Total ECL) impaired) impaired) Total Balances with central banks 587533 – – 587533 – – – – Balances with banks and other financial institutions 91574 2 11 91587 (497) (1) (11) (509) Placements with banks and other financial institutions 264782 – – 264782 (2658) – – (2658) Amounts held under resale agreements 277421 – 140 277561 (954) – (140) (1094) Debt investments at FVTOCI 767905 3211 155 771271 (4472) (479) (1589) (6540) 2021 Principal Expected credit loss Stage 2 Stage 2 (Lifetime Stage 3 (Lifetime Stage 3 Stage 1 ECL – not (Lifetime Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- (12-month credit- ECL – credit- ECL) impaired) impaired) Total ECL) impaired) impaired) Total Balances with central banks 553655 – – 553655 – – – – Balances with banks and other financial institutions 80653 – 11 80664 (367) – (11) (378) Placements with banks and other financial institutions 196245 106 – 196351 (2859) (1) – (2860) Amounts held under resale agreements 528424 – 140 528564 (4123) – (140) (4263) Debt investments at FVTOCI 626007 2236 112 628355 (4700) (875) (1047) (6622) Note: The balances disclosed above do not include interest receivable.– F-119 –280 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (b) Market risk Market risk refers to the risk of loss due to changes in observable market factors such as interest rates exchange rates commodity prices and stock prices resulting in changes in the fair value or future cash flows of the Group’s financial instruments. Interest rate and foreign exchange rate are the two major market risk factors relevant to the Group. The Group is exposed to market risk through the financial instruments under the trading book and banking book. The financial instruments and positions under the trading book are held for trading purposes or for the purposes of hedging the risks arising from the trading book position and these financial instruments can be traded without any restriction. The financial instruments under the banking book are assets and liabilities held by the Group for determinable return with relative stable market value or for the purposes of hedging the risks which include both the Group’s on-balance sheet and off-balance sheet exposure.(i) Foreign exchange risk Foreign exchange risk arises from the holding of foreign currency assets liabilities and equity items and the foreign currency and foreign currency derivative positions which expose the Group to potential losses in the event of unfavourable foreign exchange rate movement. The financial assets and liabilities of the Group are denominated in RMB and the other currencies are mainly in USD and HKD. The Group segregates the policy setting execution and supervision of foreign exchange risk management and establishes a foreign currency risk management governance structure. This structure specifies the roles responsibilities and reporting lines of the board of directors the board of supervisors senior management designated committees and relevant departments of the Bank in the management of foreign exchange risk. The Group is prudent in its foreign exchange risk appetite and would not voluntarily take foreign exchange risk which suits the current development stage of the Group. The current foreign exchange risk management policies and procedures of the Group meet the regulatory requirements and the requirements of the Group. (1) Trading book The Group has established a market risk structure and system of the trading book which covers exchange rate risk to quantify the exchange rate risk of the trading book to facilitate centralised management. The structure process and method of exchange rate risk management of trading book are consistent with that of the interest rate risk of trading book.The Group adopts quantitative indicators such as exposure indicator market value at risk indicator (VaR covers interest rate foreign exchange rate and commodity risk factors) exchange rate scenario stress test loss index exchange rate sensitivity index and cumulative loss index in its management of foreign exchange risk. The management methods include delegation setting limits daily monitoring and continuous reporting etc.– F-120 –China Merchants Bank Chapter VIII Financial Statements 281 Annual Report 2022 (H share) 60. Risk management (continued) (b) Market risk (continued) (i) Foreign exchange risk (continued) (2) Banking book The Group’s foreign exchange risk under the banking book is centrally managed by the Head Office. The Asset and Liability Management Department as the treasurer of the Bank is in charge of the banking book foreign exchange risk management. The Internal Audit Department is responsible for auditing this. The treasurer is responsible for managing the foreign exchange risk under the banking book with a prudent approach and compliance with the regulatory requirements and through approaches such as transaction limits and adjustment of plans.The banking book foreign exchange risk of the Group arises from the mismatch of the non-RMB financial assets and liabilities. The Group stringently monitors its foreign exchange risk exposures to control it within an acceptable range.The Group has adopted foreign exchange exposure analysis scenario simulation analysis and stress testing for the measurement and analysis of foreign exchange risk. The Group regularly measures and analyses the foreign exchange risk exposure fluctuations monitors and reports foreign exchange risk on a monthly basis under the limit control framework and adjusts the foreign exchange exposures based on the trend of foreign exchange rate movements to mitigate the foreign exchange risk on its banking book.The Group continues to strengthen banking book exchange rate risk monitoring and authorisation management of limits to ensure that risks are controlled within a reasonable range. (3) Assets and liabilities by original currency are shown as follows: 2022 In RMB Equivalent Main original currency RMB USD HKD Other Total USD HKD Assets Cash and balances with central banks 555828 41978 2766 2170 602742 6039 3103 Amounts due from banks and other financial institutions 491188 100237 22244 16000 629669 14420 24951 Loans and advances to customers 5466679 148993 157628 23246 5796546 21433 176812 Financial investments (including derivative financial assets) 2534659 188200 31130 9233 2763222 27073 34920 Other assets (note (i)) 244335 95541 3313 3544 346733 13744 3716 Total 9292689 574949 217081 54193 10138912 82709 243502 Liabilities Borrowing from central banks and amounts due to banks and other financial institutions 970667 92817 3961 5507 1072952 13353 4443 Deposits from customers 6964197 361242 160496 49807 7535742 51967 180029 Financial liabilities at FVTPL (including derivative financial liabilities) 63769 17725 421 35 81950 2549 473 Debt securities issued 162146 58447 790 905 222288 8408 886 Other liabilities (note (i)) 247646 11235 11944 917 271742 1618 13397 Total 8408425 541466 177612 57171 9184674 77895 199228 Net position 884264 33483 39469 (2978) 954238 4814 44274 Net off-balance sheet position: Credit commitments (note (ii)) 2456047 82618 21961 14504 2575130 11885 24634 Derivatives: – forward purchased 280979 288388 26409 20844 616620 41486 29623 – forward sold (253696) (294290) (19462) (14878) (582326) (42335) (21831) – net currency option position 29143 (32690) (10) 41 (3516) (4703) (11) Total 56426 (38592) 6937 6007 30778 (5552) 7781 – F-121 –282 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (b) Market risk (continued) (i) Foreign exchange risk (continued) (3) Assets and liabilities by original currency are shown as follows: (continued) 2021 In RMB Equivalent Main original currency RMB USD HKD Other Total USD HKD Assets Cash and balances with central banks 487777 57919 18482 2787 566965 9089 22611 Amounts due from banks and other financial institutions 668673 108887 12162 8356 798078 17085 14879 Loans and advances to customers 4992946 156000 141605 34960 5325511 24478 173238 Financial investments (including derivative financial assets) 2037147 108939 20348 10081 2176515 17095 24893 Other assets (note (i)) 254488 111972 10513 4979 381952 17569 12862 Total 8441031 543717 203110 61163 9249021 85316 248483 Liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1115553 108820 4894 9327 1238594 17075 5988 Deposits from customers 5830585 346349 129300 40844 6347078 54346 158184 Financial liabilities at FVTPL (including derivative financial liabilities) 71041 18554 1438 10 91043 2911 1759 Debt securities issued 390550 50425 221 3345 444541 7912 270 Other liabilities (note (i)) 235507 16336 9317 924 262084 2565 11399 Total 7643236 540484 145170 54450 8383340 84809 177600 Net position 797795 3233 57940 6713 865681 507 70883 Net off-balance sheet position: Credit commitments (note (ii)) 2117722 71179 24448 16345 2229694 11169 29909 Derivatives: – forward purchased 459207 451419 8554 16144 935324 70833 10465 – forward sold (388786) (395153) (10651) (9748) (804338) (62004) (13030) – net currency option position (93522) 38175 8 3059 (52280) 5990 10 Total (23101) 94441 (2089) 9455 78706 14819 (2555) Notes: (i) Interest receivable and interest payable of financial instruments are included in “other assets” and “other liabilities” respectively.(ii) Credit commitments generally expire before they are drawn down therefore the above net position does not represent the future cash outflows.– F-122 –China Merchants Bank Chapter VIII Financial Statements 283 Annual Report 2022 (H share) 60. Risk management (continued) (b) Market risk (continued) (i) Foreign exchange risk (continued) (4) Sensitivity analysis Under the existing managed floating exchange rate regime the Group uses sensitivity analysis to measure the potential effect of changes in foreign currency exchange rates on the Group’s net profit and equity. The following table sets forth the results of the Group’s foreign exchange risk sensitivity analysis on the assets and liabilities of all foreign currencies involved at 31 December 2022 and 31 December 2021. 20222021 Change in foreign currency exchange rate Down by 1% Up by 1% Down by 1% Up by 1% (Decrease)/increase in net profit (64) 64 (79) 79 (Decrease)/increase in equity (284) 284 (262) 262 Actual changes in the Group’s net profit and equity resulting from increases or decreases in foreign exchange rates may be different from the results of this sensitivity analysis.(ii) Interest rate risk Interest rate risk arises from unfavourable changes in interest rates and maturity profiles which may result in loss to the income and decline in market value of financial instruments and positions held by the Group. (1) Trading book According to the basic principles of risk management the Group has built and continuously improved the market risk management system and established the management process of market risk identification measurement monitoring control and reporting covering interest rate risk exchange rate risk commodity and other risks involved in the trading book business. Under the market risk preference formulated by the board of directors the Group manages the trading book by clearly identifying accurately measuring and effectively managing the trading book market risk to ensure that the trading book risk exposure is within an acceptable range and achieves a reasonable balance of risk and return. The Group constantly improves the risk-adjusted return level to maximise the shareholders’ value.The trading book market risk governance organisation structure defines the responsibilities division of labour and reporting lines of the board of directors Risk and Capital Management Committee under the board of directors senior management and relevant departments of the Bank and safeguards the achievement of management objectives. The Market Risk Management Department is responsible for the Group’s trading book market risk and undertakes the task of risk policy formulation and management.– F-123 –284 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (b) Market risk (continued) (ii) Interest rate risk (continued) (1) Trading book (continued) According to the business practices and market risk governance organisation structure the Group establishes the trading book market risk limits management system. A top level limit is set based on the risk appetite determined by the board of directors and is transmitted from top to bottom level by level. Within the scope of their authorisation management departments at all levels allocate and set limits according to risk characteristics product types and trading strategies etc. The business departments carry out the business according to the authorisation and limits requirements and the supervisory and administrative departments at all levels continuously monitor and report according to the limits management regulations.The trading book market risk management adopts the scale index stop loss index sensitivity index value at risk index stress test index and other risk measurement indices as the limits index and sets the limit value by comprehensively considering the risk appetite risk tolerance business operation strategy risk return management conditions and other factors.The Group uses valuation sensitivity analysis value-at-risk analysis stress test and other measurement methods to identify and quantify risk factors in the interest rate market. The Group applies the market risk measurement model in its daily risk management and takes market risk measurement as the basis for business planning resource allocation financial market business operation and risk management. (2) Banking book According to the external regulatory requirements and the internal banking book interest rate risk management policy the Group has built and continuously improved the banking book interest rate risk management system established the management process of interest rate risk identification measurement monitoring control and reporting and covered all on- and off-balance sheet business of the Bank. The Group clearly identifies accurately measures and effectively manages the interest rate risk of the banking book under the interest rate risk appetite of the banking book formulated by the Board of Directors to ensure that the net interest income (NII) and the economic value of shareholders’ equity (EVE) increase steadily within the acceptable range of the banking book risk.The Group’s governance and management framework specifies the responsibilities division of labor and reporting lines of the board of directors senior management designated committees and relevant departments to ensure the effectiveness of interest rate risk management. Interest rate risk of the banking book is managed by the Asset and Liability Management Department of the Head Office. Internal Audit Department of the Head Office is responsible for independent audit.The preference of the Group in respect of the interest rate risk in the banking book is neutrally prudent. The Group establishes a banking book interest rate risk limit management system based on the actual business and the banking book interest rate risk governance structure. The quantitative index of risk appetite set by the Board of Directors is the highest level limit which is transmitted through the limit level from top to bottom and level by level. Within the scope of their authorisation all levels set limits and continuously monitor and report according to risk tolerance business operation strategy and risk management objectives.The Group formulates interest rate risk management strategies and regularly tracks and reviews them based on risk measurement and monitoring results and in combination with macroeconomic and interest rate environment. The key measures for risk management of the Group include the adjustment in business volume duration structure and interest rate structure of on-balance sheet asset and liability business and off- balance sheet derivative to offset risk exposure.The Group has mainly adopted scenario simulation analysis re-pricing exposure analysis and duration analysis for the regular measurement and analysis of interest rate risk under the banking book. Stress test is a form of scenario simulation used to assess the changes in net interest income at risk and economic value of equity indicators when there is an extreme fluctuation in interest rates. The Group measures and monitors the interest rate risk of banking book through the asset-liability management system and the main models and parameter assumptions used in the measurement process are independently verified before being adopted and are regularly reviewed and verified after being adopted. The various indicators of interest rate risk during the reporting period showed that the interest rate risk of banking book of the Bank was generally stable and stay within the set limits.– F-124 –China Merchants Bank Chapter VIII Financial Statements 285 Annual Report 2022 (H share) 60. Risk management (continued) (b) Market risk (continued) (ii) Interest rate risk (continued) (3) The following tables indicate the expected next repricing dates (or maturity dates whichever are earlier) for assets and liabilities at the end of the reporting period. 2022 3 months or less Over 3 Non- (include months Over 1 year Over interest Total overdue) to 1 year to 5 years 5 years bearing Assets Cash and balances with central banks 602742 575932 – – – 26810 Amounts due from banks and other financial institutions 629669 516309 99288 14059 13 – Loans and advances to customers (note (i)) 5796546 2234889 3028371 473932 59354 – Financial investments (including derivative financial assets) 2763222 217442 356451 975413 1164031 49885 Other assets (note (ii)) 346733 – – – – 346733 Total assets 10138912 3544572 3484110 1463404 1223398 423428 Liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1072952 915004 142452 10501 4995 – Deposits from customers 7535742 5528249 860746 1111583 31365 3799 Financial liabilities at FVTPL (including derivative financial liabilities) 81950 – 3006 5231 73 73640 Lease liabilities 13013 1094 3091 7650 1178 – Debt securities issued 222288 35587 69617 89565 27519 – Other liabilities (note (ii)) 258729 203 – 2752 – 255774 Total liabilities 9184674 6480137 1078912 1227282 65130 333213 Asset-liability gap 954238 (2935565) 2405198 236122 1158268 90215 – F-125 –286 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (b) Market risk (continued) (ii) Interest rate risk (continued) (3) The following tables indicate the expected next repricing dates (or maturity dates whichever are earlier) for assets and liabilities at the end of the reporting period. (continued) 2021 3 months or less Over 3 Non- (include months Over 1 year Over interest Total overdue) to 1 year to 5 years 5 years bearing Assets Cash and balances with central banks 566965 537981 – – – 28984 Amounts due from banks and other financial institutions 798078 723941 63581 10507 49 – Loans and advances to customers (note (i)) 5325511 2134671 2750245 376357 64238 – Financial investments (including derivative financial assets) 2176515 159659 288349 884079 795611 48817 Other assets (note (ii)) 381952 – – – – 381952 Total assets 9249021 3556252 3102175 1270943 859898 459753 Liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1238594 1081661 149900 6311 722 – Deposits from customers 6347078 4820271 718509 804755 348 3195 Financial liabilities at FVTPL (including derivative financial liabilities) 91043 1428 2075 8177 158 79205 Lease liabilities 13812 1042 2989 8153 1628 – Debt securities issued 444541 96239 220608 88974 38720 – Other liabilities (note (ii)) 248272 84 – – – 248188 Total liabilities 8383340 6000725 1094081 916370 41576 330588 Asset-liability gap 865681 (2444473) 2008094 354573 818322 129165 Notes: (i) For loans and advances to customers the “3 months or less” category includes overdue amounts as at 31 December 2022 and 31 December 2021 net of allowances for impairment losses. Overdue amounts represent loans of which the whole or part of the principals or interests were overdue.(ii) Interest receivable and interest payable of financial instruments are included in “other assets” and “other liabilities” respectively. (4) Sensitivity analysis The Group uses sensitivity analysis to measure the potential effect of changes in interest rates on the Group’s net interest income and equity. The following table sets forth the results of the Group’s interest rate sensitivity analysis on the assets and liabilities as at 31 December 2022 and 31 December 2021. 20222021 Change in interest rates (in basis points) Up by 25 Down by 25 Up by 25 Down by 25 (Decrease)/increase in net interest income (4412) 4412 (3605) 3605 (Decrease)/increase in equity (8462) 8586 (6830) 6927 The above-mentioned interest rate sensitivity analysis shows the changes in net interest income and equity in the next 12 months under the assumption of changes in interest rates in the above table. As the actual situation and assumptions may be different the actual changes in the Group’s net interest income and equity caused by the increase or decrease in interest rates may be different from the results of this sensitivity analysis.– F-126 –China Merchants Bank Chapter VIII Financial Statements 287 Annual Report 2022 (H share) 60. Risk management (continued) (c) Liquidity risk Liquidity risk is the risk that the Group is not able to obtain sufficient funds at a reasonable cost and in a timely manner to deal with the appreciation of asset growth to meet its maturity obligations or to perform other payment obligations.According to the liquidity risk management policy the Group segregates the policy setting execution and supervision of liquidity risk management and puts in place a governance framework which defines the roles responsibilities and reporting lines of the board of directors the board of supervisors senior management designated committees and relevant departments to ensure the effectiveness of the liquidity risk management. The board of directors takes the ultimate responsibility for liquidity risk management ensures the Group can effectively identify measure monitor and control liquidity risk and is responsible for determining liquidity risk level which the Group can tolerate. The Risk and Capital Management Committee under the board of directors shall perform its responsibilities in liquidity risk management according to the requirements of the Board of Directors. The board of supervisors is responsible for the supervision and evaluation of the performance of the board of directors and senior management in the liquidity risk management and reports to the general meeting of shareholders. The senior management is responsible for the liquidity risk management work and develops a timely understanding of changes in liquidity risks and reports the same to the board of directors. The Asset and Liability Management Committee (ALCO) exercises specific liquidity risk management functions as required by the senior management. The Assets and Liabilities Management Department of the Head Office is a day-to-day working body of ALCO and is responsible for various concrete management work including formulating policies and procedures relating to liquidity risk management and conducting qualitative and quantitative analysis of liquidity risk. The Internal Audit Department of the Head Office conducts comprehensive audit on the Group’s liquidity risk management.The Group is prudent in managing its liquidity risk which suits its current development stage. The Group’s existing liquidity risk management policies and systems meet regulatory requirements and its own management needs.The Group’s liquidity risk management is coordinated by Head Office with branches acting in concert. The Asset and Liability Management Department acting as the treasurer of the Group is in charge of daily liquidity risk management. According to a prudent basis under regulatory requirements the treasurer is conducting centralised liquidity management through limits management budget control initiative debt management as well as internal fund transfer pricing.The Group measures monitors and identifies liquidity risk by short-term reserves as well as medium- and long-term structures. It monitors the limit indicators closely at fixed intervals.The Group regularly conducts stress testing to assess its liquidity risk resistance under extreme circumstances. Except for the annual stress testing required by the regulatory authorities the Group conducts monthly stress testing on the liquidity risk of local and foreign currencies. The Group sets up liquidity contingency plans and conducts liquidity contingency drills to continuously improve its capability to handle any liquidity crisis.– F-127 –288 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (c) Liquidity risk (continued) Analysis of the Group’s assets and liabilities by contractual remaining maturity is as follows: 2022 After After After 1 month 3 months 1 year Repayable Within but within but within but within Over on demand 1 month 3 months 1 year 5 years 5 years Indefinite Overdue Total Cash and balances with central banks (note (i)) 66055 – – 1201 – – 535486 – 602742 Amounts due from banks and other financial institutions 62456 368268 84572 99288 15072 13 – – 629669 Loans and advances to customers 26008 499842 399192 1514348 1626514 1706378 – 24264 5796546 Financial investments and derivative financial assets (note (ii)) 4213 99154 105394 372002 995867 1166665 19139 788 2763222 – Financial investments at FVTPL (including derivative financial assets) 4213 79576 42022 99531 158992 52081 5723 – 442138 – Debt investments at amortised cost – 13554 35043 133748 449002 904281 – 769 1536397 – Debt investments at FVTOCI – 6024 28329 138723 387873 210303 – 19 771271 – Equity investments designated at FVTOCI – – – – – – 13416 – 13416 Other assets (note (iii)) 36461 10932 15526 18475 15859 5798 239528 4154 346733 Total assets 195193 978196 604684 2005314 2653312 2878854 794153 29206 10138912 Borrowing from central banks and amounts due to banks and other financial institutions 515446 264739 116971 148556 20817 6423 – – 1072952 Deposits from customers 4746035 384557 393284 861631 1115153 35082 – – 7535742 Financial liabilities at FVTPL (including derivative financial liabilities) 12950 12026 12971 12415 11457 20131 – – 81950 Lease liabilities – 503 591 3091 7650 1178 – – 13013 Debt securities issued – 3939 27886 73379 89565 27519 – – 222288 Other liabilities (note (iii)) 159820 26774 19358 23667 28868 242 – – 258729 Total liabilities 5434251 692538 571061 1122739 1273510 90575 – – 9184674 (Short)/long position (5239058) 285658 33623 882575 1379802 2788279 794153 29206 954238 – F-128 –China Merchants Bank Chapter VIII Financial Statements 289 Annual Report 2022 (H share) 60. Risk management (continued) (c) Liquidity risk (continued) 2021 After After After 1 month 3 months 1 year Repayable Within but within but within but within Over on demand 1 month 3 months 1 year 5 years 5 years Indefinite Overdue Total Cash and balances with central banks (note (i)) 79129 – – – – – 487836 – 566965 Amounts due from banks and other financial institutions 59862 601897 60072 65405 10793 49 – – 798078 Loans and advances to customers 20719 545165 368482 1333756 1387033 1650468 – 19888 5325511 Financial investments and derivative financial assets (note (ii)) 4058 88783 60315 304846 912392 795813 10071 237 2176515 – Financial investments at FVTPL (including derivative financial assets) 4058 67589 31524 95228 134821 35217 3076 – 371513 – Debt investments at amortised cost – 8882 11185 133930 425327 590091 – 237 1169652 – Debt investments at FVTOCI – 12312 17606 75688 352244 170505 – – 628355 – Equity investments designated at FVTOCI – – – – – – 6995 – 6995 Other assets (note (iii)) 103999 10432 13946 14551 14891 6107 214113 3913 381952 Total assets 267767 1246277 502815 1718558 2325109 2452437 712020 24038 9249021 Borrowing from central banks and amounts due to banks and other financial institutions 627957 313745 122210 153551 18350 2781 – – 1238594 Deposits from customers 4185788 315077 316452 719506 809176 1079 – – 6347078 Financial liabilities at FVTPL (including derivative financial liabilities) 12942 13301 11720 13740 20629 18711 – – 91043 Lease liabilities – 506 536 2989 8153 1628 – – 13812 Debt securities issued – 21181 70472 222647 88974 41267 – – 444541 Other liabilities (note (iii)) 160991 37159 15455 24744 9404 519 – – 248272 Total liabilities 4987678 700969 536845 1137177 954686 65985 – – 8383340 (Short)/long position (4719911) 545308 (34030) 581381 1370423 2386452 712020 24038 865681 Notes: (i) For cash and balances with central banks the amounts with indefinite maturities represent statutory deposit reserve and fiscal deposit balances.(ii) For financial investments at FVTPL included in financial investments their maturity dates do not represent the Group’s intention to hold them to maturity.(iii) Interest receivable and interest payable of financial instruments are included in “other assets” and “other liabilities” respectively.– F-129 –290 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (c) Liquidity risk (continued) The following table provides an analysis of the contractual undiscounted cash flow of the non-derivative financial assets financial liabilities and gross loan commitments of the Group as at the end of the reporting period. The Group’s expected cash flows on these instruments may vary significantly from this analysis. 2022 After After After 1 month 3 months 1 year Carrying Repayable Within but within but within but within Over amount Total on demand 1 month 3 months 1 year 5 years 5 years Indefinite Overdue Non-derivative financial assets Cash and balances with central banks 602742 602742 66055 – – 1201 – – 535486 – Amounts due from banks and other financial institutions 629669 631123 62467 368531 85088 99900 15124 13 – – Loans and advances to customers 5796546 7132934 26024 516746 433106 1694961 2071922 2365750 – 24425 Financial investments 2744551 3251681 4102 101509 112634 415839 1184020 1413650 19139 788 – Financial investments at FVTPL 423467 439231 4102 76314 38048 96166 161826 57052 5723 – – Debt investments at amortised cost 1536397 1919576 – 17387 42650 166559 588262 1103949 – 769 – Debt investments at FVTOCI 771271 879458 – 7808 31936 153114 433932 252649 – 19 – Equity investments designated at FVTOCI 13416 13416 – – – – – – 13416 – Other assets 89425 89425 35078 10381 15434 17310 1534 605 4929 4154 Total 9862933 11707905 193726 997167 646262 2229211 3272600 3780018 559554 29367 Non-derivative financial liabilities and lease liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1072952 1084577 515448 265758 118566 151289 26391 7125 – – Deposits from customers 7535742 7794971 4847726 389687 403223 894832 1223242 36261 – – Financial liabilities at FVTPL 63314 63506 12085 9000 8927 5486 7988 20020 – – Lease liabilities 13013 14292 – 505 599 3328 8386 1474 – – Debt securities issued 222288 235656 – 4480 28783 76447 96703 29243 – – Other liabilities 162409 162409 62796 27724 11623 28870 31154 242 – – Total 9069718 9355411 5438055 697154 571721 1160252 1393864 94365 – – Gross loan commitments – 1573991 1573991 – – – – – – – – F-130 –China Merchants Bank Chapter VIII Financial Statements 291 Annual Report 2022 (H share) 60. Risk management (continued) (c) Liquidity risk (continued) 2021 After After After 1 month 3 months 1 year Carrying Repayable Within but within but within but within Over amount Total on demand 1 month 3 months 1 year 5 years 5 years Indefinite Overdue Non-derivative financial assets Cash and balances with central banks 566965 566965 79129 – – – – – 487836 – Amounts due from banks and other financial institutions 798078 800869 59862 602201 62062 65229 11466 49 – – Loans and advances to customers 5325511 6680629 20719 560371 398738 1503759 1831318 2345796 – 19928 Financial investments 2153125 2540798 3715 90330 67149 339704 1050476 979116 10071 237 – Financial investments at FVTPL 348123 355501 3715 64405 28852 90837 127527 37089 3076 – – Debt investments at amortised cost 1169652 1453059 – 12008 17405 159993 529031 734385 – 237 – Debt investments at FVTOCI 628355 725243 – 13917 20892 88874 393918 207642 – – – Equity investments designated at FVTOCI 6995 6995 – – – – – – 6995 – Other assets 154308 154308 102918 9891 13745 13795 1848 528 7670 3913 Total 8997987 10743569 266343 1262793 541694 1922487 2895108 3325489 505577 24078 Non-derivative financial liabilities and lease liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1238594 1245870 628157 315523 123610 156000 19668 2912 – – Deposits from customers 6347078 6500805 4215760 318932 323909 754023 887030 1151 – – Financial liabilities at FVTPL 63761 64232 12926 10408 7387 4748 10068 18695 – – Lease liabilities 13812 15087 – 511 545 3080 8974 1977 – – Debt securities issued 444541 459323 – 22002 70839 226189 94221 46072 – – Other liabilities 158091 158091 74533 36128 15454 23052 8406 518 – – Total 8265877 8443408 4931376 703504 541744 1167092 1028367 71325 – – Gross loan commitments – 1386481 1386481 – – – – – – – Note: Interest receivable and interest payable of financial instruments are included in “other assets” and “other liabilities” respectively.– F-131 –292 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (d) Operational risk Operational risk arises from the loss due to deficiency in internal procedures staffing or IT structure as well as external events which have effect on operation including legal risk but not strategy risk and reputation risk.During the reporting period through stepping up the identification evaluation and monitoring of operational risk in key areas and by focusing on process policy employee system and existing problems of critical control segments the Group further improves the risk management framework and method appraisal and assessment mechanism and strengthens economic capital allocation mechanism with the goal of enhancing the ability and effectiveness of operational risk’s management of the Group. All major indexes meet the requirements of the Group’s risk preference.In view of the challenges from internal and external operations and management the Group will based on its risk appetite continue to upgrade its risk management capabilities and strengthen operational risk monitoring and controls in order to prevent and reduce operational risk losses.(e) Capital management The objectives of the Group’s capital management are to: – Keep capital adequacy ratios at reasonable levels satisfy capital-specific regulatory provisions and policy requirements on an ongoing basis and maintain a solid capital base in support of its business expansion social responsibility and strategic planning implementation to achieve a comprehensive coordinated and sustainable growth; – Comply with capital regulatory requirements perform procedures to assess internal capital adequacy openly disclose information related to capital management fully cover all risks and ensure safe operation of the entire group; – Put in place an economic capital-centred banking value management system by fully applying various risk- specific quantitative deliverables enhance decision-making processes and management application regimes strengthen capital restraint and capital incentive mechanisms reinforce capabilities to facilitate customer pricing and decision-making and increase capital deployment efficiency; – Reasonably use all kinds of capital instruments continue to upgrade capital strengths improve capital structures raise capital quality lower capital costs and create the best returns for shareholders.The Group manages its capital structure and adjusts it based on the economic condition and the risk characteristics of its operations. To maintain or adjust its capital structure the Group may modify its profit distribution policy issue or repurchase shares additional tier-1 capital instruments eligible tier-2 capital instruments and convertible debentures. The Group’s management regularly monitors capital adequacy ratio under an approach stipulated by the CBIRC. The Group and the Bank submit required information to the CBIRC every quarter.– F-132 –China Merchants Bank Chapter VIII Financial Statements 293 Annual Report 2022 (H share) 60. Risk management (continued) (e) Capital management (continued) The Group’s capital adequacy ratio calculation covers the Bank and its subsidiaries. The Bank’s capital adequacy ratio calculation covers all branches of the Bank. As at 31 December 2022 the Group’s subsidiaries that were within the capital adequacy ratio calculation included: CMB WLB CMBIC CMBFL CMFM CMBWM CIGNA & CMAM and CMB Europe S.A.Since 1 January 2013 the Group has calculated its capital adequacy ratio in accordance with the CBIRC’s Administrative Measures on the Capital of Commercial Banks (Provisional) and other relevant regulations. On 18 April 2014 the CBIRC approved the Bank to adopt the Advanced Measurement Approach. Within the approved scope the Bank could calculate corporation and financial institutions risk exposure using the Foundation Internal Ratings-Based Approach retail risk exposure using the Advanced Internal Ratings-Based Approach market risk using the Internal Model-Based Approach and operational risk using the Standardised Measurement Approach. At the same time the CBIRC implemented a transition period for commercial banks that were approved to adopt the Advanced Measurement Approach. During the transition period commercial banks should use both the Advanced Measurement Approach and other approaches to calculate capital adequacy ratios and comply with the capital floor requirements.The Group’s capital management focuses on the capital adequacy ratio management. The capital adequacy ratio reflects the Group’s capability of sound operations and risk resistance. The Group’s capital adequacy ratio management’s objective is to carefully determine capital adequacy ratio as legally required by regulators according to actual risk profiles and with reference to capital adequacy ratio levels of globally leading market peers and the Group’s operating conditions.The Group adopts the scenario simulation and stress testing methods to forecast plan and manage its capital adequacy ratio with considerations of factors such as strategic development planning business expansion status and risk movement trends.(f) Use of derivatives Derivatives include forwards swaps and option transactions undertaken by the Group in the foreign exchange and interest rate markets.The Group enters into interest rate foreign currency and other financial derivative transactions for treasury business and its assets and liabilities management purpose. The Group’s derivatives can be divided into financial instruments that are held for fair value hedge and cash flow hedging purpose and that are at fair value through profit or loss.The Group formulates appropriate hedging strategies and uses proper tools in light of the risk profile of interest rates or foreign exchange rates associated with its assets and liabilities as well as its analysis and judgement regarding future movements of interest rates or foreign exchange rates.The Group is exposed to foreign exchange risk when assets or liabilities are denominated in foreign currencies. Such risk can be offset through the use of foreign exchange forwards or foreign exchange options.– F-133 –294 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (f) Use of derivatives (continued) In cash flow hedges the Group uses interest rate swaps as hedging instruments to hedge the interest rate risks arising from RMB loans and interbank assets or liabilities.The following tables provide an analysis of the notional amounts and the corresponding fair values of derivatives of the Group by remaining maturities at the end of the reporting period. The notional amounts of the derivatives indicate the transaction volume that has not been delivered at the end of the reporting period and do not represent the amounts at risk. 2022 Notional amounts with remaining life Fair value Between Between Within 3 months 1 year and Over 3 months and 1 year 5 years 5 years Total Assets Liabilities Derivatives at fair value through profit or loss Interest rate derivatives 60013 734650 735046 4720 1534429 6246 (6062) Interest rate swaps 60013 734241 735046 4720 1534020 6246 (6062) Bond futures – 409 – – 409 – – Currency derivatives 513568 329319 27320 1198 871405 11348 (11449) Forwards 21443 4812 645 1198 28098 487 (328) Foreign exchange swaps 347432 226332 17724 – 591488 9263 (7304) Futures 1043 81 – – 1124 – – Options 143650 98094 8951 – 250695 1598 (3817) Other derivatives 91064 520 640 34 92258 867 (856) Equity options purchased 42889 57 – 34 42980 554 – Equity options written 42909 57 – – 42966 – (472) Commodity trading swaps 5266 406 – – 5672 313 (330) Credit default swaps – – 640 – 640 – (54) Fair value hedge derivatives Currency derivatives – 1316 781 – 2097 28 (153) Foreign exchange swaps – 1316 781 – 2097 28 (153) Cash flow hedge derivatives Interest rate derivatives 2393 100 1804 709 5006 182 – Interest rate swaps 2373 100 1804 709 4986 182 – Interest rate options 20 – – – 20 – – Derivatives managed in conjunction with financial instruments designated at FVTPL Interest rate derivatives – 3085 717 – 3802 – (47) Interest rate swaps – 3085 717 – 3802 – (47) Currency derivatives – – 728 – 728 – (69) Foreign exchange swaps – – 728 – 728 – (69) Total 667038 1068990 767036 6661 2509725 18671 (18636) – F-134 –China Merchants Bank Chapter VIII Financial Statements 295 Annual Report 2022 (H share) 60. Risk management (continued) (f) Use of derivatives (continued) 2021 Notional amounts with remaining life Fair value Between Between Within 3 months 1 year and 3 months and 1 year 5 years Over 5 years Total Assets Liabilities Derivatives at fair value through profit or loss Interest rate derivatives 567612 823679 1237360 4966 2633617 11720 (11974) Interest rate swaps 565833 823679 1237360 4966 2631838 11720 (11974) Bond futures 391 – – – 391 – – Bond options 1388 – – – 1388 – – Currency derivatives 647081 506850 29615 1052 1184598 10041 (13966) Forwards 26577 14373 1517 1052 43519 985 (164) Foreign exchange swaps 485140 357685 20086 – 862911 7530 (7048) Futures 587 1157 – – 1744 – – Options 134777 133635 8012 – 276424 1526 (6754) Other derivatives 134230 5424 277 – 139931 1472 (1237) Equity options purchased 62094 907 – – 63001 344 – Equity options written 62094 907 – – 63001 – (265) Commodity trading swaps 10001 3475 60 – 13536 1128 (751) Equity swaps 41 135 217 – 393 – (221) Fair value hedge derivatives Currency derivatives – – 830 – 830 – (16) Foreign exchange swaps – – 830 – 830 – (16) Cash flow hedge derivatives Interest rate derivatives – – 2883 702 3585 46 – Interest rate swaps – – 2883 702 3585 46 – Derivatives managed in conjunction with financial instruments designated at FVTPL Interest rate derivatives 191 967 3486 – 4644 111 (17) Interest rate swaps 191 967 3486 – 4644 111 (17) Currency derivatives – 72 530 – 602 – (72) Foreign exchange swaps – 72 530 – 602 – (72) Total 1349114 1336992 1274981 6720 3967807 23390 (27282) There was no ineffective portion of cash flow hedges during the years ended 31 December 2022 and 2021.– F-135 –296 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (f) Use of derivatives (continued) The credit risk weighted amounts in respect of these derivatives are as follows: 20222021 Default risk weighted assets of counterparties 1500 3627 Interest rate derivatives 137 139 Currency derivatives 1242 3048 Other derivatives 121 440 Credit valuation adjustment risk weighted assets 2187 2382 Total 3687 6009 The Group has calculated the exposure of derivatives according to the Notice of the Measures on Default Risk Weighted Assets of Counterparties in Respect of Derivatives and the related requirements issued by the CBIRC.These amounts have taken the effects of bilateral netting arrangements into account. The risk weighted amounts in respect of derivatives are calculated in accordance with the Administrative Measures on Capital of Commercial Banks (Provisional) issued by the CBIRC. The amounts within the scope approved by the CBIRC in April 2014 are calculated using the Internal Ratings-Based Approach and the Weighted Approach is adopted to calculate those that are not eligible for the Internal Ratings-Based approach.(g) Fair value information (i) Methods of determining fair value of financial instruments A number of the Group’s accounting policies and disclosure requirements stipulate the measurement of fair values for both financial and non-financial assets and liabilities.The Group has established a control framework to govern the measurement of fair values. This includes a valuation team that takes the responsibility for overseeing all significant fair value measurements including the three levels of fair values.The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information such as broker quotes or pricing services is used to determine fair value then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuation meets the requirements of IFRSs including the classification of levels in the fair value hierarchy.When measuring the fair value of an asset or a liability the Group uses observable market data as far as possible.Fair values are categorised into different levels in the fair value hierarchy based on the inputs used in the valuation techniques.The level in which fair value measurement is categorised is determined by the level of the fair value hierarchy of the lowest level of input that is significant to the entire fair value measurement. The levels are defined as follows: – Level 1 inputs: unadjusted quoted prices in active markets that are observable at the measurement date for identical assets or liabilities; – Level 2 inputs: other than quoted prices included in level 1 inputs that are either directly or indirectly observable for underlying assets or liabilities inputs; – Level 3 inputs: inputs that are unobservable for assets or liabilities.The Group recognises transfers among levels of the fair value hierarchy when they occur.The Group’s assets and liabilities measured at fair value are measured on a recurring basis. The Group does not have assets nor liabilities measured at fair value on a non-recurring basis.– F-136 –China Merchants Bank Chapter VIII Financial Statements 297 Annual Report 2022 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis The following tables present the fair value information and the fair value hierarchy at the end of the reporting period of the Group’s assets and liabilities which are measured at fair value on a recurring basis at each reporting date: 2022 Level 1 Level 2 Level 3 Total Assets Financial investments measured at FVTPL 16175 390702 4714 411591 – Debt securities 15497 187349 359 203205 – Long position in precious metal contracts 108 – – 108 – Equity investments 494 392 3493 4379 – Fund investments 76 199665 798 200539 – Wealth management products – 2543 – 2543 – Other – 753 64 817 Financial investments designated at FVTPL 948 10928 – 11876 – Debt securities 948 10928 – 11876 Derivative financial assets – 18671 – 18671 Loans and advances to customers at FVTPL – 3 4991 4994 Debt investments at FVTOCI 136831 643518 – 780349 Loans and advances to customers at FVTOCI – 514051 100430 614481 Equity investments designated at FVTOCI 3164 2862 7390 13416 Total 157118 1580735 117525 1855378 Liabilities Financial liabilities held for trading 17917 330 – 18247 – Financial liabilities related to precious metal 17634 – – 17634 – Short position on bonds 283 330 – 613 Financial liabilities designated at FVTPL 21879 20541 2647 45067 – Placement of precious metal from financial institutions 14170 – – 14170 – Certificates of deposit issued – 383 – 383 – Debt securities issued 7709 – – 7709 – Other – 20158 2647 22805 Derivative financial liabilities – 18636 – 18636 Total 39796 39507 2647 81950 – F-137 –298 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) 2021 Level 1 Level 2 Level 3 Total Assets Financial investments measured at FVTPL 20517 292849 4879 318245 – Debt securities 19102 127411 373 146886 – Long position in precious metal contracts 102 – – 102 – Equity investments 1180 2 3727 4909 – Fund investments 133 161865 772 162770 – Wealth management products – 2396 – 2396 – Other – 1175 7 1182 Financial investments designated at FVTPL 1022 28856 – 29878 – Debt securities 1022 28856 – 29878 Derivative financial assets – 23390 – 23390 Loans and advances to customers at FVTPL – – 7281 7281 Debt investments at FVTOCI 127847 508191 – 636038 Loans and advances to customers at FVTOCI – 431291 56713 488004 Equity investments designated at FVTOCI 2269 – 4726 6995 Total 151655 1284577 73599 1509831 Liabilities Financial liabilities held for trading 16832 185 – 17017 – Financial liabilities related to precious metal 16406 – – 16406 – Short position on bonds 426 185 – 611 Financial liabilities designated at FVTPL 19569 19028 8147 46744 – Placement of precious metal from financial institutions 11596 – – 11596 – Certificates of deposit issued – 377 – 377 – Debt securities issued 7600 – – 7600 – Other 373 18651 8147 27171 Derivative financial liabilities – 27282 – 27282 Total 36401 46495 8147 91043 During the years ended 31 December 2022 and 2021 there were no significant transfers of financial instruments between Level 1 and Level 2 of the fair value hierarchy.– F-138 –China Merchants Bank Chapter VIII Financial Statements 299 Annual Report 2022 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (1) Basis of determining the market prices for recurring fair value measurements categorised as Level 1 Bloomberg etc. are used for financial instruments with quoted prices in an active market. (2) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurement categorised as Level 2 Fair value of RMB denominated bonds whose value is available on China Bond website on the valuation date is measured using the latest available valuation results.Fair value of foreign currency bonds without quoted prices in an active market is measured by using the comprehensive valuations issued by Bloomberg etc.Fair value of foreign exchange forwards contracts in derivative financial instruments is measured by discounting the differences between the contract prices and market future prices of the foreign exchange forwards contracts. The discount rates used are the applicable RMB denominated swap yield curve as at the end of the reporting period.Fair value of option contracts such as foreign exchange options commodity options and equity options is measured by using the Black-Scholes model based on market data such as risk-free interest rate underlying market prices and price volatility of foreign exchange commodities and equity contract. The above market data used are quoted price in an active market provided by Bloomberg Refinitiv Wind and other market information providers.Fair value of interest rate swaps foreign exchange swaps and non-option commodity contracts in derivative financial instruments is measured by discounting the expected receivable or payable amounts under the assumption that these swaps had been terminated at the end of the reporting period. The discount rates used are the related currency denominated swap yield curve as at the end of reporting period.Observable quoted price in market is used as the basis of determining the value of equity investments measured at FVTPL investment funds and wealth management products.The fair value of discounted bills at FVTOCI and at FVTPL in the Chinese mainland is measured based on the rate of rediscounted bills announced by the Shanghai Commercial Paper Exchange Corporation Ltd.The Group uses 10-day average discount rate as the basis for calculating the value of discounted bills; or is measured by discounted cash flow approach. The discount rates used are determined by factors such as credit rating of the loan customer provided by S&P Moody’s or Fitch customer industry term to maturity of the loan loan currency and the issuer credit spread.The fair value of equity investments designated at FVTOCI is measured based on the recent transaction price or by using the comprehensive valuations on Bloomberg.The fair value of certificates of deposit issued is measured by using the comprehensive valuations on Bloomberg.The fair value of “Other” under financial investments measured at FVTPL is measured based on the net asset values.The fair value of other financial liabilities designated at FVTPL is measured based on the net asset values of the funds determined with reference to observable (quoted) prices of underlying investment portfolio and adjustments of related expenses.– F-139 –300 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (3) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurements categorised as Level 3: Fair value as at 31 December 2022 Valuation techniques Unobservable inputs Equity investments designated 2725 Market approach Liquidity discount at FVTOCI Equity investments designated 101 Discounted cash flow Risk-adjusted discount at FVTOCI approach rate cash flow Equity investments designated 4564 Net asset value approach Net assets liquidity at FVTOCI discount Loans and advances to customers 4991 Discounted cash flow Risk-adjusted discount at FVTPL approach rate Loans and advances to customers 100430 Discounted cash flow Risk-adjusted discount at FVTOCI approach rate Financial investments measured at FVTPL – Equity investments 2950 Market approach Liquidity discount – Equity investments 528 Discounted cash flow Risk-adjusted discount approach rate cash flow – Equity investments 15 Net asset value approach Net assets liquidity discount – Debt securities 359 Discounted cash flow Risk-adjusted discount approach rate – Fund investments 797 Net fund value approach Net assets – Fund investments 1 Market approach Liquidity discount – Other 64 Net fund value approach Net assets Financial liabilities designated at 2647 Net fund value approach Net assets liquidity FVTPL discount – F-140 –China Merchants Bank Chapter VIII Financial Statements 301 Annual Report 2022 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (3) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurements categorised as Level 3: (continued) Fair value as at 31 December 2021 Valuation techniques Unobservable inputs Equity investments designated at 873 Market approach Liquidity discount FVTOCI Equity investments designated at 3853 Net asset value approach Net assets liquidity FVTOCI discount Loans and advances to customers 7281 Discounted cash flow Risk-adjusted discount at FVTPL approach rate Loans and advances to customers 56713 Discounted cash flow Risk-adjusted discount at FVTOCI approach rate Financial investments measured at FVTPL – Equity investments 3491 Market approach Liquidity discount – Equity investments 12 Market approach (Price-to- Liquidity discount Book Ratio) – Equity investments 209 Discounted cash flow Risk-adjusted discount approach rate cash flow – Equity investments 15 Net asset value approach Net assets liquidity discount – Debt securities 373 Discounted cash flow Risk-adjusted discount approach rate – Fund investments 767 Net fund value approach Net assets – Fund investments 5 Market approach Liquidity discount – Other 7 Market approach Liquidity discount Financial liabilities designated at 664 Market approach Liquidity discount FVTPL Financial liabilities designated at 7483 Net fund value approach Net assets liquidity FVTPL discount – F-141 –302 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (3) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurements categorised as Level 3: (continued) 1) Valuation of financial instruments with significant unobservable inputs The following tables show the movements from the beginning balances to the ending balances for Level 3 financial instruments: Loans and Loans and Equity Financial advances to advances to investments investments customers customers designated Assets at FVTPL at FVTPL at FVTOCI at FVTOCI Total At 1 January 2022 4879 7281 56713 4726 73599 Profit or loss – In profit or loss (14) (366) 744 – 364 – In other comprehensive income – – (107) 51 (56) Addition for the year 1041 85 196298 2527 199951 Disposals or settlement on maturity (1147) (2036) (153218) (129) (156530) Transfer out of level 3 (145) – – – (145) Exchange difference 100 27 – 215 342 At 31 December 2022 4714 4991 100430 7390 117525 Total unrealised gains and losses included in the consolidated statement of profit or loss for assets held at the end of the reporting period (14) (366) – – (380) Loans and Loans and Equity Financial advances to advances to investments investments customers customers designated Assets at FVTPL at FVTPL at FVTOCI at FVTOCI Total At 1 January 2021 2727 6856 44289 5064 58936 Profit or loss – In profit or loss 339 287 1365 – 1991 – In other comprehensive income – – 48 1050 1098 Addition for the year 1832 143 118229 721 120925 Disposals or settlement on maturity (68) – (107218) (2158) (109444) Exchange difference 49 (5) – 49 93 At 31 December 2021 4879 7281 56713 4726 73599 Total unrealised gains and losses included in the consolidated statement of profit or loss for assets held at the end of the reporting period 339 287 – – 626 – F-142 –China Merchants Bank Chapter VIII Financial Statements 303 Annual Report 2022 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (3) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurements categorised as Level 3: (continued) 1) Valuation of financial instruments with significant unobservable inputs (continued) Financial liabilities at fair value through profit or loss 2022 2021 Balance as at 1 January 8147 5649 In profit or loss (142) 470 Addition for the year 96 3105 Disposals and settlement on maturity (5695) (860) Exchange difference 241 (217) Balance as at 31 December 2647 8147 Total unrealised gains and losses included in the consolidated statement of profit or loss for liabilities held at the end of the reporting period 148 419 During the years ended 31 December 2022 and 2021 there were no significant transfers among different levels for financial instruments which are measured at fair value on a recurring basis.During the years ended 31 December 2022 and 2021 the Group did not change the valuation techniques for the financial assets and liabilities disclosed above which are measured at fair value on a recurring basis.– F-143 –304 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 60. Risk management (continued) (g) Fair value information (continued) (iii) Financial assets and financial liabilities that are not measured at fair value (1) Financial Assets The Group’s financial assets that are not measured at fair value mainly include balances with central banks balances and placements with banks and other financial institutions amounts held under resale agreements loans and advances to customers at amortised cost and investments at amortised cost.Except for loans and advances measured at amortised cost and debt instrument investments measured at amortised cost most of the financial assets mature within 1 year and their carrying values approximate their fair values. Loans and advances are stated at amortised costs less allowances for impairment loss (Note 22).Loans and advances at amortised cost are mostly priced at floating rates with reference to Loan Prime Rates (LPRs) and repriced at least annually and impairment allowances are made to reduce the carrying amounts of impaired loans to estimated recoverable amounts. Accordingly the carrying value of loans and advances is close to their fair value.Debt investments measured at amortised cost are carried at amortised cost less allowances for impairment losses. The fair value of the listed investments is disclosed in Note 23(b).The carrying value fair value and fair value hierarchy of debt investments at amortised cost not measured at fair value are listed as below: The Level 1 fair value measurement is based on unadjusted quoted prices in active markets using Bloomberg etc. For Level 2 the latest valuation results released by China Bond website are used to measure fair value of bonds denominated in RMB. The Level 2 category also includes foreign currency bonds without active quoted price which are measured using the published comprehensive valuation by Bloomberg. The Level 3 fair value is measured using discounted cash flow valuation technique. 20222021 Carrying Carrying amount Fair value Level 1 Level 2 Level 3 amount Fair value Level 1 Level 2 Level 3 Debt investments at amortised cost 1536397 1569775 41700 1434070 94005 1169652 1235725 6659 1097435 131631 Note: The above financial assets do not include interest receivable. (2) Financial Liabilities Financial liabilities that are not measured at fair value mainly include deposits from customers amounts due to banks and other financial institutions amounts sold under repurchase agreements and debts securities issued by the Group. The carrying value of financial liabilities approximate their fair value at the end of the reporting period except for the financial liabilities set out below: 20222021 Carrying Carrying amount Fair value Level 1 Level 2 Level 3 amount Fair value Level 1 Level 2 Level 3 Subordinated bonds issued 19994 20292 – 20292 – 34236 35173 – 35173 – Long-term debt securities issued 120971 118416 – 118416 – 159306 160893 – 160893 – Total 140965 138708 – 138708 – 193542 196066 – 196066 – Note: The above financial liabilities do not include interest payable.– F-144 –China Merchants Bank Chapter VIII Financial Statements 305 Annual Report 2022 (H share) 61. Material related party transactions (a) Material connected person information Details of the Bank’s major shareholders and their parent companies are as follows: No. of Proportion Proportion Issued shares of of the of the and fully the Bank Bank held Company Registered paid held by the by the held by Relationship Legal Company name location capital Company Company the Bank Business with the Bank Legal form representative China Merchants Group Beijing RMB16900 7559427375 29.97% – Transportation shipping The largest Limited Miao Jianmin (CMG) million (note (i)(vii)) agency warehousing shareholder’s liability and storage leasing parent company manufacturing building and facility repair and contracting sales operating management service etc.– China Merchants Steam Beijing RMB17000 3289470337 13.04% – Transportation building The largest Limited Miao Jianmin Navigation Co. Ltd. million (note (ii)) and repair procurement shareholder liability (CMSNCL) supply chain management and distribution shipping agency services etc.– Shenzhen Yan Qing Shenzhen RMB600 1258542349 4.99% – Invest and set up industries Shareholder Limited Xu Xin Investment and million domestic commerce liability Development Co. Ltd. materials supply and marketing business etc.– Shenzhen Chu Yuan Shenzhen RMB600 944013171 3.74% – Invest and set up industries Shareholder Limited Xu Xin Investment and million domestic commerce liability Development Co. Ltd. materials supply and marketing business etc.– China Merchants Finance Shenzhen RMB7778 1147377415 4.55% – Invest and set up industries Shareholder Limited Miao Jianmin Investment Holdings million domestic commerce liability Co. Ltd. materials supply and marketing business etc.– Best Winner Investment British Virgin USD0.05 386924063 1.53% – – Shareholder Joint stock – Ltd. Islands million limited company – China Merchants Union British Virgin USD0.06 477903500 1.89% – – Shareholder Limited – (BVI) Limited Islands million liability – China Merchants Shenzhen USD10 55196540 0.22% – Invest and set up industries Shareholder Limited Wang Xiaoding Industry Development million enterprise management liability (Shenzhen) Ltd. consulting and investment consulting etc.– F-145 –306 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 61. Material related party transactions (continued) (a) Material connected person information (continued) Details of the Bank’s major shareholders and their parent companies are as follows: (continued) No. of Proportion Proportion Issued shares of of the of the and fully the Bank Bank held Company Registered paid held by the by the held by Relationship Legal Company name location capital Company Company the Bank Business with the Bank Legal form representative China COSCO Shipping Beijing RMB11000 2515193034 9.97% – International shipping Shareholder’s Limited Wan Min Corporation Limited. million (note(iii)) business supporting parent company liability services to international shipping imports and exports of goods and technology international freight forwarding agent etc.– China Ocean Shipping Beijing RMB16191 1574729111 6.24% – Transportation business Shareholder Limited Wan Min Co. Ltd. million leasing business ship liability purchasing and marketing business warehousing business etc.– COSCO Shipping Guangzhou RMB3191 696450214 2.76% – Shipping business Shareholder Limited Shou Jian (Guangzhou) Co. Ltd. million liability – Guangzhou Haining Guangzhou RMB52 103552616 0.41% – Business services Shareholder Limited Chen Jianyao Maritime Technology million liability Consulting Co. Ltd.– COSCO Shipping Shanghai RMB1399 75617340 0.30% – Shipping business leasing Shareholder Limited Zhao Bangtao (Shanghai) Co. Ltd. million business ship repairing liability and building etc.– COSCO Shipping Hong Kong HKD500 54721930 0.22% – Leasing business financing Shareholder Limited Wang Daxiong Investment Holdings million business insurance liability Co. Ltd. business etc.– Guangzhou Tri-Dynas Oil Guangzhou RMB299 10121823 0.04% – Ship purchasing and Shareholder Limited Ren Zhaoping & Shipping Co. Ltd. million marketing business liability shipping agency leasing business shipping business etc.China Insurance Security Beijing RMB100 804907835 3.19% – Investing and establishing Shareholder’s Limited Ji Yuhua Fund Co. Ltd million (note(iv)) insurance companies parent company liability supervising and managing various domestic and international businesses of holding investment enterprises and investment business permitted by national laws and regulations etc.– Dajia Life Insurance Co. Beijing RMB30790 804907835 3.19% – Life insurance health Shareholder Joint stock He Xiaofeng Ltd million insurance accident limited insurance and other company personal insurance services etc.– F-146 –China Merchants Bank Chapter VIII Financial Statements 307 Annual Report 2022 (H share) 61. Material related party transactions (continued) (a) Material connected person information (continued) Details of the Bank’s major shareholders and their parent companies are as follows: (continued) No. of Proportion Proportion Issued shares of of the of the and fully the Bank Bank held Company Registered paid held by the by the held by Relationship Legal Company name location capital Company Company the Bank Business with the Bank Legal form representative China Communications Beijing RMB7274 422770418 1.68% – General contraction for Shareholder’s Limited Wang Tongzhou Construction Group million (note(v)) construction parent company liability Limited.– China Communications Beijing RMB16166 201089738 0.80% – General contraction for Shareholder Joint stock Wang Tongzhou Construction million construction leasing limited Company Limited. and repair technical company consulting service imports and exports investment and management business Shanghai Automotive Shanghai RMB21749 310125822 1.23% – Production and sale Shareholder’s Limited Chen Hong Industry Corporation million (note(vi)) of vehicles asset parent company liability (Group) management business domestic trade business consulting service – SAIC Motor Corporation Shanghai RMB11683 310125822 1.23% – Production and sale of Shareholder Joint stock Chen Hong Limited million vehicles consulting limited service imports and company exports CMB International Capital Hong Kong HKD4129 – – 100% Investment bank and Subsidiary Limited Wang Liang Holdings Corporation million investment managements liability Limited (CMBIC) CMB Financial Leasing Shanghai RMB12000 – – 100% Finance lease Subsidiary Limited Shi Shunhua Company Limited million liability (CMBFL) CMB Wing Lung Bank Hong Kong HKD1161 – – 100% Banking Subsidiary Limited Liu Yuan Limited (CMB WLB) million liability China Merchants Fund Shenzhen RMB1310 – – 55% Fund Management Subsidiary Limited Wang Xiaoqing Management Co. Ltd. million liability (CMFM) CMB Wealth Management Shenzhen RMB5556 – – 90% Asset management Subsidiary Limited Chen Yisong Co. Ltd million liability China Merchants Europe Luxembourg EUR50 – – 100% Banking Subsidiary Limited Li Biao S.A. (CMB Europe S.A.) million liability Cigna & CMB Asset Beijing RMB500 – – Note 24 Asset management Subsidiary Limited Wang Xiaoqing Management Company million (vii) liability Limited Notes: (i) CMG together with its subsidiaries holds 29.97% of the Bank (2021: 29.97%).(ii) As the largest direct shareholder CMSNCL a subsidiary of CMG holds 13.04% of the Bank as at 31 December 2022 (2021: 13.04%).(iii) China COSCO Shipping Corporation Ltd. holds 9.97 % of the Bank (2021: 9.97%) through its subsidiaries.(iv) China Insurance Security Fund Co. Ltd (“China Insurance Security Fund”) holds 3.19% of the Bank (2021: 3.23%) through its 98.23% holding in Dajia Insurance Group Co. Ltd.(v) China Communications Construction Group Limited (“China Communications Construction Group”) holds 1.68% of the Bank through its subsidiaries (2021:1.68%).(vi) Shanghai Automotive Industry Corporation (Group) (“Shanghai Automotive Industry Group”) holds 1.23% of the Bank through its subsidiaries (SAIC Motor Corporation Limited) (2021: 1.23%).(vii) The sum of the direct holding percentage of CMG’s shareholdings in the Bank and the sum of the above-mentioned relevant percentages may differ slightly due to rounding.– F-147 –308 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 61. Material related party transactions (continued) (a) Material connected person information (continued) The registered capital of the Group’s related parties as at 31 December 2022 and 2021 are as follows: Name of related party 2022 2021 CMG RMB16900000000 RMB16900000000 CMSNCL RMB17000000000 RMB7000000000 Shenzhen Yan Qing Investment and Development Co. Ltd. RMB600000000 RMB600000000 Shenzhen Chu Yuan Investment and Development Co. Ltd. RMB600000000 RMB600000000 China Merchants Finance Investment Holdings Co. Ltd. RMB7778000000 RMB7778000000 Best Winner Investment Ltd. USD50000 USD50000 China Merchants Union (BVI) Limited USD60000 USD60000 China Merchants Industry Development (Shenzhen) Ltd. USD10000000 USD10000000 China Insurance Security Fund Co. Ltd RMB100000000 RMB100000000 Dajia Life Insurance Co. Ltd RMB30790000000 RMB30790000000 China COSCO Shipping Corporation Limited. RMB11000000000 RMB11000000000 China Ocean Shipping Co. Ltd. RMB16191351300 RMB16191351300 COSCO Shipping (Guangzhou) Co. Ltd. RMB3191200000 RMB3191200000 Guangzhou Haining Maritime Technology Consulting Co. Ltd. RMB52000000 RMB52000000 COSCO Shipping (Shanghai) Co. Ltd. RMB1398941000 RMB1398941000 COSCO Shipping Investment Holdings Co. Ltd. HKD500000000 HKD500000000 Guangzhou Tri-Dynas Oil & Shipping Co. Ltd. RMB299020000 RMB299020000 China Communications Construction Group Limited. RMB7274023830 RMB7274023830 China Communications Construction Company Limited RMB16165711425 RMB16165711425 Shanghai Automotive Industry Corporation (Group) RMB21749175737 RMB21749175737 SAIC Motor Corporation Limited RMB11683461365 RMB11683461365 CMBIC HKD4129000000 HKD4129000000 CMBFL RMB12000000000 RMB12000000000 CMB WLB HKD1160950575 HKD1160950575 CMFM RMB1310000000 RMB1310000000 CMBWM RMB5555555555 RMB5000000000 CMB Europe S.A. EUR50000000 EUR50000000 Cigna & CMB Asset Management Company Limited RMB500000000 RMB500000000 The proportion of the Bank held by the largest shareholder and the portion of the subsidiaries held by the Bank The Bank held by the largest shareholder The subsidiaries held by the Bank CMSNCL CMBIC CMBFL CMB WLB CMFM CMBWM CMB Europe S.A. CIGNA & CMAM No. of shares % HKD % RMB % HKD % RMB % RMB % EUR % RMB % At 1 January 2022 3289470337 13.04 4129000000 100.00 12000000000 100.00 1160950575 100.00 1310000000 55.00 5000000000 100.00 50000000 100.00 500000000 note At 31 December 2022 3289470337 13.04 4129000000 100.00 12000000000 100.00 1160950575 100.00 1310000000 55.00 5555555555 90.00 50000000 100.00 500000000 note The Bank held by the largest shareholder The subsidiaries held by the Bank CMSNCL CMBIC CMBFL CMB WLB CMFM CMBWM CMB Europe S.A. CIGNA & CMAM No. of shares % HKD % RMB % HKD % RMB % RMB % EUR % RMB % At 1 January 2021 3289470337 13.04 4129000000 100.00 6000000000 100.00 1160950575 100.00 1310000000 55.00 5000000000 100.00 50000000 100.00 500000000 note At 31 December 2021 3289470337 13.04 4129000000 100.00 12000000000 100.00 1160950575 100.00 1310000000 55.00 5000000000 100.00 50000000 100.00 500000000 note Note: This information is detailed in note 24.As of 31 December 2022 other than those disclosed above there were 142 companies that shared common directors supervisors and senior management including their close family members with the Bank and they can control or exercise significant influence over these companies (31 December 2021: 265).– F-148 –China Merchants Bank Chapter VIII Financial Statements 309 Annual Report 2022 (H share) 61. Material related party transactions (continued) (b) Terms and conditions for related-party transactions The Group enters into transactions with related parties in the ordinary course of its banking business including lending investing deposit taking securities trading providing agency and trust services and off-balance sheet transactions. In the opinion of the directors the Group enters into such material related-party transactions under normal commercial terms. Interest rates on loans and deposits are set in accordance with such benchmark rates as PBOC rates and LPR: 20222021 Short-term loans 3.65% to 3.80% 3.80% to 3.85% Medium to long-term loans 3.65% to 4.65% 3.80% to 4.65% Demand deposits 0.35% 0.35% Time deposits 1.10% to 2.75% 1.10% to 2.75% There were no loans and advances granted to related parties that were credit-impaired during the year (2021: None).(c) Shareholders and their related companies The Bank’s largest shareholder CMG and its related companies held 29.97 % (2021: 29.97%) of the Bank’s shares as at 31 December 2022 (among them 13.04 % of the shares were directly held by CMSNCL (2021: 13.04%)).The Group’s transactions and balances with CMSNCL and its related companies are disclosed as follows: 20222021 On-balance sheet: – Placements with banks and other financial institutions 2000 – – Amounts held under resale agreements 2589 13967 – Loans and advances to customers 40772 42645 – Financial investments 7626 1147 – Deposits from banks and other financial institutions 29726 29755 – Deposits from customers 45342 45708 – Lease liabilities 210 186 Off-balance sheet: – Irrevocable guarantees 5087 3645 – Irrevocable letters of credit 318 251 – Bills of acceptances 285 188 Interest income 1848 1738 Interest expense (1376) (1599) Net fee and commission income 1027 669 Operating expenses (177) (42) Other net (expenses)/income (10) 38 – F-149 –310 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 61. Material related party transactions (continued) (d) Companies that share common directors supervisors or senior management with the Bank (other than those disclosed in Note 61(c)) and they can control or exercise significant influence over the companies 20222021 On-balance sheet: – Placements with banks and other financial institutions 2277 – – Amounts held under resale agreements 3770 285 – Loans and advances to customers 28103 13366 – Financial investments 770 595 – Deposits from banks and other financial institutions 4346 21356 – Placements from banks and other financial institutions 6047 – – Deposits from customers 13447 31016 – Lease liabilities 65 73 Off-balance sheet: – Irrevocable guarantees 580 1711 – Irrevocable letters of credit 6 46 – Bills of acceptances – 225 Interest income 1035 927 Interest expense (475) (984) Net fee and commission income 133 273 Operating expenses (274) (1654) Other net (expenses)/income (129) 7 (e) Associates and joint ventures other than those disclosed in Note 61(c) 20222021 On-balance sheet: – Placements with banks and other financial institutions 14675 14500 – Loans and advances to customers 6848 6044 – Deposits from banks and other financial institutions 896 1251 – Deposits from customers 331 693 Off-balance sheet: – Irrevocable guarantees – 8700 Interest income 306 516 Interest expense (19) (20) Net fee and commission income 2498 1695 Operating expenses (8) (6) – F-150 –China Merchants Bank Chapter VIII Financial Statements 311 Annual Report 2022 (H share) 61. Material related party transactions (continued) (f) Other major shareholders holding more than 5% shares of the Bank and exercising significant influence over the Bank 20222021 On-balance sheet: – Amounts held under resale agreements – 399 – Loans and advances to customers 27070 17654 – Financial investments 4302 2512 – Deposits from banks and other financial institutions 2929 7502 – Deposits from customers 14872 19704 – Lease liabilities 40 46 Off-balance sheet: – Irrevocable guarantees 8511 7895 – Irrevocable letters of credit 1835 337 – Bills of acceptances 5125 5068 Interest income 913 738 Interest expense (633) (585) Net fee and commission income 2242 1411 Operating expenses (138) – Other net expense (1) (10) (g) Subsidiaries 20222021 On-balance sheet – Balances with banks and other financial institutions 958 1950 – Placements with banks and other financial institutions 32438 37055 – Loans and advances to customers 1396 – – Financial investments 3415 3454 – Deposits from banks and other financial institutions 4630 7246 – Amounts sold under repurchase agreements – 816 – Deposits from customers 5206 3957 Off-balance sheet – Irrevocable guarantees 38 – – Irrevocable letters of credit 4599 1998 – Bills of acceptances 222 81 Interest income 943 1124 Interest expense (129) (258) Net fee and commission expenses (93) (1294) Operating expenses (1797) (96) Other net income 150 111 All significant balances and transactions between the Bank and its subsidiaries have been eliminated in the consolidated financial statements.– F-151 –312 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 61. Material related party transactions (continued) (h) Key management personnel Key management personnel are those persons having authority and responsibility for planning directing and controlling the activities of the Group directly or indirectly including directors supervisors and executive officers. 20222021 in thousands in thousands Salaries and other emoluments 38249 39264 Discretionary bonuses – 11087 Share-based payment (41066) 17312 Contributions to defined contribution retirement schemes – 567 Total (2817) 68230 The above share-based payments represent the estimated fair value of the share appreciation rights granted (Note 39(a)(iii)) to senior management under the Bank’s H share Appreciation Rights Scheme. The fair value is measured by using the Black-Scholes model and according to the accounting policy set out in Note 4(17); and the amounts are charged to the consolidated statement of profit or loss and other comprehensive income. As the share options may expire without being exercised the directors consider the amounts disclosed are not representative of actual cash flows received or to be received by senior management.(i) Annuity scheme Apart from the obligation for defined contributions to the annuity scheme and normal banking transactions no other transactions were conducted between the Group and the annuity scheme for the years ended 31 December 2022 and 2021. 62. Non-controlling interests Non-controlling interests represent the interests that the Group does not hold in the subsidiaries the Group does not have any subsidiary with significant non-controlling interests during the reporting period.(a) Perpetual debt capital CMB WLB the Group’s subsidiary issued perpetual debt of US$170 million on 27 April 2017 and another perpetual debt of US$400 million on 24 January 2019. CMB WLB redeemed the USD170 million perpetual debt issued in 2017 during the current year. Movements of these perpetual debt capital are as follows: Principal Distributions/Paid Total At 1 January 2022 3636 – 3636 Redemption in 2022 (1104) – (1104) Distributions in 2022 – 202 202 Paid in 2022 – (202) (202) Exchange difference 255 – 255 At 31 December 2022 2787 – 2787 Principal Distributions/Paid Total At 1 January 2021 3753 – 3753 Distributions in 2021 – 227 227 Paid in 2021 – (227) (227) Exchange difference (117) – (117) At 31 December 2021 3636 – 3636 There is no maturity for the instruments and the payments of distribution can be cancelled at the discretion of the issuer. Cancelled interest is non-cumulative. There is no contractual obligation to deliver cash to other parties.During the years ended 31 December 2022 and 2021 CMB WLB did not cancel the payment of distribution and the corresponding amounts were paid to the perpetual debt holders accordingly.– F-152 –China Merchants Bank Chapter VIII Financial Statements 313 Annual Report 2022 (H share) 63. Transfers of financial assets The Group enters into transactions in the normal course of business by which it transfers recognised financial assets to third parties or to special purpose vehicles. In some cases such transfers may give rise to full or partial derecognition of the financial assets concerned and in other cases the transfers may not qualify for derecognition as the Group retains substantially all the risks and rewards of these transferred assets. As a result the Group continues to recognise these transferred assets.Securitisation of credit assets The Group enters into securitisation transactions in the normal course of business by which it transfers credit assets to special purpose trusts which in turn issue asset-backed securities to investors. The Group may acquire certain investments at the subordinated tranche level and accordingly may retain parts of the risks and rewards of the transferred credit assets. The Group would determine whether or not to derecognise the associated credit assets by evaluating the extent to which it retains the risks and rewards of the assets.With respect to the credit assets that are securitised and qualified for derecognition based on the criteria set out in Note 4(5) the Group derecognises the transferred credit assets in their entirety. During the year ended 31 December 2022 the Group transferred loans amounting to RMB17362 million (2021: RMB56068 million) in securitisation arrangements as well as substantially all the risks and rewards associated with the loans. The full amount of such securitised loans were then derecognised.In the cases that the Group has neither transferred nor retained substantially all the risks and rewards of the transferred credit assets and for which the Group retains control the Group recognises an asset in the consolidated statement of financial position to the extent of the Group’s continuing involvement in the transferred assets the remaining portion is derecognised. The extent of the Group’s continuing involvement is the extent of the risks and rewards exposed by the Group to the value changes of the transferred assets. For the year ended 31 December 2022 there were no new securitised credit assets in which the Group retained the continuing involvement (2021: RMB15942 million). The carrying amount of the continuing involvement asset and the corresponding continuing involvement liability are recognised in other assets and other liabilities in the consolidated statement of financial position amounting to RMB5274 million as at 31 December 2022 (31 December 2021: RMB5274 million).Transfers of credit assets to third parties During the year of 2022 in addition to securitisation transactions the Group transferred credit assets amounting to RMB995 million (2021: RMB548 million) to independent third parties directly during the year ended 31 December 2022. The Group determined that these transferred assets qualified for full derecognition based on the criteria set out in Note 4(5) since the Group has transferred substantially all the risks and rewards of the transferred assets to the counterparties.Repurchase transactions and securities lending transactions Transferred financial assets that do not qualify for derecognition mainly include debt securities discounted bills held by counterparties as collateral under repurchase agreements and securities lent to counterparties under securities lending agreements. The counterparties are allowed to sell or repledge those securities sold under agreements to repurchase in the absence of default by the Group but has an obligation to return the securities at the maturity of the contract. The Group determines that it retains substantially all the risks and rewards of these securities and therefore does not derecognise them. Instead it recognises a financial liability for cash received as collateral.– F-153 –314 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) 64. Interests in unconsolidated structured entities The scope of the Group’s consolidated financial statements is determined on a control basis. Control means that the investor has the power over the investee enjoys variable returns by participating in the relevant activities of the investee and has the ability to use the power to affect the amount of its return.The Group has the power over structured entities and the other investors have no substantive rights. In the meantime the Group is entitled to variable returns and will consolidate entities in which the Group has the right to affect the amount of its return.In addition to the above-mentioned structured entities that have been included in the Group’s consolidated financial statements the Group’s equity information on structured entities which is not covered by the consolidated financial statements is as follows: (a) Interests in the structured entities sponsored by third parties institutions The Group holds interests in some structured entities sponsored by third parties through investments in the units issued by these structured entities. Such interests include investments in wealth management products asset management schemes trust beneficiary rights assets-backed securities and fund investments and the Group does not consolidate these structured entities. The purpose of the Group holding these structured entities is to obtain investment income capital appreciation or both.The following tables set out an analysis of the balance of interests held by the Group in the structured entities sponsored by third parties and an analysis of the line items in the consolidated statement of financial positions as at 31 December 2022 and 31 December 2021 in which assets are recognised relating to the Group’s interests in structured entities sponsored by third parties: 2022 Balance Debt Financial investments Debt investments at amortised investments Maximum at FVTPL cost at FVTOCI Total exposure Asset management schemes – 48362 – 48362 48362 Trust beneficiary rights – 37954 – 37954 37954 Asset-backed securities 835 1031 170 2036 2036 Fund investments 186311 – – 186311 186311 Wealth management products 110 – – 110 110 Total 187256 87347 170 274773 274773 2021 Balance Debt Financial investments Debt investments at amortised investments Maximum at FVTPL cost at FVTOCI Total exposure Asset management schemes – 67432 – 67432 67432 Trust beneficiary rights – 34112 – 34112 34112 Asset-backed securities 2537 307 1205 4049 4049 Fund investments 156112 – – 156112 156112 Total 158649 101851 1205 261705 261705 The maximum exposures of investments in funds trust beneficiary rights asset management schemes wealth management products and asset-backed securities are the balance of these assets.– F-154 –China Merchants Bank Chapter VIII Financial Statements 315 Annual Report 2022 (H share) 64. Interests in unconsolidated structured entities (continued) (b) Interests in the unconsolidated structured entities sponsored by the Group The unconsolidated structured entities sponsored by the Group include non-principal-guaranteed wealth management products funds and assets management schemes. The nature and purpose of these structured entities are to generate fees from managing assets on behalf of investors. These structured entities are financed through the issuance of investment products to investors. Interest of the Group in these unconsolidated structured entities is limited to fees and commissions charged for management services provided.As at 31 December 2022 the amount of unconsolidated non-principal-guaranteed wealth management products sponsored by the Group was RMB2667663 million (31 December 2021: RMB2777537 million).As at 31 December 2022 the amount of unconsolidated funds sponsored by the Group was RMB1219793 million (31 December 2021: RMB1200150 million). As at 31 December 2022 the amount of unconsolidated asset management schemes sponsored by the Group was RMB189332 million (31 December 2021: RMB174555 million).As at 31 December 2022 amounts held under resale agreements transacted between the Group and the non- principal-guaranteed wealth management products sponsored by the Group were nil (31 December 2021: RMB30896 million). The above transactions were conducted in accordance with normal business terms and conditions.As at 31 December 2022 the amount of unconsolidated non-principal-guaranteed wealth management products held by the Group was RMB2433 million (31 December 2021: RMB2396 million).As at 31 December 2022 the amount of unconsolidated funds held by the Group was RMB14228 million (31 December 2021: RMB6658 million).During the year ended 31 December 2022 the amount of unconsolidated non-principal-guaranteed wealth management products sponsored by the Group transferred to investments measured at amortised cost of the Group was RMB11143 million (2021: RMB11004 million).During the year ended 31 December 2022 the amount of fee and commission income the Group received from such non-principal-guaranteed wealth management products was RMB17037 million (2021: RMB11998 million).During the year ended 31 December 2022 the amount of fee and commission income the Group received from such unconsolidated funds was RMB5627 million (2021: RMB4223 million).During the year ended 31 December 2022 the amount of fee and commission income the Group received from such unconsolidated asset management schemes was RMB526 million (2021: RMB627 million).The total amount of non-principal-guaranteed wealth management products sponsored by the Group after 1 January 2022 with a maturity date before 31 December 2022 was RMB620318 million (2021: RMB1529874 million). 65. Comparative figures Certain comparative figures in the notes have been re-presented to conform to presentation in current year.– F-155 –316 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) Unaudited Supplementary Financial Information (Expressed in millions of Renminbi unless otherwise stated) (A) Capital adequacy ratio The Group’s capital adequacy ratio was prepared solely in accordance with the CBIRC’s Administrative Measures on the Capital of Commercial Banks (Provisional) issued in 2012 and effective on 1 January 2013. The bases used herein may differ from those adopted in Hong Kong or other countries and regions.In accordance with the Advanced Measurement Approach approved by the CBIRC in April 2014 the Group calculates core tier-1 capital adequacy ratio tier-1 capital adequacy ratio and capital adequacy ratio as follows: 20222021 Core tier-1 capital adequacy ratio 13.68% 12.66% Tier-1 capital adequacy ratio 15.75% 14.94% Capital adequacy ratio 17.77% 17.48% Components of capital base Core tier-1 capital: Qualifying portion of share capital 25220 25220 Qualifying portion of capital reserve 65397 67491 Surplus reserves 94948 82104 Regulatory general reserve 132451 115288 Retained earnings 488970 424768 Qualifying portion of non-controlling interests – – Other (note (i)) 14480 12788 Total core tier-1 capital 821466 727659 Regulatory deductions from core tier-1 capital 22114 23322 Net core tier-1 capital 799352 704337 Additional tier-1 capital (note (ii)) 120446 127043 Net tier-1 capital 919798 831380 Tier-2 capital: Qualifying portion of tier-2 capital instruments and their premium 20000 24170 Surplus provision for loans impairment 96579 115472 Qualifying portion of non-controlling interests 1565 1584 Total tier-2 capital 118144 141226 Regulatory deductions from core tier-2 capital – – Net tier-2 capital 118144 141226 Net capital 1037942 972606 Total risk-weighted assets 5841685 5563724 Notes: (i) : Under CBIRC’s Administrative Measures on the Capital of Commercial Banks (Provisional) other includes investment revaluation reserve exchange reserve hedging reserve in the consolidated financial statements etc.(ii) : The Group’s additional tier-1 capital includes preference shares perpetual bonds etc.In 2022 in accordance with the advanced capital management approach approved by CBIRC in April 2014 the Bank calculated core tier-1 capital adequacy ratio is 13.23% tier-1 capital adequacy ratio is 15.42% capital adequacy ratio is 17.51% net capital is RMB927881 million and total risk-weighted assets is RMB5299237 million.In 2022 by the method of calculating credit risk using the weighted approach market risk using the standardised approach and operational risk using the basic indicator approach the Group’s core tier-1 capital adequacy ratio is 11.52% tier-1 capital adequacy ratio is 13.25% capital adequacy ratio is 14.68% net capital is RMB1018678 million and total risk-weighted assets is RMB6941350 million.In 2022 by the method of calculating credit risk using the weighted approach market risk using the standardised approach and operational risk using the basic indicator approach the Bank’s core tier-1 capital adequacy ratio is 10.97% tier-1 capital adequacy ratio is 12.79% capital adequacy ratio is 14.22% net capital is RMB908572 million and total risk-weighted assets is RMB6390196 million.– F-156 –China Merchants Bank Chapter VIII Financial Statements 317 Annual Report 2022 (H share) (B) leverage ratio In accordance with the CBIRC’s Administrative Measures on Leverage Ratio of Commercial Banks (Revision) issued in 2015 and effective on 1 April 2015 the Group’s leverage ratio is as follows. The basis used herein may differ from those adopted in Hong Kong or other countries and regions.The difference between regulatory items and accounting items： 20222021 Total consolidated assets as per published financial statements 10138912 9249021 Adjustments for investments in banking financial insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation (47666) (54231) Adjustments for fiduciary assets – – Adjustments for derivative financial instruments (7911) (8526) Adjustment for securities financing transactions 12444 27776 Adjustment for off-balance sheet items 1496177 1204181 Other adjustments (22114) (23322) Balance of adjusted on-balance sheet and off-balance sheet assets 11569842 10394899 Leverage ratio net tier-1 capital adjusted on-balance sheet and off-balance sheet exposures and other information: 20222021 On-balance sheet items (excluding derivatives and securities financing transactions (SFT)) 9796112 8647884 Less: Asset amounts deducted in determining Basel III Tier 1 capital (22114) (23322) Balance of adjusted on-balance sheet assets (excluding derivatives and SFTs) 9773998 8624562 Replacement cost associated with all derivatives transactions (net of eligible cash variation margin) 5551 5374 Add-on amounts for potential future exposure associated with all derivatives transactions 5175 9489 Gross-up for derivatives collateral provided where deducted from the balance sheet assets – – Less: Deductions of receivables assets for cash variation margin provided in derivatives transactions – – Less: Exempted central counterparty leg of client-cleared trade exposures – – Effective notional amount of written credit derivatives – – Less: Adjusted effective notional deductions for written credit derivatives – – Total derivative exposures 10726 14863 Gross SFT assets (with no recognition of netting) after adjusting for sale accounting transactions 276497 523517 Less: Netted amounts of cash payables and cash receivables of gross SFT assets – – Counterparty credit risk exposure for SFT assets 12444 27776 Agent transaction exposures – – Total securities financing transaction exposures 288941 551293 Off-balance sheet exposure at gross notional amount 3093836 2576292 Less: Adjustments for conversion to credit equivalent amounts (1597659) (1372111) Balance of adjusted off-balance sheet assets 1496177 1204181 Net tier-1 capital 919798 831380 Balance of adjusted on-balance sheet and off-balance sheet assets 11569842 10394899 Leverage ratio 7.95% 8.00% – F-157 –318 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) (C) Liquidity coverage ratioThe Group prepared and disclosed information on liquidity coverage ratio in accordance with the “Measures for theDisclosure of Information on Liquidity Coverage Ratio by Commercial Banks”. The basis used herein may differ from those adopted in Hong Kong or other countries and regions. The average of liquidity coverage ratio of the Group was 164.92% in the fourth quarter of 2022 an increase of 14.46 percentage points from the previous quarter mainly due to the increase in high quality liquid assets. The liquidity coverage ratio of the Group at the end of the fourth quarter of 2022 was 180.48% which met the regulatory requirements of the China Banking and Insurance Regulatory Commission in 2022. The breakdown of the Group’s average value of each item of liquidity coverage ratio in the fourth quarter of 2022 is set out below: (Expressed in millions of Renminbi except percentage) Unweighted Weighted amount amount Serial No. (average value) (average value) Stock of high quality liquid assets 1 Total stock of high quality liquid assets 1776915 Cash outflows 2 Retail and small business customers deposits of which: 3040565 268155 3 Stable deposits 718034 35902 4 Less stable deposits 2322531 232253 5 Unsecured wholesale funding of which: 4308337 1404145 6 Operational deposits (excluding correspondent banks) 2736973 678934 7 Non-operational deposits (including all counterparties) 1551553 705400 8 Unsecured debt issuance 19811 19811 9 Secured funding 20190 10 Additional requirements of which: 1867358 361680 11 Cash outflows arising from derivative contract and other transactions arising from related collateral requirements 266606 266606 12 Cash outflows arising from secured debt instruments funding – – 13 Undrawn committed credit and liquidity facilities 1600752 95074 14 Other contractual obligations to extend funds 80435 80435 15 Other contingent funding obligations 3097405 101227 16 Total cash outflows 2235832 Cash inflows 17 Secured lending (including reverse repo and securities borrowing) 225766 225358 18 Contractual inflows from fully performing loans 1080962 667225 19 Other cash inflows 270677 265803 20 Total cash inflows 1577405 1158386 Adjusted value 21 Total stock of high quality liquid assets 1776915 22 Net cash outflows 1077446 23 Liquidity coverage ratio (%) 164.92% Notes: (i) The domestic data in the above table is a simple arithmetic average of the 92-day value for the latest quarter and the month-end average for the data of subsidiaries.(ii) The high quality liquid assets in the above table are prepared based on cash and the central bank reserve available under pressure conditions as well as the bond in line with definition of Tier 1 and Tier 2 assets set by China Banking and Insurance Regulatory Commission on the “Measures for the Liquidity Risk Management of Commercial Banks”.– F-158 –China Merchants Bank Chapter VIII Financial Statements 319 Annual Report 2022 (H share) (D) Net stable funding ratioThe Group prepared and disclosed information on Net Stable Funding Ratio in accordance with the “Measures forthe Disclosure of Information on Net Stable Funding Ratio by Commercial Banks”. The Group’s Net Stable Funding Ratio at the end of the fourth quarter of 2022 was 131.83% representing an increase of 7.59 percentage points as compared with the previous quarter which was mainly affected by the increase in deposit scale. The breakdown of the Group’s Net Stable Funding Ratio in the last two quarters is set out below: 31 December 2022 (Expressed in millions of Renminbi except percentage) Weighted Unweighted amount amount 6 months to Serial No. No maturity < 6 months 12 months ≥ 12 months Available stable funding (ASF) item 1 Capital 943308 – – 20000 963308 2 Regulatory capital 943308 – – 20000 963308 3 Other capital instruments – – – – – 4 Retail deposits and deposits from Small business customer 2400097 1062658 52074 6630 3209709 5 Stable deposits 791230 2954 459 1470 756381 6 Less stable deposits 1608867 1059704 51615 5160 2453328 7 Wholesale funding 2899666 1826714 230630 323306 2585899 8 Operational deposits 2676551 – – – 1338276 9 Other wholesale funding 223115 1826714 230630 323306 1247623 10 Liabilities with matching interdependent assets – – – – – 11 Other liabilities 3638 137770 55822 150708 148595 12 NSFR derivative liabilities 30024 13 All other liabilities and equity not included in the above categories 3638 137770 55822 120684 148595 14 Total ASF 6907511 Required stable funding (RSF) item 15 Total NSFR high-quality liquid assets (HQLA) 293732 16 Deposits held at other financial institutions for operational purposes 48737 10735 1923 352 31049 17 Performing loans and securities 94038 2253736 1188547 3624374 4542753 18 Performing loans to financial institutions secured by Level 1 HQLA – 236212 – – 35432 19 Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions 1065 553921 199151 45021 227856 20 Performing loans to non-financial corporate clients loans to retail and small business customers and loans to sovereigns central banks and PSEs of which: – 1267001 907300 2062210 2805652 21 With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk – 200534 107892 171885 265938 22 Performing residential mortgages of which: – 35699 29582 1328198 1160015 23 With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk – – – – – 24 Securities that are not in default and do not qualify as HQLA including exchange-traded equities 92973 160903 52514 188945 313798 25 Assets with matching interdependent liabilities – – – – – – F-159 –320 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) (D) Net stable funding ratio (continued) 31 December 2022 (continued) Weighted Unweighted amount amount 6 months to Serial No. No maturity < 6 months 12 months ≥ 12 months Required stable funding (RSF) item (continued) 26 Other assets 13170 64852 31762 79313 165066 27 Physical traded commodities including gold 2960 2516 28 Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs 193 164 29 NSFR derivative assets 29609 – 30 NSFR derivative liabilities before deduction of variation margin posted 6052 6052 31 All other assets not included in the above categories 10210 64852 31762 49511 156334 32 Off-balance sheet items 5240954 207200 33 Total RSF 5239800 34 Net Stable Funding Ratio (%) 131.83% 30 September 2022 (Expressed in millions of Renminbi except percentage) Weighted Unweighted amount amount 6 months to Serial No. No maturity < 6 months 12 months ≥ 12 months Available stable funding (ASF) item 1 Capital 915811 – – 20000 935811 2 Regulatory capital 904111 – – 20000 924111 3 Other capital instruments 11700 – – – 11700 4 Retail deposits and deposits from Small business customer 2083658 929901 50652 6169 2799967 5 Stable deposits 717290 2328 560 1492 685660 6 Less stable deposits 1366368 927573 50092 4677 2114307 7 Wholesale funding 2695594 2089784 204797 294768 2480625 8 Operational deposits 2586666 – – – 1293333 9 Other wholesale funding 108928 2089784 204797 294768 1187292 10 Liabilities with matching interdependent assets – – – – – 11 Other liabilities 1881 133303 57590 178153 153577 12 NSFR derivative liabilities 53370 13 All other liabilities and equity not included in the above categories 1881 133303 57590 124783 153577 14 Total ASF 6369980 Required stable funding (RSF) item 15 Total NSFR high-quality liquid assets (HQLA) 263625 16 Deposits held at other financial institutions for operational purposes 66875 7425 426 358 37721 17 Performing loans and securities 133231 2064861 1221079 3521960 4445654 18 Performing loans to financial institutions secured by Level 1 HQLA – 29972 – – 4496 19 Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions 2075 616806 233095 44055 253446 20 Performing loans to non-financial corporate clients loans to retail and small business customers and loans to sovereigns central banks and PSEs of which: – 1231312 905290 1970877 2708159 21 With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk – 183747 112249 176934 263005 – F-160 –China Merchants Bank Chapter VIII Financial Statements 321 Annual Report 2022 (H share) (D) Net stable funding ratio (continued) 30 September 2022 (continued) Weighted Unweighted amount amount 6 months to Serial No. No maturity < 6 months 12 months ≥ 12 months Required stable funding (RSF) item (continued) 22 Performing residential mortgages of which: – 36764 28732 1334010 1164925 23 With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk – – – – – 24 Securities that are not in default and do not qualify as HQLA including exchange-traded equities 131156 150007 53962 173018 314628 25 Assets with matching interdependent liabilities – – – – – 26 Other assets 13381 55991 21802 81815 128438 27 Physical traded commodities including gold 2849 2422 28 Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs 197 168 29 NSFR derivative assets 53610 240 30 NSFR derivative liabilities before deduction of variation margin posted 10917 10917 31 All other assets not included in the above categories 10532 55991 21802 28008 114691 32 Off-balance sheet items 6059234 251667 33 Total RSF 5127105 34 Net Stable Funding Ratio (%) 124.24% Notes: (i) The Group calculates Net Stable Funding Ratio in accordance with the “Measures for the Liquidity Risk Management of Commercial Banks” and relevant statistical regulations.(ii) Items to be reported in the “no maturity” time include but are not limited to items such as capital with perpetual maturity non-maturity deposits short positions open maturity positions non-HQLA equities and physical traded commodities.(iii) The item 26 “Other assets” unweighted amount in the above table does not include the item 30 “NSFR derivative liabilities before deductionof variation margin posted”.– F-161 –322 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) (E) Currency concentrations other than RMB 2022 USD HKD Other Total (in millions of RMB) Non-structural position Spot assets 547489 41714 53176 642379 Spot liabilities 530903 16460 91232 638595 Forward purchased 276555 2258 56399 335212 Forward written 305169 17447 18938 341554 Net option position 15700 (1122) (695) 13883 Net long position 3672 8943 (1290) 11325 Net structural position 9974 40691 1136 51801 2021 USD HKD Other Total (in millions of RMB) Non-structural position Spot assets 495257 35808 59918 590983 Spot liabilities 512533 15558 83915 612006 Forward purchased 491072 4528 56172 551772 Forward written 492022 19146 32156 543324 Net option position 13086 361 417 13864 Net long position (5140) 5993 436 1289 Net structural position 19155 33220 991 53366 The net option position is calculated using the delta equivalent approach required by the Hong Kong Monetary Authority (the “HKMA”). The net structural position of the Group includes the structural positions of the Bank’s branches substantially involved in foreign exchange. Structural assets and liabilities include: – Investment properties property and equipment net of depreciation charges; – Capital and statutory reserves of overseas branches; and – Investments in overseas subsidiaries.– F-162 –China Merchants Bank Chapter VIII Financial Statements 323 Annual Report 2022 (H share) (F) International claims The Group is principally engaged in business operations within the Chinese mainland and regards all claims on third parties outside the Chinese mainland and claims in foreign currencies on third parties within the Chinese mainland as international claims.International claims include loans and advances balances and placements with banks and other financial institutions holdings of trade bills certificates of deposit and securities investment.International claims have been disclosed by different countries or geographical areas. A country or geographical area is reported where it constitutes 10% or more of the aggregate amount of international claims after taking into account any risk transfers. Risk is transferred only when the claims are guaranteed by a party in country which is different from that of the counterparty or if the claims are on an overseas branch of a bank whose head office is located in another country. 2022 Banks and other financial Public sector institutions entities Other Total Foreign currencies transactions in the Chinese mainland 89883 4419 156029 250331 Asia Pacific excluding the Chinese mainland 62407 22043 162273 246723 – of which attributed to Hong Kong 39726 19891 146107 205724 Europe 12472 1732 20479 34683 North and South America 44948 81981 19809 146738 Total 209710 110175 358590 678475 2021 Banks and other financial Public sector institutions entities Other Total Foreign currencies transactions in the Chinese mainland 62411 4288 138985 205684 Asia Pacific excluding the Chinese mainland 94844 31175 168891 294910 – of which attributed to Hong Kong 74244 28801 146575 249620 Europe 10851 2098 18389 31338 North and South America 67533 54437 18008 139978 Total 235639 91998 344273 671910 – F-163 –324 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) (G) Further analysis on loans and advances to customers analysed by industry sector Operation in the Chinese mainland 20222021 % of gross % of gross loans and loans and advances advances covered by covered by collateral or collateral or Amount other security Amount other security Transportation storage and postal services 461434 37 412417 47 Manufacturing 445218 32 309635 39 Property development 349682 48 367642 52 Production and supply of electric power heating power gas and water 203870 38 187611 47 Wholesale and retail 171786 32 138352 36 Leasing and commercial services 158320 14 170009 26 Construction 103998 24 117453 21 Telecommunications software and IT services 78950 48 58267 44 Finance 75593 23 57988 28 Water environment and public utilities management 64886 30 64427 41 Mining 34421 33 28854 32 Others 67677 30 66364 23 Corporate loans and advances subtotal 2215835 35 1979019 40 Discounted bills 514054 100 431305 100 Residential mortgage 1379825 100 1364534 100 Credit cards 884395 – 840254 – Micro-finance loans 629857 79 560657 81 Others 213599 8 173527 16 Retail loans and advances subtotal 3107676 61 2938972 63 Gross loans and advances to customers 5837565 54 5349296 57 – F-164 –China Merchants Bank Chapter VIII Financial Statements 325 Annual Report 2022 (H share) (G) Further analysis on loans and advances to customers analysed by industry sector (continued) Operation outside the Chinese mainland 20222021 % of gross % of gross loans and loans and advances advances covered by covered by collateral or collateral or Amount other security Amount other security Finance 36521 23 37345 16 Transportation storage and postal services 30814 19 33186 84 Property development 26298 37 34062 51 Manufacturing 20494 39 23763 28 Telecommunications software and IT services 10908 30 7727 25 Production and supply of electric power heating power gas and water 9023 33 7077 18 Wholesale and retail 8923 28 8920 26 Mining 6074 46 5651 21 Leasing and commercial services 3430 30 4749 46 Construction 1772 99 3481 69 Water environment and public utilities management 110 40 821 60 Others 5414 72 5137 51 Corporate loans and advances subtotal 159781 32 171919 42 Discounted bills – – – – Residential mortgage 9383 100 9872 100 Credit cards 124 – 117 – Micro-finance loans 1181 100 1214 99 Others 43425 93 37616 98 Retail loans and advances subtotal 54113 94 48819 98 Gross loans and advances to customers 213894 47 220738 55 – F-165 –326 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) (G) Further analysis on loans and advances to customers analysed by industry sector (continued) When the amount of loans and advances to customers for an industry/category accounts for 10% or above of the total amount of loans and advances to customers the amount of overdue loans impaired loans and credit impairment allowances in each expected credit loss stage are disclosed as follows: 2022 – Stage 2 – Stage 3 Overdue loans Impaired loans – Stage 1 (Lifetime ECL – not (Lifetime ECL – and advances and advances (12-month ECL) credit-impaired) credit-impaired) Residential mortgage 7342 4904 8604 2441 3821 Credit card 31413 15650 26255 19383 14665 Micro-business loan 4582 4031 11180 1839 3640 2021 – Stage 2 – Stage 3 Overdue loans Impaired loans – Stage 1 (Lifetime ECL – not (Lifetime ECL – and advances and advances (12-month ECL) credit-impaired) credit-impaired) Residential mortgage 3966 3821 19333 1525 2677 Credit card 26823 13846 21585 8506 12987 Micro-business loan 3101 3500 11285 728 3007 As at 31 December 2022 for corporate loans and advances measured at amortised cost the fair value of collateral held against impaired loans and advances is RMB3206 million (31 December 2021: RMB3304 million).– F-166 –China Merchants Bank Chapter VIII Financial Statements 327 Annual Report 2022 (H share) (H) Loans and advances to customers overdue for more than 90 days (i) By geographical segments 20222021 Headquarters 11980 13812 Yangtze River Delta region 7716 3711 Bohai Rim region 4051 3490 Pearl River Delta and West Coast region 4619 5052 Northeast region 967 1510 Central region 5239 4066 Western region 3653 2295 Outside the Chinese mainland 395 166 Subsidiaries 2458 997 Total 41078 35099 (ii) By overdue period 20222021 Gross loans and advances to customers which have been overdue with respect to either principal or interest for periods of: – between 3 and 6 months (inclusive) 15379 8629 – between 6 and 12 months (inclusive) 11290 7710 – over 12 months 14409 18760 Total 41078 35099 As a percentage of total gross loans and advances: – between 3 and 6 months (inclusive) 0.25% 0.15% – between 6 and 12 months (inclusive) 0.19% 0.14% – over 12 months 0.24% 0.33% Total 0.68% 0.62% – F-167 –328 China Merchants Bank Chapter VIII Financial Statements Annual Report 2022 (H share) (H) Loans and advances to customers overdue for more than 90 days (continued) (iii) Collateral information 20222021 Secured portion of overdue loans and advances 16404 13345 Unsecured portion of overdue loans and advances 24674 21754 Fair value of collateral held against overdue loans and advances 42302 29922 The amount of the Group’s overdue loans and advances to financial institutions for more than 90 days as at 31 December 2022 was RMB1 million (2021: RMB1 million).Note: The above analysis represents loans and advances overdue for more than 90 days as required and defined by the HKMA.Loans and advances with a specific repayment date are classified as overdue when the principal or interest is overdue.For loans and advances repayable by regular installments if part of the installments is overdue the whole amount of these loans would be classified as overdue.Loans and advances repayable on demand are classified as overdue when a demand for repayment has been served on the borrower but repayment has not been made in accordance with the instructions. If the loans and advances repayable on demand are outside the approved limit that was advised to the borrower they were also considered as overdue.The collateral of the Group included cash deposit shares land use right property motor vehicles and other equipment etc. The fair value of collateral was estimated by management based on the latest available external valuations adjusted by taking into account the current realisation experience as well as market situation. Where collateral values are greater than gross advances only the amount of collateral up to the gross advance had been included in the “secured portion of overdue loans and advances” as set out in the above tables.(I) Renegotiated loans and advances to customers 20222021 % of total % of total loans and loans and Amount advances Amount advances Renegotiated loans and advances to customers (Note) 12076 0.20% 16517 0.30% Less: – Renegotiated loans and advances overdue more than 90 days 5207 0.09% 10406 0.19% – Renegotiated loans and advances overdue less than 90 days 6869 0.11% 6111 0.11% Note: Represents the restructured non-performing loans.The amount of the Group’s renegotiated loans and advances to financial institutions as at 31 December 2022 was nil (2021: RMB1 million).(J) Non-bank the Chinese mainland exposures The Bank is a commercial bank incorporated in the Chinese mainland with its banking business primarily conducted in the Chinese mainland. As of 31 December 2022 and 31 December 2021 most of the Bank’s exposures arose from businesses with the Chinese mainland non-bank institutions or individuals. Analyses of various types of exposure by counterparty have been disclosed in the notes to the financial report.– F-168 –154 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Independent Auditor’s Report To the shareholders of China Merchants Bank Co. Ltd. (A joint stock company incorporated in the People’s Republic of China with limited liability) Opinion We have audited the consolidated financial statements of China Merchants Bank Co. Ltd. (the “Bank”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 160 to 303 which comprise the consolidated statement of financial position as at 31 December 2023 and the consolidated statement of profit or loss consolidated statement of profit or loss and other comprehensive income consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements including material accounting policy information and other explanatory information.In our opinion the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2023 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) and have been properly prepared in compliance with the disclosure requirements of Hong Kong Companies Ordinance.Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (the “Code”) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.Key Audit Matters Key audit matters are those matters that in our professional judgement were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon and we do not provide a separate opinion on these matters.– F-169 –China Merchants Bank Chapter VIII Financial Statements 155 Annual Report 2023 (H share) Key Audit Matters (continued) Key audit matter How our audit addressed the key audit matter Expected credit loss allowances of loans and advances to customers at amortised cost debt investments at amortised cost and financial guarantees and loan commitments We identified expected credit loss (“ECL”) allowance of Our audit procedures in relation to the expected credit loss loans and advances to customers at amortised cost debt allowances of loans and advances to customers at amortised investments at amortised cost and financial guarantees cost debt investments at amortised cost and financial and loan commitments as a key audit matter due to guarantees and loan commitments included the following: the materiality of these items’ balance and significant management judgement and estimates involved in deriving We understood management’s process and tested the the ECL estimates. design and operating effectiveness of key controls across the processes relevant to the ECL estimation of the Group. These As at 31 December 2023 as set out in Note 22(a) the controls included the development validation and review Group reported loans and advances to customers at of the ECL model; the controls over the model data input amortised cost of RMB5924766 million and expected including manual input controls and automated transmission credit loss allowances of RMB267620 million; in Note 23(b) controls; the automated controls over the ECL model the Group reported debt investments at amortised cost of calculation process; the controls over the identification of RMB1788806 million and expected credit loss allowances SICR indicators and credit impairment events.of RMB39782 million; in Note 42 the Group reported the expected credit loss allowances of financial guarantees and We assessed whether the ECL model applied by the loan commitments of RMB17404 million. Group has covered all the exposures that should be taken into consideration. In respect of different portfolios of Key judgement s and e s t imates i n r e spec t o f the loans and advances to customers at amortised cost debt measurement of ECLs include: the significant management investments at amortised cost and financial guarantees judgement and est imates of model des ign and i ts and loan commitments we involved our internal modelling application; the identification of a significant increase in specialist to assist us in assessing the appropriateness of credit risk (SICR); the identification of credit impairment the Group’s methodology of ECL modelling. We reviewed events; the determination of inputs used in the ECL model relevant documents and evaluated the appropriateness and as well as the determination of the forward-looking application of the ECL model.information to incorporate.– F-170 –156 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Key Audit Matters (continued) Key audit matter How our audit addressed the key audit matter Expected credit loss allowances of loans and advances to customers at amortised cost debt investments at amortised cost and financial guarantees and loan commitments Principal accounting policies and significant accounting With the support of our internal modelling specialist we estimates and judgement applied in determining the assessed the key definitions and application of parameters expected credit loss allowances of loans and advances to and assumpt ions in the ECL model . Th i s inc luded customers at amortised cost debt investments at amortised assessing stage determination probability of default cost and financial guarantees and loan commitments are loss given default exposure at default and forward- set out in Notes 4(5) and 5(4) to the consolidated financial looking information. We selected samples to check statements. whether the calculation in the ECL model is consistent with the methodology. We selected samples to conduct credit reviews in order to assess the appropriateness of the significant judgements made by the management regarding the occurrence of SICR and credit impairment events and whether the identification of such events are proper and timely. In addition we selected samples and tested their data input into the ECL model to evaluate the completeness and accuracy of the data input. For loans and advances at amortised cost and debt investments at amortised cost at stage 3 we selected samples to test the reasonableness of future cash flows from the borrowers estimated by the Group including the expected recoverable amount of collateral to assess whether there were material misstatements in credit loss allowances.– F-171 –China Merchants Bank Chapter VIII Financial Statements 157 Annual Report 2023 (H share) Key Audit Matters (continued) Key audit matter How our audit addressed the key audit matter Consolidation of structured entities We identified consolidation of structured entities as a Our audit procedures in relation to consolidation of key audit matter since significant judgement is applied by structured entities included the following: management to determine whether or not the Group has control over certain structured entities. We understood and tested the design and operating effectiveness of key controls over the management process The structured entities of the Group include wealth in determining the consolidation scope for interests in management products asset management schemes trust structured entities as well as understood the purpose for beneficiary rights assets-backed securities and funds setting up the structured entities.as disclosed in Note 64 to the consolidated financial statements. We reviewed the relevant contract terms on a sample basis and assessed the power of the Group over the structured As described in Note 4(1) the consolidation of structured entities the rights of the Group to variable returns of the entit ies is determined based on control . Control is structured entities and the ability of the Group to use its achieved when the investor has power over the investee power to affect its return and evaluated management the investor is exposed or has rights to variable returns judgement on whether the Group has control over the from its involvement with the investee; and the investor structured entities and the conclusion about whether or not has the ability to use its power to affect its returns. When the consolidation criteria are met.performing the assessment on whether the Group has control over the structured entities the Group considers several factors including the scope of its decision-making authority over the structured entities the rights held by other parties the remuneration for managing the structured entities and the Group’s exposure to variability of returns from interests that it holds in the structured entities.– F-172 –158 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Other Information The directors of the Bank are responsible for the other information. The other information comprises the information included in the annual report but does not include the consolidated financial statements and our auditor’s report thereon.Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.In connection with our audit of the consolidated financial statements our responsibility is to read the other information and in doing so consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we have performed we conclude that there is a material misstatement of this other information we are required to report that fact. We have nothing to report in this regard.Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements The directors of the Bank are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance and for such internal control as the directors of the Bank determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement whether due to fraud or error.In preparing the consolidated financial statements the directors of the Bank are responsible for assessing the Group’s ability to continue as a going concern disclosing as applicable matters related to going concern and using the going concern basis of accounting unless the directors of the Bank either intend to liquidate the Group or to cease operations or have no realistic alternative but to do so.Those charged with governance are responsible for overseeing the Group’s financial reporting process.Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement whether due to fraud or error and to issue an auditor’s report that includes our opinion solely to you as a body and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.– F-173 –China Merchants Bank Chapter VIII Financial Statements 159 Annual Report 2023 (H share) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements (continued) As part of an audit in accordance with ISAs we exercise professional judgement and maintain professional skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the consolidated financial statements whether due to fraud or error design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion forgery intentional omissions misrepresentations or the override of internal control.* Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.* Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors of the Bank.* Conclude on the appropriateness of the directors of the Bank’s use of the going concern basis of accounting and based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or if such disclosures are inadequate to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However future events or conditions may cause the Group to cease to continue as a going concern.* Evaluate the overall presentation structure and content of the consolidated financial statements including the disclosures and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.* Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction supervision and performance of the group audit. We remain solely responsible for our audit opinion.We communicate with those charged with governance regarding among other matters the planned scope and timing of the audit and significant audit findings including any significant deficiencies in internal control that we identify during our audit.We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and where applicable actions taken to eliminate threats or safeguards applied.From the matters communicated with those charged with governance we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when in extremely rare circumstances we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.The engagement partner on the audit resulting in the independent auditor’s report is Shi Chung Fai.Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 25 March 2024 – F-174 –160 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Consolidated Statement of Profit or Loss For the year ended 31 December 2023 (Expressed in millions of Renminbi unless otherwise stated) Notes 2023 2022 Interest income 6 375610 353380 Interest expense 7 (160941) (135145) Net interest income 214669 218235 Fee and commission income 8 92834 103372 Fee and commission expense (8726) (9097) Net fee and commission income 84108 94275 Other net income 9 37825 29705 – Disposal of financial instruments at amortised cost 967 170 Operating income 336602 342215 Operating expenses 10 (120991) (122061) Operating profit before impairment losses and taxation 215611 220154 Expected credit losses 14 (41278) (56751) Impairment losses on other assets (191) (815) Share of profits of joint ventures 25 1860 1710 Share of profits of associates 26 616 815 Profit before taxation 176618 165113 Income tax 15 (28612) (25819) Profit for the year 148006 139294 Attributable to: Equity holders of the Bank 146602 138012 Non-controlling interests 1404 1282 Earnings per share Basic and diluted (RMB Yuan) 17 5.63 5.26 The notes form part of these consolidated financial statements.– F-175 –China Merchants Bank Chapter VIII Financial Statements 161 Annual Report 2023 (H share) Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 December 2023 (Expressed in millions of Renminbi unless otherwise stated) Note 2023 2022 Profit for the year 148006 139294 Other comprehensive income for the year after tax Items that may be reclassified subsequently to profit or loss 2373 1285 – Share of other comprehensive income/(expense) from equity-accounted investees 202 (1155) – Net fair value gain/(loss) on debt instruments measured at fair value through other comprehensive income 3337 (5617) – Net changes in expected credit losses of debt instruments measured at fair value through other comprehensive income (2045) 3471 – Net movement in cash flow hedge reserve (59) 112 – Exchange difference on translation of financial statements of foreign operations 983 4429 – Other (45) 45 Items that will not be reclassified to profit or loss 358 38 – Net fair value gain on equity instruments designated at fair value through other comprehensive income 354 48 – Remeasurement of defined benefit scheme 4 (10) Other comprehensive income for the year net of tax 16 2731 1323 Attributable to: Equity holders of the Bank 2658 1053 Non-controlling interests 73 270 Total comprehensive income for the year 150737 140617 Attributable to: Equity holders of the Bank 149260 139065 Non-controlling interests 1477 1552 The notes form part of these consolidated financial statements.– F-176 –162 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Consolidated Statement of Financial Position At 31 December 2023 (Expressed in millions of Renminbi unless otherwise stated) Notes 2023 2022 Assets Cash 14931 15209 Precious metals 2321 2329 Balances with central banks 18 667871 587818 Balances with banks and other financial institutions 19 100769 91346 Placements with banks and other financial institutions 20 287694 264209 Amounts held under resale agreements 21 172246 276676 Loans and advances to customers 22 6252755 5807154 Financial investments at fair value through profit or loss 23(a) 526145 423467 Derivative financial assets 60(f) 18733 18671 Debt investments at amortised cost 23(b) 1749024 1555457 Debt investments at fair value through other comprehensive income 23(c) 899102 780349 Equity investments designated at fair value through other comprehensive income 23(d) 19649 13416 Interests in joint ventures 25 15707 14247 Interests in associates 26 10883 9597 Investment properties 27 1160 1268 Property and equipment 28 115348 99919 Right-of-use assets 29(a) 17041 17553 Intangible assets 30 2709 3402 Goodwill 31 9954 9999 Deferred tax assets 32 90557 90848 Other assets 33 53884 55978 Total assets 11028483 10138912 The notes form part of these consolidated financial statements.– F-177 –China Merchants Bank Chapter VIII Financial Statements 163 Annual Report 2023 (H share) Notes 2023 2022 Liabilities Borrowing from central banks 378621 129745 Deposits from banks and other financial institutions 34 508378 645674 Placements from banks and other financial institutions 35 247299 207027 Financial liabilities at fair value through profit or loss 36 43958 49144 Derivative financial liabilities 60(f) 17443 18636 Amounts sold under repurchase agreements 37 135078 107093 Deposits from customers 38 8240498 7590579 Salaries and welfare payable 39(a) 28679 23866 Tax payable 40 13597 19458 Contract liabilities 41 5486 6679 Lease liabilities 29(b) 12675 13013 Provisions 42 19662 22491 Debt securities issued 43 176578 223821 Deferred tax liabilities 32 1607 1510 Other liabilities 44 113195 125938 Total liabilities 9942754 9184674 Equity Share capital 45 25220 25220 Other equity instruments 46 150446 120446 – Preference shares 46(a) 27468 27468 – Perpetual bonds 46(b) 122978 92978 Capital reserve 47 65432 65435 Investment revaluation reserve 48 13656 11815 Hedging reserve 49 92 151 Surplus reserve 50 108737 94985 General reserve 51 141481 132471 Retained earnings 518638 449139 Proposed profit appropriation 52(b) 49734 43832 Exchange reserve 53 2934 2009 Total equity attributable to shareholders of the Bank 1076370 945503 Non-controlling interests 9359 8735 – Non-controlling interest 6521 5948 – Perpetual debt capital 62(a) 2838 2787 Total equity 1085729 954238 Total equity and liabilities 11028483 10138912 The notes form part of these consolidated financial statements.Approved and authorised for issue by the Board of Directors on 25 March 2024.Miao Jianmin Wang Liang Director Director – F-178 –164 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Consolidated Statement of Changes in Equity For the year ended 31 December 2023 (Expressed in millions of Renminbi unless otherwise stated) 2023 Total equity attributable to equity holders of the Bank Non-controlling interests Other equity instruments Investment Non- Perpetual Share Preference Perpetual Capital revaluation Hedging Surplus General Retained Proposed profit Exchange controlling debt Notes capital shares bonds reserve reserve reserve reserve reserve earnings appropriation reserve Subtotal interest capital Total At 1 January 2023 25220 27468 92978 65435 11815 151 94985 132471 449139 43832 2009 945503 5948 2787 954238 Changes in equity for the year – – 30000 (3) 1841 (59) 13752 9010 69499 5902 925 130867 573 51 131491 (a) Net profit for the year – – – – – – – – 146602 – – 146602 1222 182 148006 (b) Other comprehensive income for the year 16 – – – – 1792 (59) – – – – 925 2658 22 51 2731 Total comprehensive income for the year – – – – 1792 (59) – – 146602 – 925 149260 1244 233 150737 (c) Capital movement from equity holders – – 30000 (3) – – – – – – – 29997 (383) – 29614 (i) Decrease in non-controlling interests – – – – – – – – – – – – (383) – (383) (ii) Issue of perpetual bonds 46(b) – – 30000 (3) – – – – – – – 29997 – – 29997 (d) Profit appropriations – – – – – – 13752 9010 (77054) 5902 – (48390) (288) (182) (48860) (i) Appropriations to statutory surplus reserve 50 – – – – – – 13752 – (13752) – – – – – – (ii) Appropriations to general reserve 51 – – – – – – – 9010 (9010) – – – – – – (iii) Dividends paid for the year 2022 52(a) – – – – – – – – – (43832) – (43832) (288) – (44120) (iv) Distribution to perpetual debt capital 62 – – – – – – – – – – – – – (182) (182) (v) Proposed dividends for the year 2023 52(b) – – – – – – – – (49734) 49734 – – – – – (vi) Dividends to preference shares – – – – – – – – (996) – – (996) – – (996) (vii) Distribution to perpetual bonds – – – – – – – – (3562) – – (3562) – – (3562) (e) Transfers within equity upon disposal of equity instruments designated at fair value through other comprehensive income – – – – 49 – – – (49) – – – – – – At 31 December 2023 25220 27468 122978 65432 13656 92 108737 141481 518638 49734 2934 1076370 6521 2838 1085729 The notes form part of these consolidated financial statements.– F-179 –China Merchants Bank Chapter VIII Financial Statements 165 Annual Report 2023 (H share) 2022 Total equity attributable to equity holders of the Bank Non-controlling interests Other equity instruments Investment Non- Perpetual Share Preference Perpetual Capital revaluation Hedging Surplus General Retained Proposed profit Exchange controlling debt Notes capital shares bonds reserve reserve reserve reserve reserve earnings appropriation reserve Subtotal interest capital Total At 1 January 2022 25220 34065 92978 67523 15047 39 82137 115288 390207 38385 (2144) 858745 3300 3636 865681 Changes in equity for the year – (6597) – (2088) (3232) 112 12848 17183 58932 5447 4153 86758 2648 (849) 88557 (a) Net profit for the year – – – – – – – – 138012 – – 138012 1080 202 139294 (b) Other comprehensive income for the year 16 – – – – (3212) 112 – – – – 4153 1053 15 255 1323 Total comprehensive income for the year – – – – (3212) 112 – – 138012 – 4153 139065 1095 457 140617 (c) Capital movement from equity holders – (6597) – (2088) – – – – – – – (8685) 1832 (1104) (7957) (i) Capital invested by non-controlling shareholders – – – (1489) – – – – – – – (1489) 1842 – 353 (ii) Decrease in non-controlling interests – – – – – – – – – – – – (10) – (10) (iii) Redemption of preference shares – (6597) – (599) – – – – – – – (7196) – – (7196) (iv) Redemption of perpetual debt capital 62(a) – – – – – – – – – – – – – (1104) (1104) (d) Profit appropriations – – – – – – 12848 17183 (79100) 5447 – (43622) (279) (202) (44103) (i) Appropriations to statutory surplus reserve 50 – – – – – – 12848 – (12848) – – – – – – (ii) Appropriations to general reserve 51 – – – – – – – 17183 (17183) – – – – – – (iii) Dividends paid for the year 2021 52(a) – – – – – – – – – (38385) – (38385) (279) – (38664) (iv) Distribution to perpetual debt capital 62 – – – – – – – – – – – – – (202) (202) (v) Proposed dividends for the year 2022 52(b) – – – – – – – – (43832) 43832 – – – – – (vi) Dividends to preference shares – – – – – – – – (1675) – – (1675) – – (1675) (vii) Distribution to perpetual bonds – – – – – – – – (3562) – – (3562) – – (3562) (e) Transfers within equity upon disposal of equity instruments designated at fair value through other comprehensive income – – – – (20) – – – 20 – – – – – – At 31 December 2022 25220 27468 92978 65435 11815 151 94985 132471 449139 43832 2009 945503 5948 2787 954238 The notes form part of these consolidated financial statements.– F-180 –166 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Consolidated Statement of Cash Flows For the year ended 31 December 2023 (Expressed in millions of Renminbi unless otherwise stated) 20232022 Operating activities Profit before taxation 176618 165113 Adjustments for: – Impairment losses on loans and advances 46635 45157 – Impairment losses on investments and other (5166) 12409 – Unwinding of discount on loans and advances (257) (386) – Depreciation of property and equipment and investment properties 11008 10279 – Depreciation of right-of-use assets 4205 4151 – Amortisation of other assets 1170 1193 – Net gains on debt securities and equity investments (18149) (14722) – Interest income on investments (80836) (65808) – Interest expense on issued debt securities 7781 9662 – Share of profits of associates (616) (815) – Share of profits of joint ventures (1860) (1710) – Net gains on disposal of properties and equipment and other assets (168) (282) – Interest expense on lease liabilities 480 510 Changes in: Balances with central banks (5004) (48851) Loans and advances to customers (482711) (508891) Other assets 817 63611 Deposits from customers 619696 1188664 Amounts due to banks and other financial institutions (69249) (135569) Amounts due from banks and other financial institutions with original maturity over 3 months (13744) (46825) Borrowing from central banks 247751 (30073) Other liabilities (45862) (39251) Cash generated from operating activities before income tax payment 392539 607566 Income tax paid (34786) (37423) Net cash generated from operating activities 357753 570143 Investing activities Proceeds from disposals and redemptions of investments 1954061 1334013 Investment income received 97963 79122 Proceeds from the disposals of property and equipment and other assets 4950 6750 Proceeds from the disposals of subsidiaries associates or joint ventures 154 463 Payment for the purchases of investments (2282035) (1898898) Payment for the acquisition of subsidiaries associates or joint ventures (39) (484) Payment for the purchases of property and equipment and other assets (30161) (34892) Net cash used in investing activities (255107) (513926) The notes form part of these consolidated financial statements.– F-181 –China Merchants Bank Chapter VIII Financial Statements 167 Annual Report 2023 (H share) Notes 2023 2022 Financing activities Proceeds from the issuance of negotiable interbank certificates of deposit 55(b) 68608 78666 Proceeds from the issuance of certificates of deposit and other debt securities 55(b) 66504 20287 Proceeds from the issuance of debt securities 55(b) 25201 21481 Proceeds from the issuance of perpetual bonds 29997 – Proceeds from non-controlling interests of subsidiaries – 2667 Proceeds from other financing activities 55(b) 17303 10796 Repayment of negotiable interbank certificates of deposit 55(b) (112584) (250996) Repayment of certificates of deposit and other debt securities 55(b) (48267) (16504) Repayment of debt securities 55(b) (51146) (78735) Payment for lease liabilities 55(b) (5053) (4932) Payment for redemption of preference shares – (7196) Payment for redemption of perpetual debt capital – (1104) Distribution paid on perpetual debt capital 55(b) (182) (202) Payment for dividends distribution 55(b) (44120) (38664) Distribution paid on preference shares 55(b) (996) (1675) Distribution paid on perpetual bonds 55(b) (3562) (3562) Interest paid on financing activities 55(b) (7482) (12400) Payment for other financing activities 55(b) (7210) (14959) Net cash used in financing activities (72989) (297032) Net increase/(decrease) in cash and cash equivalents 29657 (240815) Cash and cash equivalents as at 1 January 567198 801754 Effect of foreign exchange rate changes 2164 6259 Cash and cash equivalents as at 31 December 55(a) 599019 567198 Cash flows from operating activities include: Interest received 293467 285050 Interest paid 121178 108496 The notes form part of these consolidated financial statements.– F-182 –168 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Notes to the Consolidated Financial Statements For the year ended 31 December 2023 (Expressed in millions of Renminbi unless otherwise stated) 1. Organisation and principal activities (1) Organisation China Merchants Bank Co. Ltd. (the “Bank”) is a commercial bank incorporated in Shenzhen the People’s Republic of China (the “PRC”). With the approval of the China Securities Regulatory Commission (the “CSRC”) of the PRC the A-Shares of the Bank were listed on Shanghai Stock Exchange on 9 April 2002. On 22 September 2006 the Bank’s H-Shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “HKEx”).As at 31 December 2023 apart from the Head Office the Bank had 51 branches in the Chinese mainland Hong Kong New York Singapore Luxembourg London and Sydney. In addition the Bank has two representative offices in New York and Taipei. (2) Principal activities The principal activities of the Bank and its subsidiaries (the “Group”) are providing corporate and personal banking services conducting treasury business providing asset management and other financial services. 2. Basis of preparation of consolidated financial statements (1) Statement of compliance and basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) and its interpretations promulgated by the International Accounting Standards Board (“IASB”) and the disclosure requirements of the Hong Kong Companies Ordinance. These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. (2) Basis of measurement These consolidated financial statements are presented in Renminbi (“RMB”) and unless otherwise stated rounded to the nearest million. RMB is the functional currency of the domestic operations of the Group. The functional currencies of overseas branches and subsidiaries are determined in accordance with the primary economic environment in which they operate and are translated into RMB for the preparation of these financial statements according to Note 4(15).The consolidated financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values at the end of each reporting period and the measurement principles as explained below.Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment leasing transactions that are within the scope of IFRS 16 Leases and measurements that have some similarities to fair value but are not fair value such as net realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets .In addition for financial reporting purposes fair value measurements are categorised into Level 1 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety which are described as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; – F-183 –China Merchants Bank Chapter VIII Financial Statements 169 Annual Report 2023 (H share) 2. Basis of preparation of consolidated financial statements (continued) (2) Basis of measurement (continued) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly; and Level 3 inputs are unobservable inputs for the asset or liability.The preparation of the financial statements in conformity with IFRSs requires management to make judgements estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.Judgements made by management in the application of IFRSs that have significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the future periods are discussed in Note 5. 3. Application of new and amendments to IFRSs Standards and amendments to IFRSs effective in current year applied by the Group IFRS 17 (including the June 2020 and Insurance Contracts December 2021 Amendments to IFRS 17) Amendments to IAS 1 and IFRS Practice Disclosure of Accounting Policies Statement 2 Amendments to IAS 8 Definition of Accounting Estimates Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single Transaction Amendments to IAS 12 International Tax Reform-Pillar Two model Rules IFRS 17 Insurance Contracts and its amendments IFRS 17 Insurance Contracts and its amendments (“New Insurance Contract Standard”) establishes the principles of recognition measurement presentation and disclosure of insurance contracts and replaces IFRS 4 Insurance Contracts.The definition of insurance contract has been elaborated in the New Insurance Contract Standard which specified the combination and separation of insurance contract introduced the concept of insurance contract group and refined the measurement model of insurance contract. It also made an adjustment to the principle of revenue recognition for insurance services and refined the measurement methods of contract service margins. The New Insurance Contract Standard outlines a general model which is modified for insurance contracts with direct participation features described as the variable fee approach. The general model is simplified if certain criteria are met by measuring the liability for remaining coverage using the premium allocation approach. The general model uses current assumptions to estimate the amount timing and uncertainty of future cash flows and it explicitly measures the cost of that uncertainty. It takes into account market interest rates and the impact of policyholders’ options and guarantees. The adoption of IFRS 17 has had no material impact on the financial position and financial performance of the Group.– F-184 –170 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 3. Application of new and amendments to IFRSs (continued) Standards and amendments to IFRSs effective in current year applied by the Group (continued) Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities Arising from a Single Transaction The amendments mainly relate to the scope of exemption for the initial recognition of deferred income tax in the International Accounting Standards IAS 12 – Income Taxes and clarifies that the individual transaction 1) that is not arising from business combination; 2) that affects neither the accounting profit nor taxable profits (or deductible losses) at the time of transaction; and 3) that the equivalent taxable temporary differences and deductible temporary differences are generated due to the initially recognised assets and liabilities is not applicable to the regulations on the exemptions from initially recognised deferred tax liabilities and deferred tax assets.With this amendment the Group has been required to recognise one deferred tax asset (to the extent that taxable income is likely to be obtained to offset the deductible temporary difference) and one deferred tax liability for all deductible and taxable temporary differences relating to right-of-use assets and lease liabilities. The adoption of the amendments to IAS 12 has had no material impact on the financial position and financial performance of the Group.Amendments to IAS 12 – International Tax Reform-Pillar Two model Rules IAS 12 is amended to add the exception to recognising and disclosing information about deferred tax assets and liabilities that are related to tax law enacted or substantively enacted to implement the Pillar Two model rules published by the Organisation for Economic Co-operation and Development (the “Pillar Two legislation”). The amendments require that entities apply the amendments immediately upon issuance and retrospectively. The amendments also require that entities to disclose separately its current tax expense/income related to Pillar Two income taxes in periods which the Pillar Two legislation is in effect and the qualitative and quantitative information about its exposure to Pillar Two income taxes in periods in which the Pillar Two legislation is enacted or substantially enacted but not yet in effect in annual reporting periods beginning on or after 1 January 2023. The adoption of the amendments to IAS 12 has had no material impact on the financial position and financial performance of the Group for the current and prior year.The adoption of the above other amendments to IFRSs has had no material impact on the financial position and financial performance of the Group for the current and prior year or on the disclosures set out in these consolidated financial statements.Amendments to IFRSs that are issued but not yet effective and have not been adopted by the Group Effective for annual period beginning on or after Amendments to IFRS 16 Lease Liability in a Sale and Leaseback 1 January 2024 Amendments to IAS 1 Classification of Liabilities as Current or Non-current 1 January 2024 Amendments to IAS 1 Non-current Liabilities with Covenants 1 January 2024 Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements 1 January 2024 Amendments to IAS 21 Lack of Exchangeability 1 January 2025 Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor the date to be and its Associate or Joint Venture determined The amendments to IFRSs mentioned above are not expected to have material impact on the consolidated financial statements in the foreseeable future.– F-185 –China Merchants Bank Chapter VIII Financial Statements 171 Annual Report 2023 (H share) 4. Material accounting policy information (1) Business combination Financial statements include financial statements of the Bank and its subsidiaries. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power only substantive rights (held by the Group and other parties) are considered.An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances transactions and cash flows and any profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. If the intra-group transaction indicates that the relevant assets have impairment losses the losses shall be recognised in full.When necessary adjustments are made by the Group to the financial statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies.Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Bank and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. Non-controlling interests are presented in the consolidated statement of financial position and consolidated statement of changes in equity within equity separately from equity attributable to the equity holders of the Bank. Non-controlling interests in the results of the Group are presented in the consolidated statement of profit or loss and the consolidated statement of profit or loss and other comprehensive income as an allocation of the net profit or loss and total comprehensive income for the year between non-controlling interests and the equity holders of the Bank.Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests but no adjustments are made to goodwill and no gain or loss is recognised.When the Group loses control of a subsidiary it is accounted for as a disposal of the entire interest in that subsidiary with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 4(5)) or when appropriate the cost on initial recognition of an investment in a joint venture (see Note 4(2)) or an associate (see Note 4(3)).Business combinations or asset acquisitions Optional concentration test The Group can elect to apply an optional concentration test on a transaction-by-transaction basis that permits a simplified assessment of whether an acquired set of activities or assets is not a business. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. The gross assets under assessment exclude cash and cash equivalents deferred tax assets and goodwill resulting from the effects of deferred tax liabilities. If the concentration test is met the set of activities or assets is determined not to be a business and no further assessment is needed.Asset acquisitions When the Group acquires a group of assets and liabilities that do not constitute a business the Group identifies and recognises the individual identifiable assets acquired and liabilities assumed by allocating the purchase price first to financial assets/financial liabilities at the respective fair values the remaining balance of the purchase price is then allocated to the other identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction does not give rise to goodwill or bargain purchase gain.– F-186 –172 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (1) Business combination (continued) Business combinations or asset acquisitions (continued) Business combination Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition date fair value of the assets transferred by the Group liabilities incurred or assumed by the Group and any equity interests issued by the Group. Acquisition related costs are recognised in the consolidated statement of profit or loss as incurred.At the acquisition date irrespective of non-controlling interests the identifiable assets acquired and liabilities and contingent liabilities assumed are recognised at their fair values; except that deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively. Non-controlling interests that represent ownership interests in the acquiree and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation are initially recognised at either fair value or the non-controlling interests’ proportionate share in the recognised amounts of the acquiree’s identifiable net assets.The choice of measurement basis is made on a transaction-by-transaction basis. (2) Joint ventures A joint venture is an arrangement in which the Group has joint control whereby the Group has rights to the net assets of the arrangement rather than rights to its assets and obligation for its liabilities.Joint control is the contractually agreed sharing of control of an arrangement which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.When judging whether there is a joint control the Group usually considers the following cases: – whether any party within the joint arrangement cannot control the relevant activities of the joint ventures; – whether the decisions about the joint ventures’ relevant activities require the unanimous consent of the parties sharing control.The consolidated statement of profit or loss includes the Group’s share of the results of joint ventures for the year and the consolidated statement of financial position includes the Group’s share of the net assets of the joint ventures.Under the equity method the investment is initially recorded at cost adjusted for any excess of the Group’s share of the acquisition-date fair value of the investee’s identifiable net assets over the cost of the investment (if any).Thereafter the investment is adjusted for the post acquisition change in the Group’s share of the joint ventures’ net assets. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investments is recognised immediately in profit or loss in the period in which investment is acquired.The consolidated statement of profit or loss includes post-tax results of the joint ventures for the year including any impairment loss on goodwill relating to the investment in the joint ventures recognised for the year (see Notes 4(4) and 4(10)).When the Group’s share of losses exceeds its interest in the joint ventures the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint ventures. For these purposes the Group’s interest in the joint ventures is the carrying amount of the investment under equity method together with the Group’s interests that in substance form part of the Group’s net investment in the joint ventures.Unrealised profits and losses resulting from transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures except where unrealised losses provide evidence of an impairment of the asset transferred in which case they are recognised immediately in profit or loss.When the Group ceases to have joint control over a joint venture and has no significant influence on it it is accounted for as a disposal of the entire interest in that investee with a resulting gain or loss being recognised in the consolidated statement of profit or loss previous other comprehensive income would be reclassified to profit or loss. Any interest retained in that former investee at the date when joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 4(5)).– F-187 –China Merchants Bank Chapter VIII Financial Statements 173 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (3) Associates Associate is an entity in which the Group has significant influence but not control or joint control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.When judging whether there is any significant influence the Group usually considers the following cases: – representation on the Board of Directors or equivalent governing body of the investee; – participation in policy-making processes; – material transactions between the entity and its investee.Investments in associates are accounted for in the consolidated financial statements under the equity method.Under the equity method the investment is initially recorded at cost adjusted for any excess of the Group’s share of the acquisition-date fair value of the investee’s identifiable net assets over the cost of the investment (if any).Thereafter the investment is adjusted for the post acquisition change in the Group’s share of the associates’ net assets. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investments is recognised immediately in profit or loss in the period in which investment is acquired.The consolidated statement of profit or loss includes the Group’s post-tax results of the associates for the year including any impairment loss on goodwill relating to the investment in the associates recognised for the year (see Notes 4(4) and 4(10)).When the Group’s share of losses exceeds its interest in the associates the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associates. For these purposes the Group’s interest in the associates is the carrying amount of the investment under equity method together with the Group’s interests that in substance form part of the Group’s net investment in the associates.Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates except where unrealised losses provide evidence of an impairment of the asset transferred in which case they are recognised immediately in profit or loss.When the Group ceases to have significant influence over an associate entity it is accounted for as a disposal of the entire interest in that investee with a resulting gain or loss being recognised in the consolidated statement of profit or loss previous other comprehensive income would be reclassified to profit or loss. Any interest retained in that former investee at the date when significant influence is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 4(5)). (4) Goodwill Goodwill represents the excess of (i) the aggregate of the fair value of the consideration transferred the amount of any non-controlling interest based on the fair value of net assets acquired in the acquiree and the fair value of the Group’s previously held equity interests in the acquiree; over (ii) the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.When (ii) is greater than (i) then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.Goodwill is stated at cost less accumulated impairment. Goodwill arising on a business combination is allocated to each cash-generating unit (“CGU”) or group of CGUs that is expected to benefit from the synergies of the combination and tested at least annually for impairment (see Note 4(10)).On disposal of a CGU during the year any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.– F-188 –174 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments Initial recognition A financial instrument is any contract that gives rise to a financial asset of one enterprise and a financial liability or equity instrument of another enterprise.All regular way purchases or sales of financial assets are recognised or derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place.At initial recognition financial assets and financial liabilities are initially measured at fair value except for trade receivables arising from contracts with customers which are initially measured in accordance with IFRS 15 Revenue from Contracts with Customers . Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets or financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities as appropriate on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income and interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments (including all fees and points paid or received that form an integral part of the effective interest rate transaction costs and other premiums or discounts) through the expected life of the financial asset or financial liability or where appropriate a shorter period to the net carrying amount on initial recognition. When determining the effective interest rate the Group estimates the future cash flow on the basis of considering all contract terms of financial assets or financial liabilities but does not consider the expected credit loss.Classification and measurement of financial assets The Group classifies its financial assets into the following measurement categories at initial recognition: financial assets at amortised cost financial assets at fair value through other comprehensive income and financial assets at fair value through profit or loss.Debt instruments that meet the following conditions are subsequently measured at amortised cost: * the financial asset is held within a business model whose objective is to collect contractual cash flows; and * the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (“SPPI”).Debt instruments that meet the following conditions are subsequently measured at fair value through other comprehensive income (“FVTOCI”): * the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling; and * the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.All other financial assets are subsequently measured at fair value through profit or loss (“FVTPL”) except that at the date of initial application/initial recognition of a financial asset the Group may irrevocably elect to present subsequent changes in fair value of an equity investment which is not held for trading in other comprehensive income (“OCI”).A financial asset is classified as held for trading if: * it has been acquired principally for the purpose of selling in the near term; or * on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or * it is a derivative except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.In addition the Group may irrevocably designate a debt investment that meets the amortised cost or FVTOCI criteria as measured at FVTPL if doing so eliminates or significantly reduces an accounting mismatch.– F-189 –China Merchants Bank Chapter VIII Financial Statements 175 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments (continued) Classification and measurement of financial assets (continued) Financial assets at amortised cost Financial assets measured at amortised cost are subsequently measured with the effective interest method and the gains or losses arising from amortisation or impairment are recognised in profit or loss. Interest income is calculated by applying the effective interest rate to the gross carrying amount of a financial asset except for financial assets that have subsequently become credit-impaired. For financial assets that have subsequently become credit-impaired interest income is recognised by applying the effective interest rate to the amortised cost of the financial asset from the next reporting period. If the credit risk on the credit-impaired financial instrument improves so that the financial asset is no longer credit-impaired interest income is recognised by applying the effective interest rate to the gross carrying amount of the financial asset from the beginning of the reporting period following the determination that the asset is no longer credit-impaired.Debt instruments classified as at FVTOCI Subsequent changes in the carrying amounts for debt instruments classified as at FVTOCI as a result of interest income calculated using the effective interest method foreign exchange gains and losses are recognised in profit or loss. All other changes in the carrying amount of debt instruments are recognised in OCI and accumulated under the heading of investment revaluation reserve. Impairment allowances are recognised in profit or loss with corresponding adjustment to OCI without reducing the carrying amounts of debt instruments. The amounts that are recognised in profit or loss are the same as the amounts that would have been recognised in profit or loss if debt instruments had been measured at amortised cost. When debt instruments are derecognised the cumulative gains or losses previously recognised in investment revaluation reserve are reclassified to profit or loss.Equity instruments designated as at FVTOCI At the date of initial application/initial recognition the Group may make an irrevocable election (on an instrument- by-instrument basis) to designate investments in equity instruments which are not held for trading as at FVTOCI.Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently they are measured at fair value with gains and losses arising from changes in fair value recognised in OCI and accumulated in the investment revaluation reserve; and are not subject to impairment assessment. The cumulative gain or loss will not be reclassified to profit or loss on disposal of the equity investments and will be transferred to retained earnings.Dividends from these investments in equity instruments are recognised in profit or loss when the Group’s right to receive the dividends is established unless the dividends clearly represent a recovery of part of the cost of the investment. Dividends are included in the “other net income” line item in profit or loss.Financial assets at FVTPL Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI or designated as FVTOCI are measured at FVTPL. Financial assets at FVTPL are measured at fair value at the end of each reporting period with any fair value gains or losses recognised in profit or loss. The net gain or loss recognised in profit or loss includes fair value gains or losses any dividend or interest earned on the financial asset and is included in “other net income”.– F-190 –176 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments (continued) Impairment under ECL model The Group performs impairment assessment under expected credit loss (“ECL”) model on financial assets which are subject to impairment under IFRS 9 Financial Instruments including financial assets at amortised cost debt instrument assets at fair value through other comprehensive income leases receivable loan commitments and financial guarantee contracts. The amount of ECL is updated at each reporting date to reflect changes in credit risk since initial recognition.The Group assesses the ECL of financial assets with forward-looking information. 12-month ECL (“12m ECL”) represents the portion of lifetime ECL that is expected to result from default events that are possible within 12 months after the reporting date. In contrast lifetime ECL represents the ECL that will result from all possible default events over the expected life of the relevant instrument. Assessment are done based on the factors that are specific to the debtors general economic conditions and an assessment of both the current conditions at the reporting date as well as the forecast of future conditions.For the above financial instruments that apply the ECL model except for the purchased or originated credit-impaired financial assets an assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by the Group to determine whether to recognise lifetime ECL. When the credit risk of these financial instruments does not increase significantly after the initial recognition the Group recognises a loss allowance for the financial instrument at an amount equal to 12-month ECL; in the event of a significant increase in credit risk the Group recognises a loss allowance at an amount equal to lifetime ECL. The Group recognises the loss allowance of receivables that result from transactions that are within the scope of IFRS 15 Revenue from contracts with customers at an amount equal to lifetime ECL.Significant increase in credit risk In assessing whether the credit risk has increased significantly since initial recognition the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition. In making this assessment the Group considers both quantitative and qualitative information that is reasonable and supportable including historical experience and forward-looking information that is available without undue cost or effort. The assessment of whether the credit risk has increased significantly is detailed in Note 60(a).Credit-impaired financial assets The Group defines whether there is credit impairment based on the internal evaluation results of the credit risk management system for relevant financial assets. The Group considers that financial assets have been credit impaired when its loan classification is substandard doubtful or loss or is more than 90 days overdue.– F-191 –China Merchants Bank Chapter VIII Financial Statements 177 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments (continued) Impairment under ECL model (continued) Measurement and recognition of ECL ECL is measured based on the probability of default loss given default and the exposure at default. The measurement and recognition of ECL are detailed in Note 60(a).Generally ECL is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive discounted at the effective interest rate determined at initial recognition.For a lease receivable the cash flows used for determining the ECL is consistent with the cash flows used in measuring the lease receivable in accordance with IFRS 16 Leases .For a financial guarantee contract the Group is required to make payments only in the event of a default by the debtor in accordance with the terms of the instrument that is guaranteed. Accordingly the expected credit losses is the present value of the expected payments to reimburse the holder for a credit loss that it incurs less any amounts that the Group expects to receive from the holder the debtor or any other party.For undrawn loan commitments ECL is the present value of the difference between the contractual cash flows that are due to the Group: * if the holder of the loan commitments draws down the loan and * the cash flows that the Group expects to receive if the loan is drawn down.The loss allowance for loan commitments and financial guarantee contracts is recognised in profit or loss and accumulated in provisions. As for debt instruments measured at FVTOCI the loss allowance is recognised in OCI and accumulated in the investment revaluation reserve without reducing the carrying amounts of these financial assets.The loss allowance for other financial assets which are subject to impairment under IFRS 9 Financial Instruments is recognised in profit or loss through a loss allowance account.Classification and measurement of financial liabilities Financial liabilities at FVTPL Financial liabilities are classified as at FVTPL when the financial liability is (i) held for trading (including derivatives belonging to financial liabilities) or (ii) designated as at FVTPL. Except for hedging accounting financial liabilities measured at FVTPL are subsequently measured at fair value and all changes in fair value are recognised in profit or loss.A financial liability is classified as held for trading if: * it has been acquired principally for the purpose of repurchasing it in the near term; or * on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or * it is a derivative except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if: * such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or * the financial liability forms part of a group of financial assets or financial liabilities or both which is managed and its performance is evaluated on a fair value basis in accordance with the Group’s documented risk management or investment strategy and information about the grouping is provided internally on that basis; or * it forms part of a contract containing one or more embedded derivatives and IFRS 9 Financial Instruments permits the entire combined contract to be designated as at FVTPL.– F-192 –178 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments (continued) Classification and measurement of financial liabilities (continued) Other financial liabilities Except for financial liabilities at FVTPL financial liabilities formed by the transfer of financial assets that do not meet the conditions for derecognition or by continued involvement in transferred financial assets and financial liabilities financial guarantee contract and loan commitment other financial liabilities are classified as financial liabilities at amortised cost which are subsequently measured at amortised cost and the gains or losses arising from derecognition or amortisation are included in profit or loss.Hedge accounting The Group designates certain derivatives as hedging instruments for fair value hedge and cash flow hedge.The Group documents the relationship between the hedging instruments and hedged items along with its risk management objective and its strategy for undertaking the hedge at the inception of a hedging relationship. The Group also requires documentation of the assessment both at hedge inception and on an ongoing basis of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items attributable to the hedged risks.Fair value hedge The gains or losses on the hedging instrument are recognised in consolidated statement of profit or loss. When the hedging for the risk exposure relates to an non-trading equity instrument designated as at FVTOCI the gains or losses on the hedging instrument are recognised in other comprehensive income.The carrying amount of the hedged item not already measured at fair value is adjusted for the gain or loss attributable to the risk being hedged and is taken to consolidated statement of profit or loss. The adjustment to the carrying amount of the hedged item is based on a recalculated effective interest rate at the date that amortisation begins and shall be amortised to consolidated statement of profit or loss if the hedged item is a financial instrument measured at amortised cost. Amortisation begins as soon as an adjustment exists but no later than when the hedged item ceases to be adjusted for hedging gains and losses. If the hedged item is debt instruments measured at FVTOCI the amounts previously recorded as cumulative adjustments of hedging gains or losses are amortised in similar method and recognised in the consolidated statement of profit or loss. The carrying amount of the hedged item is not adjusted.Cash flow hedge The effective portions of changes in the fair value of derivatives that are designated and qualified as cash flow hedge are recognised in other comprehensive income and accumulated separately in hedging reserve. Any gain or loss relating to an ineffective portion is recognised immediately in the consolidated statement of profit or loss.For cash flow hedge of a recognised asset or liability the associated cumulative gain or loss is reclassified from hedging reserve to the consolidated statement of profit or loss in the same period during which the hedged cash flows affect profit and loss. When a hedging instrument expires or is sold or when a hedge no longer meets the criteria for hedge accounting any cumulative gain or loss at that time remains in hedging reserve until the forecast transaction is ultimately recognised in the consolidated statements of profit or loss. When a forecast transaction is no longer expected to occur the cumulative gain or loss is immediately reclassified to the consolidated statement of profit or loss.– F-193 –China Merchants Bank Chapter VIII Financial Statements 179 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments (continued) Hedge accounting (continued) Hedge effectiveness testing The Group has elected to adopt the general hedge accounting in IFRS 9 Financial Instruments . This requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness.For hedge effectiveness assessment the Group considers whether the hedging instrument is effective in offsetting changes in fair values or cash flows of the hedged item attributable to the hedged risk which is when the hedging relationships meet all of the following hedge effectiveness requirements: * there is an economic relationship between the hedged item and the hedging instrument; * the effect of credit risk does not dominate the value changes that result from that economic relationship; and * the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Group actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item.If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management objective for that designated hedging relationship remains the same the Group adjusts the hedge ratio of the hedging relationship (i.e. rebalances the hedge) so that it meets the qualifying criteria again.Specific items Cash equivalents Cash equivalents comprise investments that are short term highly liquid readily convertible into known amounts of cash and subject to insignificant risk of changes in value and unrestricted balances with the central banks banks and other financial institutions and amounts held under resale agreements with original maturity of 3 months or less.Balances and placements with banks and other financial institutions Banks refer to those institutions approved by the People’s Bank of China (“PBOC”) and other authorities. Other financial institutions represent finance companies insurance companies investment trust companies and leasing companies which are registered with the National Administration of Financial Regulation (“NAFR”) and under the supervision of the NAFR and securities firms and investment fund companies which are registered with and under the supervision of other regulatory authorities. Balances and placements with banks and other financial institutions are measured at amortised cost.Resale and repurchase agreementsAmounts for purchase of financial assets under resale agreements are accounted for under “amounts held underresale agreements”. Amounts from sale of financial assets under repurchase agreements are accounted for under “amounts sold under repurchase agreements”.The difference between the purchase and resale consideration or sale and repurchase consideration is amortised over the period of the transaction using the effective interest method and is included in interest income or expense (as appropriate).– F-194 –180 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments (continued) Specific items (continued) Financial investments Equity investments are accounted for as financial assets at fair value through profit or loss or equity investments designated at fair value through other comprehensive income. Debt investments are classified as financial assets at fair value through profit or loss debt investments at amortised cost debt investments at fair value through other comprehensive income in accordance with the entity’s business model contractual cash flow characteristics and the fair value option.Loans and advances to customers Loans and advances directly granted by the Group to customers and finance leases receivables are accounted for as loans and advances to customers.Loans and advances to customers are classified as loans and advances to customers at fair value through profit or loss (loans and advances to customers at FVTPL) loans and advances to customers at amortised cost loans and advances to customers at fair value through other comprehensive income (loans and advances to customers at FVTOCI) in accordance with the entity’s business model contractual cash flow characteristics and the fair value option.Derivative financial instruments The Group’s derivative financial instruments mainly include forward foreign currency swaps interest rate swaps and option contracts undertaken in response to customers’ needs or for the Group’s own risk management purposes.The Group enters into derivative contracts with other banks and financial institutions that can conduct such business to hedge against risks arising from derivative transactions undertaken for customers.Derivative financial instruments are stated at fair value. Except for the gains or losses arising from the effective hedging portion of those derivatives in cash flow hedge and the gains or losses on the hedging instrument that hedges an non-trading equity instrument designated as at FVTOCI are recognised in other comprehensive income all other gains or losses are recognised in the consolidated statement of profit or loss.Embedded derivatives Derivatives embedded in hybrid contracts that contain financial asset hosts within the scope of IFRS 9 Financial Instruments are not separated. The entire hybrid contract is classified and subsequently measured in its entirety as either amortised cost or fair value as appropriate. Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of IFRS 9 Financial Instruments are treated as separate derivatives with the same terms when they meet the definition of a derivative their risks and characteristics are not closely related to those of the host contracts and the hybrid contracts are not measured at FVTPL. Separated embedded derivatives are measured at fair value with all changes in fair value recognised in profit or loss unless they form part of a qualifying cash flow hedging relationship.– F-195 –China Merchants Bank Chapter VIII Financial Statements 181 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments (continued) Specific items (continued) Equity instruments The consideration received from the issuance of equity instruments net of transaction costs is recognised in shareholders’ equity. Consideration and transaction costs paid by the Group for repurchasing self-issued equity instruments are deducted from shareholders’ equity.A financial instrument is an equity instrument if and only if both conditions (i) and (ii) below are met: (i) the financial instrument includes no contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; and (ii) if the financial instrument will or may be settled in the Group’s own equity instruments it is a non-derivative instrument that includes no contractual obligations for the Group to deliver a variable number of its own equity instruments; or a derivative that will be settled only by the Group exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments.At initial recognition the Group classifies the perpetual bonds and perpetual debt capitals issued or their components as financial liabilities or equity instruments based on their contractual terms and their economic substance after considering the definition of financial liabilities and equity instruments.For perpetual bonds and perpetual debt capitals issued that classified as equity instruments any distribution of interests during the instruments’ duration is treated as profit appropriation. When the perpetual bonds and perpetual debt capitals are redeemed the redeemed amount is charged to equity. Relevant transaction expenses are deducted from equity.At initial recognition of preference shares the Group classifies the preference shares issued or their components as financial liabilities or equity instruments based on their contractual terms and their economic substance after considering the definition of financial liabilities and equity instruments.When the Group classifies preference shares issued as an equity instrument fees commissions and other transaction costs of preference shares issuance are deducted from equity. The dividends on preference shares are recognised as profit distribution at the time of declaration.Derecognition of financial instruments (a) Financial assets A financial asset (or where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when: * the rights to receive cash flows from the asset have expired; or * the Group has transferred its rights to receive cash flows from the asset; or * has retained its rights to receive cash flows from the asset but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; and either the Group has transferred substantially all the risks and rewards of ownership of the financial asset; or the Group has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset but has transferred control of the asset.Where the Group has transferred its rights to receive cash flows from an asset or has retained its rights to receive cash flows from the asset but has entered into a pass-through arrangement and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset the asset and liability are recognised to the extent of the Group’s continuing involvement in the asset.When the Group’s continuing involvement takes the form of guaranteeing the transferred asset the extent of the Group’s continuing involvement at the time of transfer is the lower of (i) the amount of the asset and (ii) the guarantee amount (the maximum amount that the Group could be required to repay in the consideration received). When the Group continues to recognise an asset to the extent of its continuing involvement the Group also recognises an relevant liability as the sum of the guarantee amount and the fair value of the guarantee contract (usually the consideration received for the provision of security).The Group writes off a financial asset (if any) when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in profit or loss.– F-196 –182 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (5) Financial instruments (continued) Derecognition of financial instruments (continued) (b) Securitisation As part of its operational activities the Group securitises credit assets generally through the sale of these assets to structured entities which issue securities to investors. Interests in the securitised financial assets may be retained in the form of senior or junior tranches or other residual interests (retained interests).When applying the accounting policies on securitised financial assets the Group has considered both the degree of transfer of risks and rewards on the transferred financial assets and the degree of control exercised by the Group over the transferred financial assets: * when the Group transfers substantially all the risks and rewards of ownership of the financial assets the Group shall derecognise the financial assets; * when the Group retains substantially all the risks and rewards of ownership of the financial assets the Group shall continue to recognise the financial assets; and * when the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial assets the Group would determine whether it has retained control of the financial assets. If the Group has not retained control it shall derecognise the financial assets and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer. If the Group has retained control it shall continue to recognise the financial assets to the extent of its continuing involvement in the financial assets.When a securitisation of financial assets does not qualify for derecognition the relevant financial assets are not derecognised and the consideration collected from third parties are recorded as a financial liability.When the securitisation results in derecognition or partial derecognition of financial assets the Group allocates the carrying amount of the transferred financial assets between the financial assets derecognised and the retained interests based on their relative fair values at the date of transfer. Gains or losses on securitisation which is the difference between the consideration received and the allocated carrying amount of the financial assets derecognised are recorded in “other net income”. The retained interests continue to be recognised on the same basis before the securitisation.(c) Sales of assets on condition of repurchase Derecognition of financial assets sold on condition of repurchase is determined by the economic substance of the transaction. If a financial asset is sold under an agreement to repurchase the same or substantially the same asset at a fixed price or at the sale price plus a reasonable return the Group will not derecognise the asset. If a financial asset is sold together with an option to repurchase the financial asset at its fair value at the time of repurchase (in case of transferor sells such financial asset) the Group will derecognise the financial asset.(d) Financial liabilities A financial liability (or part of it) is derecognised when the obligation under the liability (or part of it) is discharged cancelled or expired.Offsetting financial instruments Financial assets and liabilities are offset and the net amount is presented in the consolidated statement of financial position when and only when the Group currently has there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously.– F-197 –China Merchants Bank Chapter VIII Financial Statements 183 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (6) Property equipment investment property and depreciation Property equipment and investment property are stated at cost or deemed cost less accumulated depreciations and accumulated impairment losses. These also include land held under operating leases and buildings thereon where the fair value of the leasehold interest in the land and buildings cannot be measured separately at the inception of the lease and the building is not clearly held under an operating lease.Depreciation is calculated to write off the cost of property equipment and investment property over the following estimated useful lives after taking into account an estimated residual value on a straight-line basis: Land and buildings 20 years Investment properties 20 years Computer equipment 3 years Leasehold improvements (leased property) the estimated useful lives Leasehold improvements (self-owned property) the estimated useful lives Aircraft vessels and professional equipment no more than 25 years Other 3 – 5 years Construction in progress represents property under construction and is stated at cost less impairment losses. Cost comprises the direct and indirect cost of construction. Construction in progress is transferred to an appropriate class of property or other asset when the asset is ready for its intended use. No depreciation is provided for construction in progress.Subsequent expenditure relating to a property equipment and investment property is capitalised only when it is probable that future economic benefits associated with the property and equipment will flow to the Group. All other expenditure is recognised in the consolidated statement of profit or loss as an expense as incurred.Profits or losses on disposal of property equipment and investment property are determined as the difference between the net disposal proceeds and the carrying amount of the property equipment and investment property and are accounted for in the consolidated statement of profit or loss as they arise. (7) Repossessed assets In the recovery of impaired loans and advances the Group may take possession of assets held as collateral through court proceedings or voluntary delivery of possession by the borrowers. Repossessed assets other than equity instrument are reported in “other assets”.Repossessed assets of equity instruments are detailed in Note 4(5). (8) Intangible assets Intangible assets are stated at cost less accumulated amortisation (only intangible assets with finite useful lives) and accumulated impairment losses (see Note 4(10)). Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives.Intangible assets are not amortised while their useful lives are assessed to be indefinite. The Group does not have intangible assets with useful lives assessed to be indefinite as at the end of the reporting period.The amortisation period of intangible assets is as follows: Software and Other Core deposit 2 – 20 years 28 years Both the periods and method of amortisation are reviewed annually.– F-198 –184 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (9) Leases Definition of a lease A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group assesses whether a contract is or contains a lease based on the definition under IFRS 16 Leases at inception or modification date. Such contract will not be reassessed unless the terms and conditions of the contract are subsequently changed.As a lessee (a) Allocation of consideration to components of a contract For a contract that contains a lease component and one or more additional lease or non-lease components the Group allocates the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.(b) Short-term leases and leases of low-value assets The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee except for short-term leases (lease term of 12 months or less and do not contain a purchase option) and leases of low value assets (the value of assets is equivalent to below RMB35000).Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight- line basis over the lease term.(c) Right-of-use assets The right-of-use assets are presented as a separate line in the consolidated statement of financial position.The right-of-use asset is initially measured at cost. This cost includes: * the amount of the initial measurement of the lease liability; * any lease payments made at or before the commencement date less any lease incentives received; * any initial direct costs incurred by the lessee; and * whenever the Group incurs an obligation for costs to dismantle and remove a leased asset restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease a provision is recognised and measured under IAS 37 Provisions Contingent Liabilities and Contingent Assets . The costs are included in the related right-of-use asset unless those costs are incurred to produce inventories.After the commencement date the right-of-use assets are measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses adjusted for any remeasurement of the lease liability.The Group recognises the depreciation of right-of-use assets as an operating expense on a straight-line basis.Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers the ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option the related right-of-use asset is depreciated over the useful life of the underlying asset.Accounting policy for any identified right-of-use asset impairment loss are disclosed in Note 4(10).(d) Leasehold land and building For payments of a property interest which includes both leasehold land and building elements the entire property is presented as property and equipment of the Group when the payments cannot be allocated reliably between the leasehold land and building elements except for those that are classified and accounted for as investment properties.– F-199 –China Merchants Bank Chapter VIII Financial Statements 185 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (9) Leases (continued) As a lessee (continued) (e) Lease liabilities Lease liability is presented as a separate line in the consolidated statement of financial position.Except for short-term leases and leases of low-value asset lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date using lessee’s incremental borrowing rate as the discount rate.Lease payments refer to the payment made by the lessee to the lessor in connection with the right to use the leased assets during the lease term. Lease payments included in the measurement of the lease liability comprise: * fixed lease payments (including in-substance fixed payments) less any lease incentives; * variable lease payments that depend on an index or rate initially measured using the index or rate at the commencement date; * the exercise price of purchase options if the lessee is reasonably certain to exercise the options; * payments of penalties for terminating the lease if the lease term reflects the exercise of an option to terminate the lease; and * the amount expected to be payable by the lessee under remaining value guarantees.After the beginning date of the lease term the Group calculates the interest expense of the lease liability in each period of the lease term at a fixed periodic interest rate and recognised it in the current profit and loss or related asset costs.After the commencement date the Group remeasures the lease liability according to the present value calculated by the revised lease payment amount and the revised discount rate and makes a corresponding adjustment to the related right-of-use asset whenever: * the lease term has changed or there is a change in the assessment of exercise of a purchase option in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; or * the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed remaining value in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate. But if the change in lease payments results from a change in floating interest rates the lessee shall use a revised discount rate that reflects changes in the interest rate.As a lessor Leases for which the Group is a lessor are classified as finance or operating leases. When the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee the contract is classified as a finance lease.All other leases are classified as operating leases.Where the Group is a lessor under finance leases an amount representing the net investment in the lease is included in the consolidated statement of financial position as “loans and advances to customers”. Unrecognised finance income under finance leases are amortised using the effective interest method over the lease term. Accounting policy for impairment losses are disclosed in Note 4(5).When the Group is a lessor of an operating lease income derived from operating lease is recognised in the consolidated statement of profit or loss using the straight-line method over the lease term. If initial direct costs incurred in respect of the assets leased out are material the costs are initially capitalised and subsequently amortised in profit or loss over the lease term on the same basis as the lease income. Contingent lease income is charged to profit or loss in the accounting period in which it is incurred.When a contract includes lease and non-lease components the Group applies IFRS 15 Revenue from Contracts with Customers to allocate the consideration under the contract to each component.– F-200 –186 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (9) Leases (continued) As a buyer-lessor in a sale and leaseback transactions For a transfer of asset that does not meet the requirements of IFRS 15 Revenue from Contracts with Customers to account for a sale of asset the Group acting as a buyer-lessor does not recognise the transferred asset and recognises loan and advance to customers at an amount that equals the transfer proceed within the scope of IFRS 9 Financial Instruments . (10) Impairment on tangible and intangible assets other than impairment under ECL model The carrying amount of tangible and intangible assets including property and equipment right-of-use assets intangible assets investment properties interests in joint ventures interests in associates goodwill and other non- current assets are reviewed periodically in order to assess whether the recoverable amount has declined below the carrying amount. When such a decline has occurred the carrying amount is reduced to the recoverable amount. The amount of impairment loss is recognised in the consolidated statement of profit or loss. The recoverable amount of an asset is the greater of its fair value less disposal expense and present value of future expected cash flows. In assessing value in use the estimated future cash flows are discounted to their present values.Internal and external sources of information are reviewed at the end of the reporting period to identify any indications that other assets may be impaired.If any such indication exists the asset’s recoverable amount is estimated. In addition for goodwill intangible assets that are not yet available for use and intangible assets that have indefinite useful lives the recoverable amount is estimated by the Group at the end of the reporting period whether or not there is any indication of impairment.– Calculation of recoverable amount The recoverable amount of an asset or a CGU is the greater of its fair value less disposal expense and the present value of future cash flows. In assessing value in use the estimated future cash flows are discounted to their present values using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).– Impairment losses recognised An impairment loss is recognised in the consolidated statement of profit or loss whenever the carrying amount of an asset or the cash-generating unit to which it belongs exceeds its recoverable amount.Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell or value in use if determinable. (11) Precious metals Precious metals that are not related to the Group’s trading activities are initially measured at acquisition cost and subsequently measured at the lower of cost and net realisable value. Precious metals that are related to the Group’s trading activities are initially recognised at fair value with changes in fair value arising from remeasurement recognised directly in the consolidated statement of profit or loss in the period in which they arise.– F-201 –China Merchants Bank Chapter VIII Financial Statements 187 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (12) Financial guarantee issued provisions and contingent liabilities Financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. The provision of financial guarantees issued is recognised in the consolidated statement of financial position in accordance with accounting policy set out in Note 4(5).Provisions and contingent liabilities Provisions are recognised for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event it is highly probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material provisions are stated at the present value of the expenditures expected to settle the obligation.Where it is not probable that an outflow of economic benefits will be required or the amount cannot be estimated reliably the obligation is disclosed as a contingent liability unless the probability of outflow of economic benefits is remote. (13) Income recognition Revenue is the inflow of economic benefits that the Group has formed in its daily activities that will result in an increase in shareholders’ equity and have nothing to do with the capital invested by shareholders.Net interest income Interest income and expense for all financial instruments except for those classified as at FVTPL are recognised in “Interest income” and “Interest expense” in the profit or loss account using the effective interest method. Interest on financial instruments measured as at FVTPL is included within the fair value movement during the period which is recognised in “Other net income”.Dividend income Dividend income from investments is recognised when the dividend is declared and approved by the investee.Rental income Income derived from operating leases is recognised in the consolidated statement of profit or loss using the straight- line method over the lease term.– F-202 –188 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (13) Income recognition (continued) Fee and commission income Under IFRS 15 Revenue from Contracts with Customers the Group recognises revenue when (or as) a performance obligation is satisfied i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer.A performance obligation represents a good and service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same. For contracts that contain more than one performance obligation the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis except for the allocation of discounts and variable consideration.The stand-alone selling price of the distinct goods or service underlying each performance obligation is determined at contract inception. It represents the price at which the Group would sell a promised goods or service separately to a customer. If a stand-alone selling price is not directly observable the Group estimates it using appropriate techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services to the customer.For contracts that contain variable consideration the Group estimates the amount of consideration to which it will be entitled using either (a) the expected value method or (b) the most likely amount depending on which method better predicts the amount of consideration to which the Group will be entitled.The estimated amount of variable consideration is included in the transaction price only to the extent that it is highly probable that such an inclusion will not result in a significant revenue reversal in the future when the uncertainty associated with the variable consideration is subsequently resolved. At the end of each reporting period the Group updates the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period.For each performance obligation identified the Group determines at contract inception whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time. Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: * the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; * the Group’s performance creates and enhances an asset that the customer controls as the Group performs; or * the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date.Otherwise revenue is recognised at a point in time.If the revenue is recognised over time the Group recognises revenue in accordance with the progress towards complete satisfaction of a performance obligation. The progress towards complete satisfaction of a performance obligation is measured based on output method which is to recognise revenue on the basis of direct measurements of the value of the goods or services transferred to the customer to date relative to the remaining goods or services promised under the contract that best depicts the Group’s performance in transferring control of goods or services.– F-203 –China Merchants Bank Chapter VIII Financial Statements 189 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (13) Income recognition (continued) Fee and commission income (continued) If revenue is recognised at a point in time the Group recognises the revenue when the customer obtains control of the distinct good or service. To determine the point in time at which a customer obtains control of a promised service the following indicators of the transfer of control should also be considered. They include but are not limited to: * the Group has a present right to payment for the goods or services; * the Group has transferred physical possession of the goods; * the customer has the significant risks and rewards of ownership of the goods; * the customer has accepted the goods or services.When another party is involved in providing goods or services to a customer the Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent).The Group is a principal if it can control the goods or service before transferring it to customers. The Group is an agent if its performance obligation is to arrange for the provision of the specified goods or service by another party.In this case the Group does not control the specified goods or service provided by another party before that goods or service is transferred to the customer. When the Group acts as an agent it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party.A contract asset represents the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer that is not yet unconditional. In contrast a receivable represents the Group’s unconditional right to consideration i.e. only the passage of time is required before payment of that consideration is due.A contract liability represents the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. (14) Taxation Current income tax and movements in deferred tax balances are recognised in the consolidated statement of profit or loss except to the extent that it relates to items recognised directly in equity in which case it is recognised in equity.Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years.Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax assets also arise from unused tax losses and unused tax credits. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit and at the time of the transaction does not give rise to equal taxable and deductible temporary differences. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates of expected returns of the assets or the repayment of the liabilities. Deferred tax assets and liabilities are not discounted.A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced by the extent that it is no longer probable that the related tax benefit will be realised.– F-204 –190 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (14) Taxation (continued) The Group shall recognise a deferred tax asset for all deductible temporary differences associated with investments in subsidiaries and interests in associates and joint ventures that both of the following conditions are satisfied: the temporary differences are likely to be reversed in the foreseeable future; and it is probably to obtain the taxable income used to offset the deductible temporary difference in the future. The Group shall recognise a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries and interests in associates and joint ventures except where both of the following conditions are satisfied: the investor is able to control the timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future.Current tax balances and deferred tax balances and movements therein are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities and deferred tax assets against deferred tax liabilities if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met: * in the case of current tax assets and liabilities the Group intends either to settle on a net basis or to realise the asset and settle the liability simultaneously; or * in the case of deferred tax assets and liabilities if they relate to income taxes levied by the same taxation authority on either: – the same taxable entity; or – different taxable entities which in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously. (15) Foreign currencies translations In preparing the financial statements of each individual group entity transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value is determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.Exchange differences on monetary items are recognised in profit or loss in the period in which they arise except for: * exchange differences on transactions entered into as part of the effective portion of a hedge on certain foreign currency risks; or * exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation) which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on repayment of the monetary items.For the purposes of presenting these consolidated financial statements the assets and liabilities of the Group’s foreign operations are translated into currency units using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly during that period in which case the exchange rates at the dates of the transactions are used.Exchange differences arising if any are recognised in other comprehensive income and accumulated in exchange reserve (and attributed to non-controlling interests as appropriate).On the disposal of a foreign operation all of the exchange differences accumulated in exchange reserve in respect of that operation attributable to the owners of the Bank are reclassified to the consolidated statement of profit or loss.– F-205 –China Merchants Bank Chapter VIII Financial Statements 191 Annual Report 2023 (H share) 4. Material accounting policy information (continued) (16) Employee benefits Salaries and staff welfare Salaries bonuses and other benefits are accrued in the period in which the associated services are rendered by employees.Post-employment benefits The Group participates in a number of defined contribution retirement benefit schemes managed by different provincial governments or independent insurance companies. Obligation for contributions to these schemes are jointly borne by the Group and the staff and contributions paid by the Group are recognised as an expense in the consolidated statement of profit or loss as incurred.The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods discounting that amount and deducting the fair value of any plan assets.The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits consideration is given to any applicable minimum funding requirements.Remeasurements of the net defined benefit liability which comprise actuarial gains and losses the return on plan assets (excluding interest) and the effect of the asset ceiling (if any excluding interest) are recognised immediately in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset) taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in personnel expenses in the consolidated statement of profit or loss.When the benefits of a plan are changed or when a plan is curtailed the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.Share-based payment The Group offers H share appreciation rights to its employee namely H Share Appreciation Rights Scheme for the Senior Management (“the Scheme”) which is settled in cash. Cash-settled share-based payments are measured at the fair value of the liabilities incurred by the Group which are determined based on the shares. The Group recognises the services for the period as related costs or expenses with a corresponding increase in liability at an amount equal to the fair value of the liability based on the best estimate of the outcome of vesting at the end of each reporting period within the vesting period. Until the liability is settled the Group remeasures the fair value of the liability at each reporting period end and at the date of settlement with any changes in fair value recognised in profit or loss for the period.The fair value of the H share appreciation rights is using Black-Scholes model taking into account the terms and condition upon which the H share appreciation rights were granted.– F-206 –192 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 4. Material accounting policy information (continued) (17) Related parties For the purposes of these consolidated financial statements parties are considered to be related to the Group if the Group has the ability directly indirectly or jointly to control the party or exercise significant influence over the party in making financial and operating decisions or vice versa or where the Group and the party are subject to control common control or common significant influence (except that the Group and the party are subject to common significant influence of the other party). Related parties may be individuals (being members of key management personnel significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals and post- employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group. (18) Segmental reporting Operating segments and the amounts of each segment item reported in the consolidated financial statements are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to and assessing the performance of the Group’s various lines of business and geographical locations. Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services the nature of production processes the type or class of customers the methods used to distribute the products or provide the services and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they meet most of these criteria. (19) Fiduciary activities The Group acts in a fiduciary capacity in entrusted loan and entrusted investment business. Assets held by the Group and the related undertakings to return such assets to customers are excluded from the consolidated statement of financial position as the risks and rewards of the assets reside with the customers. The Group only charges a relevant commission. (20) Dividends or profit distributions Dividends or profit distributions are recognised as a liability in the year in which they are approved and declared. (21) General reserve The general reserve is an integral part of equity. According to the relevant regulations in addition to the impairment allowances the Bank maintains a general reserve to make up for unidentified potential losses. In principle the balance of general reserve shall not be less than 1.5% of the ending balance of risk assets. In addition the general reserve includes 2.5% of the income of mutual fund custody businesses. The general reserve of the Group also includes the general reserve maintained by the subsidiaries of the Group according to the applicable laws and regulations of their industry or region.– F-207 –China Merchants Bank Chapter VIII Financial Statements 193 Annual Report 2023 (H share) 5. Significant accounting estimates and judgements In determining the carrying amounts of some assets and liabilities the Group makes assumptions for the effects of uncertain future events on the assets and liabilities at the end of the reporting period. These estimates involve assumptions about cash flows and the discount rates used. The Group’s estimates and assumptions are based on historical experience and expectations of future events and are reviewed periodically. In addition to the assumptions and estimations of future events judgements are also made during the process of applying the Group’s accounting policies. (1) Control over structured entity Where the Group acts as asset manager of structured entities the Group makes judgement on whether it is the principal or an agent to assess whether the Group controls the structured entities and should consolidate them.When performing this assessment the Group considers several factors including among others the scope of its decision-making authority over the structured entities the rights held by other parties the remuneration to which it is entitled in accordance with the related agreements for the assets management services the Group’s exposure to variability of returns from interests that it holds in the structured entities. (2) Classification of financial assets Business model assessment: Classification and measurement of financial assets of the Group involves significant judgement on business model. The Group determines the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective. Specific considerations include how the performance of the assets is evaluated and measured the risks that affect the performance of the assets and how these are managed and how the managers of the assets are compensated. (3) Derecognition of financial assets transferred In its normal course of business the Group transfers its financial assets through various types of transactions including regular way sales and transfers securitisation financial assets sold under repurchase agreements. The Group applies significant judgement and estimate in assessing whether it has transferred these financial assets and qualified for a full derecognition.Where the Group enters into structured transactions by which it transfers financial assets to structured entities the Group analyses whether the substance of the relationship between the Group and these structured entities indicates that it controls these structured entities and the Group needs to consolidate them. This will determine whether the following derecognition analysis should be conducted at the consolidated level or at the entity level from which the financial assets are transferred.The Group analyses the contractual rights and obligations in connection with such transfers to determine whether derecognition criteria are met based on the following considerations: * whether it has transferred the rights to receive contractual cash flows from the financial assets or the transfer qualifies for the “pass through” of those cash flows to independent third parties; * the extent to which the associated risks and rewards of ownership of the financial assets are transferred.Significant judgement and estimate is applied in the Group’s estimation with regard to the cash flows before and after the transfers and other factors that affect the outcomes of the Group’s assessment on the extent that risks and rewards are transferred.– F-208 –194 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 5. Significant accounting estimates and judgements (continued) (4) Impairment under ECL model * Significant increase in credit risk: ECL is measured as an allowance equal to 12-month ECL for stage 1 assets or lifetime ECL for stage 2 or stage 3 assets. An asset moves to stage 2 when its credit risk has increased significantly since initial recognition. In assessing whether the credit risk of an asset has significantly increased the Group takes into account qualitative and quantitative reasonable and supportable forward- looking information. Refer to Note 60(a)(ii) for more details.* Establishing groups of assets with similar credit risk characteristics: When ECLs are measured on a collective basis the financial instruments are grouped on the basis of shared risk characteristics. Refer to Note 60(a)(v) for details of the characteristics considered in this judgement. The Group monitors the appropriateness of the credit risk characteristics on an ongoing basis to assess whether they continue to be similar. This is required in order to ensure that should credit risk characteristics change there is appropriate re-segmentation of the assets. This may result in new portfolios being created or assets moving to an existing portfolio that better reflects the similar credit risk characteristics of that group of assets.* Models and assumptions used: The Group uses various models and assumptions in estimating ECL. Judgement is applied in identifying the most appropriate model for each type of asset as well as for determining the assumptions used in these models including assumptions that relate to key drivers of credit risk. Refer to Note 60(a)(iii) for more details.* Forward-looking information: When measuring ECL the Group uses reasonable and supportable forward- looking information which is based on assumptions for the future movement of different economic drivers and how these drivers will affect each other. Refer to Note 60(a)(iv) for more details.* Probability of Default (“PD”): PD constitutes a key input in measuring ECL. PD is an estimate of the likelihood of default over a given time horizon the calculation of which includes historical data assumptions and expectations of future conditions. Refer to Note 60(a) (iii) for more details.* Loss Given Default (“LGD”): LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive taking into account cash flows from collateral and integral credit enhancements. Refer to Note 60(a)(iii) for more details. (5) Fair value of financial instruments For a number of financial instruments no quoted prices in an active market exist. The fair value for these financial instruments are established by using valuation techniques. These techniques include using recent arm’s length market transactions reference to the current fair value of similar instruments discounted cash flow analysis or option pricing models. The Group has established a process to ensure that valuation techniques are constructed by qualified personnel and are validated and reviewed by personnel independent of the business unit that constructed the valuation techniques. Valuation techniques are certified before being implemented for valuation and are calibrated to ensure that outputs reflect actual market conditions. Valuation models established by the Group make the maximum use of market inputs and rely as little as possible on the Group’s specific data. However it should be noted that some inputs such as credit and counterparty risk and risk correlations require management estimates.Management estimates and assumptions are reviewed periodically and adjusted if necessary. If the fair value is measured using third party information such as broker quotes or pricing services the valuation team will evaluate the evidence obtained from third party to support the conclusion that the relevant valuation meets the requirements of IFRS including the category of the relevant valuation at the appropriate level in the fair value hierarchy. (6) Income taxes Determining income tax provisions involves judgement on the future tax treatment of certain transactions. The Group carefully evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatment of such transactions is reviewed periodically to take into account all changes in tax legislations. Deferred tax assets are recognised for tax losses not yet used and temporary deductible differences. As those deferred tax assets can only be recognised to the extent that it is probable that future taxable profit will be available against which the unused tax credits can be utilised management’s judgement is required to assess the probability of future taxable profits. Management’s assessment is constantly reviewed and additional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax asset to be recovered.– F-209 –China Merchants Bank Chapter VIII Financial Statements 195 Annual Report 2023 (H share) 5. Significant accounting estimates and judgements (continued) (7) Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis and when circumstances indicate that the carrying value may be impaired. This requires an estimation of the recoverable amount of the CGU or group of CGUs to which the goodwill is allocated. Estimating the recoverable amount requires the Group to make an estimate of the expected future cash flows from CGU or group of CGUs and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Where the actual future cash flows are less than expected or change in facts and circumstances which results in downward revision of future cash flows or upward revision of discount rate a material impairment loss or further impairment loss may arise. 6. Interest income 20232022 Loans and advances to customers 268240 265601 – Corporate loans 94526 86754 – Retail loans 166104 168174 – Discounted bills 7610 10673 Balances with central banks 9977 8482 Balances with banks and other financial institutions 2101 1242 Placements with banks and other financial institutions 10596 7760 Amounts held under resale agreements 3860 4487 Financial investments 80836 65808 – Debt investments at FVTOCI 26201 19654 – Debt investments at amortised cost 54635 46154 Total 375610 353380 Note: For the year ended 31 December 2023 included in the above is the interest income of RMB10577 million accrued on loans and advances to customers at fair value through other comprehensive income (2022: RMB12668 million). 7. Interest expense 20232022 Deposits from customers 128809 105836 Borrowing from central banks 4005 2828 Deposits from banks and other financial institutions 8307 9782 Placements from banks and other financial institutions 8931 4567 Amounts sold under repurchase agreements 2628 1960 Debt securities issued 7781 9662 Lease liabilities 480 510 Total 160941 135145 8. Fee and commission income 20232022 Commissions from wealth management 28466 30903 Commissions from asset management 11474 12457 Bank cards fees 19525 21399 Clearing and settlement fees 15492 15051 Commissions from credit commitment and lending business 4997 5753 Commissions on custodian business 5328 5791 Other 7552 12018 Total 92834 103372 – F-210 –196 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 9. Other net income 20232022 Net gain/(loss) from fair value change 1846 (2675) – financial instruments at fair value through profit or loss 1797 (2204) – derivatives instruments 104 (120) – precious metals (55) (351) Net investment income 19700 18013 – financial instruments at FVTPL 14523 12443 – gain on disposal of financial assets at amortised cost 967 170 – gain on disposal of debt instruments at FVTOCI 3661 5161 – of which: gain on disposal of bills 1551 3291 – dividend income from equity investments designated at FVTOCI 317 153 – other 232 86 Foreign exchange gain 4132 3600 Other income 11418 9702 – rental income 11352 9181 – insurance income 66 521 Other 729 1065 Total 37825 29705 10. Operating expenses 20232022 Staff costs 70348 70657 – Salaries and bonuses 55477 55647 – Social insurance and corporate supplemental insurance 7349 8421 – Other 7522 6589 Tax and surcharges 2963 3005 Depreciation of property and equipment and investment properties 11008 10279 Amortisation of intangible assets 930 1061 Depreciation of right-of-use assets 4205 4151 Short-term leases expense and leases of low-value assets expense 216 229 Charge for insurance claims – 360 Other general and administrative expenses (note) 31321 32319 Total 120991 122061 Note: Auditors’ remuneration amounting to RMB34 million for the year ended 31 December 2023 (2022: RMB31 million) is included in other general and administrative expenses.– F-211 –China Merchants Bank Chapter VIII Financial Statements 197 Annual Report 2023 (H share) 11. Directors’ and supervisors’ emoluments The emoluments of the Directors and Supervisors during the year were as follows: 2023 Salaries allowances Retirement Directors’ and benefits Discretionary scheme fees in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Executive directors Wang Liang – 3453 – – 3453 Zhu Jiangtao (ii) – 2821 – – 2821 Subtotal – 6274 – – 6274 The executive director’s emoluments shown above were for their services in connection with the management of the affairs of the Bank and the Group.Non-executive directors Miao Jianmin – – – – – Hu Jianhua (iii) – – – – – Sun Yunfei – – – – – Zhou Song – – – – – Hong Xiaoyuan (iii) – – – – – Zhang Jian – – – – – Chen Dong – – – – – Subtotal – – – – – The non-executive directors shown above did not receive remuneration from the Bank.Independent non-executive directors and supervisors Wong See Hong 500 – – – 500 Li Menggang 500 – – – 500 Liu Qiao 500 – – – 500 Tian Hongqi 500 – – – 500 Li Chaoxian 500 – – – 500 Shi Yongdong 500 – – – 500 Luo Sheng – – – – – Peng Bihong (iv) – – – – – Wu Heng – – – – – Xu Zhengjun 400 – – – 400 Cai Hongping 400 – – – 400 Zhang Xiang 400 – – – 400 Cai Jin – 1627 – – 1627 Cao Jian (v) – 1294 – – 1294 Yang Sheng (vi) – 967 – – 967 Subtotal 4200 3888 – – 8088 The independent non-executive directors’ and supervisors’ emoluments shown above were for their services as directors or supervisors of the Bank.Former executive non-executive directors and supervisors Su Min (vii) – – – – – Xiong Liangjun (vi) – 1870 – – 1870 Wang Wanqing (v) – 593 – – 593 Subtotal – 2463 – – 2463 The former executive non-executive directors’ and supervisors’ emoluments shown above were for their services as directors or supervisors of the Bank.Total 4200 12625 – – 16825 – F-212 –198 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 11. Directors’ and supervisors’ emoluments (continued) Notes: (i) The total remuneration before tax for the full-time directors supervisors and executive officers of the Group is not yet finalised. Details of their remaining compensation will be disclosed separately when their total remuneration is confirmed.(ii) In June 2023 according to the relevant resolution passed at the 2022 Annual General Meeting of the Bank Mr. Zhu Jiangtao was elected as the Executive Director of the Bank whose qualification as the Director was approved by the NAFR in August 2023. The emolument of Mr. Zhu Jiangtao shown above included the portion for his services before his qualification as the Director was approved by the NAFR during the year.(iii) In January 2024 Mr. Hu Jianhua and Mr. Hong Xiaoyuan ceased to be Non-Executive Directors of the Bank due to their age.(iv) In January 2024 Mr. Peng Bihong ceased to be the Shareholder Supervisor of the Bank due to change of work arrangement.(v) In March 2023 Mr. Cao Jian was elected as the Employee Supervisor of the Bank at the employee representative meeting of the Bank.Mr. Wang Wanqing ceased to be the Employee Supervisor of the Bank due to his age.(vi) In June 2023 Mr. Yang Sheng was elected as the Employee Supervisor of the Bank at the employee representative meeting of the Bank. At the same time Mr. Xiong Liangjun ceased to be the Chairman of the Board of Supervisors and Employee Supervisor of the Bank due to his age.(vii) In March 2023 Ms. Su Min retired and resigned as the Non-Executive Director of the Bank.(viii) As of 31 December 2023 the Group had offered 10 phases of H share appreciation rights under the Scheme. Details of the Scheme are set out in Note 39 (a)(iii).– F-213 –China Merchants Bank Chapter VIII Financial Statements 199 Annual Report 2023 (H share) 11. Directors’ and supervisors’ emoluments (continued) 2022 Salaries allowances Retirement Directors’ and benefits Discretionary scheme fees in kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (i) (i) Executive director Wang Liang – 3625 2580 220 6425 Subtotal – 3625 2580 220 6425 The executive director’s emoluments shown above were for his services in connection with the management of the affairs of the Bank and the Group.Non-executive directors Miao Jianmin – – – – – Hu Jianhua (ii) – – – – – Sun Yunfei (ii) – – – – – Zhou Song – – – – – Hong Xiaoyuan – – – – – Zhang Jian – – – – – Su Min – – – – – Chen Dong (ii) – – – – – Subtotal – – – – – The non-executive directors shown above did not receive remuneration from the Bank.Independent non-executive directors and supervisors Wong See Hong 500 – – – 500 Li Menggang 500 – – – 500 Liu Qiao 500 – – – 500 Tian Hongqi 500 – – – 500 Li Chaoxian 500 – – – 500 Shi Yongdong 500 – – – 500 Xiong Liangjun – 3317 2098 211 5626 Luo Sheng (iii) – – – – – Peng Bihong – – – – – Wu Heng – – – – – Xu Zhengjun 400 – – – 400 Cai Hongping (iii) 202 – – – 202 Zhang Xiang (iii) 202 – – – 202 Wang Wanqing – 2650 – – 2650 Cai Jin – 1548 – – 1548 Subtotal 3804 7515 2098 211 13628 The independent non-executive directors’ and supervisors’ emoluments shown above were for their services as directors or supervisors of the Bank.Former executive non-executive directors and supervisors Fu Gangfeng (iv) – – – – – Tian Huiyu (v) – – – – – Wang Daxiong (v) – – – – – Luo Sheng (v) – – – – – Guo Xikun (vi) – – – – – Ding Huiping (vi) 167 – – – 167 Han Zirong (vi) 167 – – – 167 Subtotal 334 – – – 334 The former executive non-executive directors’ and supervisors’ emoluments shown above were for their services as directors or supervisors of the Bank.Total 4138 11140 4678 431 20387 – F-214 –200 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 11. Directors’ and supervisors’ emoluments (continued) Notes: (i) On 27 September 2023 the Board of Directors approved the discretionary bonuses of the Bank’s directors supervisors and executive officers for 2022.(ii) In June 2022 according to the relevant resolutions passed at the 2021 Annual General Meeting of the Bank Mr. Hu Jianhua Mr. Sun Yunfei and Mr. Chen Dong were elected as Non-Executive Directors of the Bank whose qualifications as the Directors were approved by the former China Banking and Insurance Regulatory Commission (the “former CBIRC”) in October 2022.(iii) In June 2022 according to the relevant resolutions passed at the 2021 Annual General Meeting of the Bank Mr. Luo Sheng was elected as the Shareholder Supervisor of the Bank and Mr. Cai Hongping and Mr. Zhang Xiang were elected as External Supervisors of the Bank.(iv) In November 2022 Mr. Fu Gangfeng ceased to be the Vice Chairman and Non-Executive Director of the Bank due to change of work arrangement.(v) In June 2022 Mr. Wang Daxiong and Mr. Luo Sheng ceased to be Non-Executive Directors of the Bank after the end of the 2021 Annual General Meeting due to the expiry of their terms of office and Mr. Tian Huiyu ceased to be an Executive Director of the Bank after the end of the 2021 Annual General Meeting.(vi) In June 2022 Mr. Guo Xikun ceased to be the Shareholder Supervisor of the Bank due to the expiry of his terms of office and Mr. Ding Huiping and Mr. Han Zirong ceased to serve as External Supervisors of the Bank due to the expiry of their terms of office.(vii) As of 31 December 2022 the Group had offered 10 phases of H share appreciation rights under the Scheme. Details of the Scheme are set out in Note 39 (a)(iii).During the years of 2023 and 2022 no emoluments were paid by the Group to any of the persons who are directors or supervisors as an inducement to join or upon joining the Group or as compensation for loss of office.During the years of 2023 and 2022 there was no arrangement under which a director or a supervisor waived or agreed to waive any remuneration. 12. Five highest paid individuals During the year ended 31 December 2023 the five highest paid individuals included five persons in total. During the year ended 31 December 2022 the five highest paid individuals included six persons in total two of them were with the same emoluments and being the third highest paid individuals and two of them were with the same emoluments and being the fourth highest paid individuals. Of these highest paid individuals two (2022: two) were directors or supervisors of the Bank whose emoluments were included in Note 11 above. The aggregate emolument of the remaining three (2022: four) highest paid individuals who were neither directors nor supervisors of the Bank is as follows: 20232022 RMB’000 RMB’000 Salaries and other emoluments 8263 11764 Discretionary bonuses – 7455 Contributions to defined contribution retirement schemes – 842 Total 8263 20061 These highest paid individuals who were neither directors nor supervisors of the Bank whose emoluments fell within the following bands is set out below: 20232022 HKD 2500001–30000001– 3000001–350000024 3500001–4000000–– 4000001–4500000–– 4500001–5000000–– During the years of 2023 and 2022 no emoluments were paid by the Group to any of the persons who are five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.– F-215 –China Merchants Bank Chapter VIII Financial Statements 201 Annual Report 2023 (H share) 13. Loans to directors supervisors and executive officers Loans to directors supervisors and executive officers of the Group are as follows: 20232022 Aggregate amount of relevant loans made by the Group outstanding at year end 35 34 Maximum aggregate amount of relevant loans made by the Group outstanding during the year 50 47 14. Expected credit losses 20232022 Loans and advances to customers 46635 45157 – Loans and advances at amortised cost (Note 22(c)(i)) 50470 40175 – Loans and advances at FVTOCI (Note 22(c)(ii)) (3835) 4982 Amounts due from banks and other financial institutions (2935) (3284) Financial investments (218) 3879 – Debt investments at amortised cost (Note 23(b)(iii)) (1227) 4234 – Debt investments at FVTOCI (Note 23(c)(ii)) 1009 (355) Financial guarantees and loan commitments (2761) 7112 Other 557 3887 Total 41278 56751 15. Income tax (a) Income tax in the consolidated statement of profit or loss represents: 20232022 Current income tax expense 28695 34276 – Chinese mainland 27366 33133 – Hong Kong 1155 973 – Overseas 174 170 Deferred taxation (83) (8457) Total 28612 25819 (b) A reconciliation of income tax expense in the consolidated statement of profit or loss and that calculated at the applicable statutory tax rate is as follows: 20232022 Profit before taxation 176618 165113 Tax at the PRC statutory income tax rate of 25% (2022: 25%) 44154 41278 Tax effects of the following items: (15542) (15459) – Effects of non-taxable income (18872) (17114) – Effects of costs expenses and losses not deductible for tax purpose 4551 2548 – Effects of different applicable rates in other jurisdictions (260) (215) – Tax effect of perpetual bond/perpetual debt capital interest expense (937) (942) – Other (24) 264 Income tax expense 28612 25819 Note: Taxation for Hong Kong and overseas operations are charged at the applicable rates of tax prevailing in relevant regions.– F-216 –202 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 16. Other comprehensive income (a) Income tax effects relating to each component of other comprehensive income 20232022 Before-tax Tax benefit/ Net-of-tax Before-tax Tax benefit/ Net-of-tax amount (expense) amount amount (expense) amount Items that may be reclassified subsequently to profit or loss 2766 (393) 2373 732 553 1285 – Net fair value gain/(loss) on debt instruments measured at FVTOCI 4470 (1133) 3337 (7353) 1736 (5617) – Net changes in expected credit losses of debt instruments measured at FVTOCI (2775) 730 (2045) 4631 (1160) 3471 – Net movement in cash flow hedge reserve (69) 10 (59) 135 (23) 112 – Share of other comprehensive income/(expense) from equity-accounted investees 202 – 202 (1155) – (1155) – Exchange difference on translation of financial statements of foreign operations 983 – 983 4429 – 4429 – Other (45) – (45) 45 – 45 Items that will not be reclassified to profit or loss 440 (82) 358 40 (2) 38 – Net fair value gain on equity instruments designated at FVTOCI 435 (81) 354 52 (4) 48 – Remeasurement of defined benefit scheme 5 (1) 4 (12) 2 (10) Other comprehensive income 3206 (475) 2731 772 551 1323 (b) Movements relating to components of other comprehensive income are as follows: 20232022 Net fair value gain/(loss) on debt instruments measured at FVTOCI Changes in fair value recognised during the year 6083 (1746) Reclassification adjustments for amounts transferred to profit or loss upon disposal (2746) (3871) Net movement in investment revaluation reserve during the year recognised in other comprehensive income 3337 (5617) Net changes in expected credit losses of debt instruments measured at FVTOCI Changes in expected credit losses recognised during the year (2045) 3471 Net movement in investment revaluation reserve during the year recognised in other comprehensive income (2045) 3471 Net fair value gain on equity instruments designated at FVTOCI Changes in fair value recognised during the year 354 48 Net movement in investment revaluation reserve during the year recognised in other comprehensive income 354 48 Net movement in cash flow hedge reserve Effective portion of changes in fair value of hedging instruments (58) 112 Reclassification adjustment for realised gain to profit or loss (1) – Net movement in hedging reserve during the year recognised in other comprehensive income (59) 112 – F-217 –China Merchants Bank Chapter VIII Financial Statements 203 Annual Report 2023 (H share) 17. Earnings per share The calculation of basic earnings per share is based on the net profit attributable to ordinary shareholders of the Bank and the weighted average number of shares in issue for the year. 20232022 Net profit attributable to equity holders of the Bank 146602 138012 Less: Net profit attributable to preference shareholders of the Bank (996) (1675) Net profit attributable to holders of perpetual bonds (3562) (3562) Net profit attributable to ordinary shareholders of the Bank 142044 132775 Weighted average number of shares in issue (in million shares) 25220 25220 Basic and diluted earnings per share (in RMB Yuan) 5.63 5.26 Note: The Bank issued non-cumulative preference shares in 2017 and non-cumulative perpetual bonds in 2020 2021 and 2023. For the purpose of calculating basic earnings per share dividends on non-cumulative preference shares and interests on non-cumulative perpetual bonds declared during the year should be deducted from the amounts attributable to equity holders of the Bank.The conversion feature of preference shares is considered to be contingently issuable ordinary shares. The triggering events of conversion did not occur as of 31 December 2023 and 2022. Therefore the conversion feature of preference shares has no effect on the diluted earnings per share calculation for both years. 18. Balances with central banks 20232022 Statutory deposit reserve (note (i)) 536637 534232 Surplus deposit reserve (note (ii)) 125878 50846 Other deposits with central banks (note (iii)) 5054 2455 Interest receivable 302 285 Total 667871 587818 Notes: (i) The Group places statutory deposit reserves with the PBOC and overseas central banks where it has operations. The statutory deposit reserves are not available for the Group’s daily operations. The statutory deposit reserve funds of the Bank’s institutions located in the Chinese mainland are calculated at 7% and 4% of eligible RMB deposits and foreign currency deposits respectively as at 31 December 2023 (31 December 2022: 7.5% and 6% of eligible RMB deposits and foreign currency deposits respectively). Eligible deposits include deposits from government authorities and other organisations retail deposits corporate deposits and net credit balances of entrusted business and RMB deposits placed by financial institutions outside the Chinese mainland. The amounts of statutory deposit reserves placed with the central banks of overseas countries are determined by local jurisdictions.(ii) Surplus deposit reserve maintained with the PBOC and central banks outside the Chinese mainland are mainly for clearing and settlement purposes.(iii) Other deposits with central banks primarily represent fiscal deposits and foreign exchange reserve placed with the PBOC.– F-218 –204 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 19. Balances with banks and other financial institutions 20232022 Principal (a) 100757 91587 Impairment allowances (a)(b) (223) (509) Subtotal 100534 91078 Interest receivable 235 268 Total 100769 91346 (a) Analysed by nature of counterparties 20232022 In the Chinese mainland 62381 57809 – Banks 57387 54808 – Other financial institutions 4994 3001 Outside the Chinese mainland 38376 33778 – Banks 37872 33390 – Other financial institutions 504 388 Total 100757 91587 Less: Impairment allowances (223) (509) – Banks (196) (490) – Other financial institutions (27) (19) Net carrying amount 100534 91078 (b) Movements of allowances for impairment losses are as follows: 20232022 Balance as at the beginning of the year 509 378 (Release)/charge for the year (note 14) (287) 120 Exchange difference 1 11 Balance as at the end of the year 223 509 – F-219 –China Merchants Bank Chapter VIII Financial Statements 205 Annual Report 2023 (H share) 20. Placements with banks and other financial institutions 20232022 Principal (a) 286247 265415 Impairment allowances (a)(c) (519) (2658) Subtotal 285728 262757 Interest receivable 1966 1452 Total 287694 264209 Note: Pursuant to the relevant provisions in the “Interim Measures for the Administration of Gold Leasing Business” (Yin Ban Fa [2022] No. 88) issued by the General Office of the PBOC in July 2022 with respect to the gold leasing business of the Group with financial institutions since 2023 gold leased out by the Group to other financial institutions is presented under “placements with banks and other financial institutions” a change from “precious metal” in prior years. The comparative figures are re-presented accordingly.(a) Analysed by nature of counterparties 20232022 In the Chinese mainland 214881 203014 – Banks 42041 65651 – Other financial institutions 172840 137363 Outside the Chinese mainland 71366 62401 – Banks 70625 61880 – Other financial institutions 741 521 Total 286247 265415 Less: Impairment allowances (519) (2658) – Banks (92) (163) – Other financial institutions (427) (2495) Net carrying amount 285728 262757 (b) Analysed by remaining maturity 20232022 Maturing – Within one month (inclusive) 107390 90001 – Between one month and one year (inclusive) 175523 158086 – Over one year 2815 14670 Total 285728 262757 (c) Movements of allowances for impairment losses are as follows: 20232022 Balance as at the beginning of the year 2658 2860 Release for the year (note 14) (2143) (235) Exchange difference 4 33 Balance as at the end of the year 519 2658 – F-220 –206 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 21. Amounts held under resale agreements 20232022 Principal (a) 172708 277561 Impairment allowances (a)(d) (589) (1094) Subtotal 172119 276467 Interest receivable 127 209 Total 172246 276676 (a) Analysed by nature of counterparties 20232022 In the Chinese mainland 172334 277382 – Banks 9961 42077 – Other financial institutions 162373 235305 Outside the Chinese mainland 374 179 – Banks 88 – – Other financial institutions 286 179 Total 172708 277561 Less: Impairment allowances (589) (1094) – Banks (148) (216) – Other financial institutions (441) (878) Net carrying amount 172119 276467 (b) Analysed by remaining maturity 20232022 Maturing – Within one month (inclusive) 172119 268890 – Between one month and one year (inclusive) – 7577 Total 172119 276467 (c) Analysed by underlying assets 20232022 Bonds 164702 256129 Bills 7417 20338 Total 172119 276467 (d) Movements of allowances for impairment losses are as follows: 20232022 Balance as at the beginning of the year 1094 4263 Release for the year (note 14) (505) (3169) Balance as at the end of the year 589 1094 – F-221 –China Merchants Bank Chapter VIII Financial Statements 207 Annual Report 2023 (H share) 22. Loans and advances to customers (a) Loans and advances to customers 20232022 Gross amount of loans and advances to customers at amortised cost (i) 5913324 5432112 Interest receivable 11442 11326 Subtotal 5924766 5443438 Less: Loss allowances of loans and advances to customers at amortised cost (i) (266805) (254913) Loss allowances of interest receivable (815) (846) Subtotal (267620) (255759) Loans and advances to customers at amortised cost 5657146 5187679 Loans and advances to customers at FVTOCI (ii) 525179 614481 Loans and advances to customers at FVTPL (iii) 70430 4994 Total 6252755 5807154 (i) Loans and advances to customers at amortised cost 20232022 Corporate loans and advances 2475432 2270323 Retail loans and advances 3437883 3161789 Discounted bills 9 – Gross amount of loans and advances to customers at amortised cost 5913324 5432112 Less: Loss allowances (266805) (254913) – Stage 1 (12-month ECL) (165866) (159932) – Stage 2 (Lifetime ECL – not credit-impaired) (47729) (44898) – Stage 3 (Lifetime ECL – credit-impaired) (53210) (50083) Net amount of loans and advances to customers at amortised cost 5646519 5177199 (ii) Loans and advances to customers at FVTOCI 20232022 Corporate loans and advances 120762 100430 Discounted bills 404417 514051 Loans and advances to customers at FVTOCI 525179 614481 Loss allowances (2729) (6563) – Stage 1 (12-month ECL) (2726) (6311) – Stage 2 (Lifetime ECL – not credit-impaired) (3) (252) – Stage 3 (Lifetime ECL – credit-impaired) – – No loss allowance is recognised in the consolidated statement of financial position for loans and advances to customers at FVTOCI as the carrying amount is at fair value.(iii) Loans and advances to customers at FVTPL 20232022 Corporate loans and advances 3661 4863 Discounted bills 66701 3 Interest receivable 68 128 Total 70430 4994 – F-222 –208 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 22. Loans and advances to customers (continued) (b) Analysis of loans and advances to customers (i) Analysed by industry sector and category: Operations in the Chinese mainland 20232022 Manufacturing 557691 445218 Transportation storage and postal services 477016 461434 Property development 303707 349682 Production and supply of electric power heating power gas and water 259864 203870 Wholesale and retail 187737 171786 Leasing and commercial services 186463 158320 Construction 110577 103998 Telecommunications software and IT services 95394 78950 Finance 88296 75593 Water environment and public utilities management 42813 64886 Mining 42326 34421 Other 76400 67677 Subtotal of corporate loans and advances 2428284 2215835 Discounted bills 471127 514054 Residential mortgage 1376815 1379825 Credit cards 935777 884395 Micro-finance loans 750019 629857 Consumer loans 301538 202225 Other 7806 11374 Subtotal of retail loans and advances 3371955 3107676 Gross amount of loans and advances to customers 6271366 5837565 Operations outside the Chinese mainland 20232022 Finance 45368 36521 Transportation storage and postal services 36248 30814 Property development 22960 26298 Manufacturing 19335 20494 Production and supply of electric power heating power gas and water 12359 9023 Wholesale and retail 10002 8923 Telecommunications software and IT services 8323 10908 Leasing and commercial services 6207 3430 Mining 4945 6074 Construction 623 1772 Water environment and public utilities management 419 110 Other 4782 5414 Subtotal of corporate loans and advances 171571 159781 Residential mortgage 8671 9383 Credit cards 133 124 Micro-finance loans 1278 1181 Other 55846 43425 Subtotal of retail loans and advances 65928 54113 Gross amount of loans and advances to customers 237499 213894 As at 31 December 2023 over 90% of the Group’s loans and advances to customers were conducted in the Chinese mainland (31 December 2022: over 90%).– F-223 –China Merchants Bank Chapter VIII Financial Statements 209 Annual Report 2023 (H share) 22. Loans and advances to customers (continued) (b) Analysis of loans and advances to customers (continued) (ii) Analysed by type of guarantees: 20232022 Credit loans 2592093 2219635 Guaranteed loans 822059 836550 Collateralised loans 2244129 2132337 Pledged loans 379457 348883 Subtotal 6037738 5537405 Discounted bills 471127 514054 Gross amount of loans and advances to customers 6508865 6051459 (iii) Analysed by overdue term: 2023 Overdue Overdue Overdue from from Overdue Total within 3 months 1 year up to more than overdue 3 months up to 1 year 3 years 3 years loans Credit loans 20486 13310 3905 1661 39362 Guaranteed loans 6971 4360 7053 618 19002 Collateralised loans 6133 4638 5157 1549 17477 Pledged loans 2571 766 1556 1249 6142 Gross amount of loans and advances to customers 36161 23074 17671 5077 81983 2022 Overdue Overdue Overdue from from Overdue Total within 3 months 1 year up to more than overdue 3 months up to 1 year 3 years 3 years loans Credit loans 22260 12382 2365 880 37887 Guaranteed loans 6533 7537 3581 762 18413 Collateralised loans 5180 6177 2913 1696 15966 Pledged loans 3234 573 951 1261 6019 Gross amount of loans and advances to customers 37207 26669 9810 4599 78285 Note: Loans are classified as overdue when the principal or interest is overdue more than one day.Among the above-mentioned overdue loans and advances to customers collateralised loans and pledged loans that are overdue but not impaired at the reporting date are as follows: 20232022 Collateralised loans that are overdue but not impaired 5448 4198 Pledged loans that are overdue but not impaired 2565 1819 Total 8013 6017 – F-224 –210 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 22. Loans and advances to customers (continued) (b) Analysis of loans and advances to customers (continued) (iv) Analysed by ECL 2023 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Loans and advances measured at amortised cost 5686659 165105 61560 5913324 Less: Loss allowances of loans and advances to customers at amortised cost (165866) (47729) (53210) (266805) Net amount of loans and advances to customers at amortised cost 5520793 117376 8350 5646519 Loans and advances to customers at FVTOCI 524624 555 – 525179 Loss allowances of loans and advances to customers at FVTOCI (2726) (3) – (2729) 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Loans and advances measured at amortised cost 5217868 156240 58004 5432112 Less: Loss allowances of loans and advances to customers at amortised cost (159932) (44898) (50083) (254913) Net amount of loans and advances to customers at amortised cost 5057936 111342 7921 5177199 Loans and advances to customers at FVTOCI 612660 1821 – 614481 Loss allowances of loans and advances to customers at FVTOCI (6311) (252) – (6563) – F-225 –China Merchants Bank Chapter VIII Financial Statements 211 Annual Report 2023 (H share) 22. Loans and advances to customers (continued) (c) Movements of allowance for expected credit loss (i) Reconciliation of allowance for expected credit loss for loans and advances to customers measured at amortised cost: 2023 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 159932 44898 50083 254913 Transfer to – Stage 1 7480 (7309) (171) – – Stage 2 (5807) 6382 (575) – – Stage 3 (1625) (14547) 16172 – Charge for the year (note 14) 5274 18214 26982 50470 Write-offs/disposals – – (47922) (47922) Recovery of loans and advances written off – – 8819 8819 Exchange and other differences 612 91 (178) 525 Balance as at the end of the year 165866 47729 53210 266805 2022 – Stage 2 (Lifetime – Stage 3 ECL – not (Lifetime – Stage 1 credit- ECL – credit- (12-month ECL) impaired) impaired) Total Balance as at the beginning of the year 169347 32007 43169 244523 Transfer to – Stage 1 3039 (2965) (74) – – Stage 2 (7699) 7879 (180) – – Stage 3 (3693) (4681) 8374 – (Release)/charge for the year (note 14) (1694) 12653 29216 40175 Write-offs/disposals – (71) (39016) (39087) Recovery of loans and advances written off – – 8972 8972 Exchange and other differences 632 76 (378) 330 Balance as at the end of the year 159932 44898 50083 254913 (ii) Reconciliation of allowance for expected credit loss for loans and advances to customers measured at FVTOCI: 20232022 Balance as at the beginning of the year 6563 1581 (Release)/charge for the year (note 14) (3835) 4982 Exchange difference 1 – Balance as at the end of the year 2729 6563 – F-226 –212 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 22. Loans and advances to customers (continued) (d) Finance leases receivable The table below provides an analysis of finance leases receivable included in loans and advances to customers for leases of assets in which the Group is a lessor: 20232022 Total minimum leases receivable Within 1 year (inclusive) 15305 13323 Over 1 year but within 2 years (inclusive) 8010 11035 Over 2 years but within 3 years (inclusive) 7573 6074 Over 3 years but within 4 years (inclusive) 4755 6089 Over 4 years but within 5 years (inclusive) 3729 3860 Over 5 years 19145 17448 Subtotal 58517 57829 Unearned finance income (10491) (9665) Present value of minimum leases receivable 48026 48164 Less: Impairment allowances (2629) (3671) – Stage 1 (12-month ECL) (661) (1308) – Stage 2 (Lifetime ECL – not credit-impaired) (1368) (1646) – Stage 3 (Lifetime ECL – credit-impaired) (600) (717) Net carrying amount of finance leases receivable 45397 44493 23. Financial investments Notes 2023 2022 Financial investments at fair value through profit or loss 23(a) 526145 423467 Debt investments at amortised cost 23(b) 1749024 1555457 Debt investments at FVTOCI 23(c) 899102 780349 Equity investments designated at FVTOCI 23(d) 19649 13416 Total 3193920 2772689 (a) Financial investments at fair value through profit or loss Notes 2023 2022 Financial investments measured at FVTPL (i) 513266 411591 Financial assets designated at fair value through profit or loss (ii) 12879 11876 Total 526145 423467 – F-227 –China Merchants Bank Chapter VIII Financial Statements 213 Annual Report 2023 (H share) 23. Financial investments (continued) (a) Financial investments at fair value through profit or loss (continued) (i) Financial investments measured at FVTPL Financial investments held for trading 20232022 Bonds: Classified by issuer 251189 182416 – Government bonds 128894 81781 – Bonds issued by policy banks 20502 21871 – Bonds issued by commercial banks and other financial institutions 40591 35999 – Other debt securities 61202 42765 Classified by listing 251189 182416 – Listed in the Chinese mainland 236106 167998 – Listed outside the Chinese mainland 12787 12215 – Unlisted 2296 2203 Other investments: Classified by underlying assets 4347 1971 – Equity investments 257 17 – Fund investments 1440 814 – Wealth management products 1046 1032 – Long position in precious metal contracts 1604 108 Classified by listing 4347 1971 – Listed outside the Chinese mainland 1604 134 – Unlisted 2743 1837 Total financial investments held for trading 255536 184387 – F-228 –214 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 23. Financial investments (continued) (a) Financial investments at fair value through profit or loss (continued) (i) Financial investments measured at FVTPL (continued) Other financial investments measured at FVTPL 20232022 Bonds: Classified by issuer 10619 20789 – Bonds issued by policy banks 740 – – Bonds issued by commercial banks and other financial institutions 3781 14039 – Other debt securities 6098 6750 Classified by listing 10619 20789 – Listed in the Chinese mainland 7483 18216 – Listed outside the Chinese mainland 2777 1872 – Unlisted 359 701 Other investments: Classified by underlying assets 247111 206415 – Equity investments 4228 4362 – Fund investments 240864 199725 – Wealth management products 1683 1511 – Other 336 817 Classified by listing 247111 206415 – Listed in the Chinese mainland 990 330 – Listed outside the Chinese mainland 972 653 – Unlisted 245149 205432 Total other financial investments measured at FVTPL 257730 227204 Total financial investments measured at FVTPL 513266 411591 (ii) Financial investments designated at fair value through profit or loss 20232022 Bonds: Classified by issuer 12879 11876 – Government bonds 228 218 – Bonds issued by policy banks 4492 4559 – Bonds issued by commercial banks and other financial institutions 7327 6370 – Other debt securities 832 729 Classified by listing 12879 11876 – Listed in the Chinese mainland 12637 11656 – Listed outside the Chinese mainland 242 220 – F-229 –China Merchants Bank Chapter VIII Financial Statements 215 Annual Report 2023 (H share) 23. Financial investments (continued) (b) Debt investments at amortised cost 20232022 Debt investments at amortised cost (i)(ii) 1768010 1579845 Interest receivable 20796 19294 Subtotal 1788806 1599139 Impairment losses of principal (i)(ii)(iii) (39390) (43448) Impairment losses of interest receivable (392) (234) Subtotal (39782) (43682) Total 1749024 1555457 (i) Debt investments at amortised cost: 20232022 Bonds: Classified by issuer 1680262 1452499 – Government bonds 1179073 993624 – Bonds issued by policy banks 442206 394126 – Bonds issued by commercial banks and other financial institutions 51732 56913 – Other debt securities 7251 7836 Classified by listing 1680262 1452499 – Listed in the Chinese mainland 1607814 1395184 – Listed outside the Chinese mainland 41533 33319 – Unlisted 30915 23996 Fair value for the listed bonds 1708448 1457373 Other investments: Classified by underlying assets 87748 127346 – Non-standard assets – Loans and advances to customers 73709 108616 – Non-standard assets – Creditor’s beneficiary rights to other commercial banks 3738 5500 – Non-standard assets – Other 9622 12582 – Other 679 648 Classified by listing 87748 127346 – Unlisted 87748 127346 Total 1768010 1579845 Less: Loss allowances (39390) (43448) Stage 1 (12-month ECL) (13193) (10120) Stage 2 (Lifetime ECL – not credit-impaired) (486) (960) Stage 3 (Lifetime ECL – credit-impaired) (25711) (32368) Net debt investments at amortised cost 1728620 1536397 – F-230 –216 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 23. Financial investments (continued) (b) Debt investments at amortised cost (continued) (ii) Analysed by stage of ECL: 2023 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Debt investments at amortised cost 1738945 1517 27548 1768010 Less: Loss allowances of debt investments at amortised cost (13193) (486) (25711) (39390) Net debt investments at amortised cost 1725752 1031 1837 1728620 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Debt investments at amortised cost 1543652 2073 34120 1579845 Less: Loss allowances of debt investments at amortised cost (10120) (960) (32368) (43448) Net debt investments at amortised cost 1533532 1113 1752 1536397 (iii) Movements of allowances for expected credit loss 2023 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 10120 960 32368 43448 Transfer to: – Stage 1 – – – – – Stage 2 (37) 37 – – – Stage 3 – (484) 484 – Charge/(release) for the year (note 14) 3111 (25) (4313) (1227) Write-offs/disposals (5) (1) (2904) (2910) Recovery of debt previously written off – – 66 66 Exchange difference 4 (1) 10 13 Balance as at the end of the year 13193 486 25711 39390 – F-231 –China Merchants Bank Chapter VIII Financial Statements 217 Annual Report 2023 (H share) 23. Financial investments (continued) (b) Debt investments at amortised cost (continued) (iii) Movements of allowances for expected credit loss (continued) 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 14974 712 24021 39707 Transfer to: – Stage 1 – – – – – Stage 2 (27) 27 – – – Stage 3 (153) (298) 451 – (Release)/charge for the year (note 14) (4674) 518 8390 4234 Write-offs/disposals – – (531) (531) Recovery of debt previously written off – – 28 28 Exchange difference – 1 9 10 Balance as at the end of the year 10120 960 32368 43448 (c) Debt investments at FVTOCI 20232022 Debt investments at FVTOCI (i) 889736 771271 Interest receivable 9366 9078 Total 899102 780349 Impairment losses of debt investments at FVTOCI (ii) (6812) (6540) Impairment losses of interest receivable (148) (80) Total (6960) (6620) No impairment allowances are recognised in the consolidated statement of financial position for debt investments at FVTOCI as the carrying amount is at fair value.(i) Debt investments at FVTOCI: 20232022 Bonds: Classified by issuer 889736 771271 – Government bonds 636625 524651 – Bonds issued by policy banks 35519 74072 – Bonds issued by commercial banks and other financial institutions 149397 119602 – Other debt securities 68195 52946 Classified by listing 889736 771271 – Listed in the Chinese mainland 676653 611110 – Listed outside the Chinese mainland 105084 90148 – Unlisted 107999 70013 – F-232 –218 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 23. Financial investments (continued) (c) Debt investments at FVTOCI (continued) (ii) Movements of allowances for expected credit loss 20232022 Balance as at the beginning of the year 6540 6622 Charge/(release) for the year (note 14) 1009 (355) Write-offs/disposals (807) – Exchange difference 70 273 Balance as at the end of the year 6812 6540 (d) Equity investments designated at FVTOCI 20232022 Repossessed equity instruments 2857 3266 Other 16792 10150 Total 19649 13416 Classified by listing – Listed in the Chinese mainland 926 1412 – Listed outside the Chinese mainland 9515 2744 – Unlisted 9208 9260 Total 19649 13416 During the year ended 31 December 2023 the Group disposed part of the equity investments designated at FVTOCI. The fair value of the equity investments disposed at the date of derecognition was RMB1226 million (2022: RMB2879 million). The cumulative net of tax loss of RMB49 million (2022: cumulative net of tax gain of RMB20 million) was transferred from investment revaluation reserve to retained earnings on disposal. 24. Particulars of principal subsidiaries of the bank The following list contains particulars of subsidiaries which principally affect the financial results assets or liabilities of the Group. Unless otherwise stated the class of all shares held is ordinary. All of these companies are subsidiaries as defined under Note 4(1) and have been included in the scope of the consolidated financial statements of the Group.% of Place of Particulars of ownership incorporation the issued and held by Economic Legal Name of company and operation paid up capital the Bank Principal activities nature representative (in millions) CMB International Capital Holdings Hong Kong HKD4129 100% Investment bank Limited liability Wang Liang Corporation Limited (note (i)) and investment management CMB Financial Leasing Company Limited Shanghai RMB12000 100% Finance leasing Limited liability Zhong Desheng (note (ii)) CMB Wing Lung Bank Limited (note (iii)) Hong Kong HKD1161 100% Banking Limited liability Wang Liang China Merchants Fund Management Co. Ltd. Shenzhen RMB1310 55% Fund management Limited liability Wang Xiaoqing (note (iv)) CMB Wealth Management Co. Ltd (note (v)) Shenzhen RMB5556 90% Asset management Limited liability Chen Yisong China Merchants Europe S.A. (note (vi)) Luxembourg EUR100 100% Banking Limited liability Xue Fei Cigna & CMB Asset Management Company Beijing RMB500 (note (vii)) Asset management Limited liability Wang Xiaoqing Limited (note (vii)) – F-233 –China Merchants Bank Chapter VIII Financial Statements 219 Annual Report 2023 (H share) 24. Particulars of principal subsidiaries of the bank (continued) Notes: (i) CMB International Capital Holdings Corporation Limited (“CMBIC”) formerly known as Jiangnan Finance Company Limited and CMB International Capital Corporation Limited is the Bank’s wholly-owned subsidiary approved for setting up by the PBOC through its Yin Fu [1998] No. 405. In 2014 the Bank made an additional capital contribution of HKD750 million in CMBIC. The capital of CMBIC increased to HKD1000million and the Bank’s shareholding percentage remained unchanged. The Board of Directors passed “The Resolution regarding the CapitalIncrease and Restructuring of CMBIC” which agreed that the Bank made capital contribution of USD400 million (or its equivalent) to CMBIC on 28 July 2015. The capital contribution was completed on 20 January 2016.(ii) CMB Financial Leasing Company Limited (“CMBFL”) is a wholly-owned subsidiary of the Bank approved for setting up by the former CBIRC through its Yin Jian Fu [2008] No. 110 and commenced its operation in April 2008. In 2014 the Bank made an additional capital contribution of RMB2000 million in CMBFL. The capital of CMBFL increased to RMB6000 million and the Bank’s shareholding percentage remained unchanged. In August 2021 CMBFL converted RMB6000 million of its retained earnings into share capital and the capital of CMBFL increased to RMB12000 million. The Bank’s shareholding percentage remained unchanged.(iii) CMB Wing Lung Bank Limited (“CMB WLB”) was formerly known as Wing Lung Bank Limited. On 30 September 2008 the Bank acquired a 53.12% equity interests in CMB WLB. CMB WLB became a wholly owned subsidiary of the Bank on 15 January 2009. CMB WLB had withdrawn from listing on the HKEx as of 16 January 2009.(iv) In 2012 the Bank acquired 21.60% equity interests in China Merchants Fund Management Co. Ltd. (“CMFM”) its former associate from ING Asset Management B.V. at a consideration of EUR63567567.57. Following the settlement of the above consideration in cash the Bank’s shareholding in CMFM increased from 33.40% to 55.00% in 2013. As a result the Bank obtained the control over CMFM which became the Bank’s subsidiary on 28 November 2013. In December 2017 the Bank made an additional capital contribution of RMB605 million in CMFM and other shareholders of CMFM also made capital contribution of RMB495 million proportionally. The capital of CMFM increased to RMB1310 million and the Bank’s shareholding percentage remained unchanged.(v) CMB Wealth Management Co. Ltd. (“CMBWM”) is a wholly-owned subsidiary of the Bank approved for setting up by the former CBIRC with Yin Bao Jian Fu [2019] No. 981. It was formally established on 1 November 2019. In accordance with the approval of former CBIRC (Yin BaoJian Fu [2021] No. 920)” JPMorgan Asset Management (Asia Pacific) Limited (“ JPMorgan Asset Management “) has subscribed for a 10%stake in CMBWM in 2022 with an investment of RMB2667 million. After the completion of capital injection CMBWM’s registered capital has been increased to approximately RMB5556 million from RMB5000 million and the Bank’s and JPMorgan Asset Management’s shareholdings are 90% and 10% respectively. The legal representative of CMBWM was changed from Chen Yisong to Wu Jianbing on 22 January 2024.(vi) China Merchants Europe S.A. (“CMB Europe S.A.”) is a wholly-owned subsidiary of the Bank approved by the former CBIRC with Yin Jian Fu [2016] No. 460. The Bank received an approval from the European Central Bank (ECB) for the establishment of CMB Europe S.A. in Luxembourg in May 2021. In June 2023 the Bank made an additional capital contribution of EUR 50 million in CMB Europe S.A. The capital of CMB Europe S.A. increased to EUR 100 million and the Bank’s shareholding percentage remained unchanged.(vii) Cigna & CMB Asset Management Company Limited (“CIGNA & CMAM”) was registered and established on 18 October 2020 with the approval for setting up by the former CBIRC with Yin Bao Jian Fu [2020] No. 708. CIGNA & CMAM is an indirectly controlled subsidiary of the Bank with 87.3458% held by CIGNA & CMB Life Insurance Co. Ltd. a joint venture of the Bank and 12.6542% held by CMBIC a subsidiary of the Bank.– F-234 –220 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 25. Interests in joint ventures 20232022 Share of net assets 15707 14247 Share of profits for the year 1860 1710 Share of other comprehensive income/(expense) for the year 31 (997) Details of the Group’s interests in major joint ventures are as follows: Place of Particulars of Group’s Percentage of incorporation issued and effective ownership held Name of joint ventures Economic nature and operation paid up capital interest by the Bank Principal activity (in millions) CIGNA & CMB Life Insurance Co. Ltd. (note(i)) Limited liability Shenzhen RMB2800 50.00% 50.00% Life insurance business Merchants Union Consumer Finance Company Joint stock limited Shenzhen RMB10000 50.00% 50.00% Consumer finance Limited (note(ii)) company Notes: (i) The Group holds 50.00% equity interests in CIGNA & CMB Life Insurance Co. Ltd. (“CIGNA & CMB Life”) and Cigna Health and Life Insurance Company (“CHLIC”) holds the other 50.00% equity interests. The Bank and CHLIC share the joint venture’s risk profits and losses based on their shareholding proportionally. The Bank’s investment in CIGNA & CMB Life is accounted for as an investment in a joint venture.(ii) CMB WLB one of the Group’s wholly-owned subsidiaries and China United Network Communications Limited (“CUNC”) a subsidiary of China Unicom Limited jointly set up Merchants Union Consumer Finance Company Limited (“MUCFC”). Former CBIRC approved the operation of MUCFC on 3 March 2015. CMB WLB and CUNC each held 50% equity interests in MUCFC and share the risks profits and losses proportionally based on their shareholdings. In December 2017 the Bank and CUNC made a capital contribution of RMB600 million in MUCFC respectively. After the capital injection the capital of MUCFC increased to RMB2859 million with the Bank’s shareholding percentage becoming 15% CMB WLB’s shareholding percentage becoming 35% and the Group’s total shareholding percentage remained at 50%. In December 2018 the Bank made another capital contribution of RMB1000 million in MUCFC and CUNC made the same amount of capital injection. After that the share capital of MUCFC has reached RMB3869 million. The Bank and CMB WLB then held 24.15% and 25.85% of equity interests in MUCFC respectively and the Group’s total shareholding percentage remained at 50%.In July 2021 CMB WLB transferred all its shares of MUCFC to the Bank. After the transfer the Bank and CUNC each held 50% of equity interests in MUCFC and the Group’s total shareholding percentage remained unchanged. In October 2021 MUCFC converted RMB1331 million of its capital reserve and RMB4800 million of its retained earnings into share capital and the share capital of MUCFC increased to RMB10000 million after the conversion.In July 2023 MUCFC completed the registration of the change of its Chinese name from “招联消费金融有限公司” to “招联消费金融股份有限公司”.– F-235 –China Merchants Bank Chapter VIII Financial Statements 221 Annual Report 2023 (H share) 25. Interests in joint ventures (continued) Summarised financial information with necessary adjustments in accordance with the Group’s accounting policies of the joint ventures which are individually material to the Group is as follows: (i) CIGNA & CMB Life: Other Total comprehensive comprehensive Cash Depreciation Net income/ income/ and cash and Income Assets Liabilities Equity Revenue profit (expense) (expense) equivalents amortisation tax 2023 CIGNA & CMB Life 165340 155485 9855 40661 429 63 492 2590 149 (944) Group’s effective interest 82359 77743 4616 20331 167 31 198 1295 75 (472) 2022 CIGNA & CMB Life 130758 121145 9613 31841 730 (1996) (1266) 1071 147 (475) Group’s effective interest 65116 60573 4543 15921 336 (997) (661) 536 74 (238) (ii) MUCFC: Total Cash Depreciation Net comprehensive and cash and Income Assets Liabilities Equity Revenue profit income equivalents amortisation tax 2023 MUCFC 176421 156054 20367 19602 3600 3600 4170 44 533 Group’s effective interest 88211 78027 10184 9801 1800 1800 2085 22 267 2022 MUCFC 164346 147279 17067 17501 3329 3329 5425 47 500 Group’s effective interest 82174 73640 8534 8751 1665 1665 2713 24 250 Summarised financial information of the joint ventures that are not individually material to the Group is as follows: Other Total comprehensive comprehensive Net loss expense expense 2023 Other joint ventures (1197) – (1197) Group’s effective interest (107) – (107) 2022 Other joint ventures (2874) – (2874) Group’s effective interest (291) – (291) – F-236 –222 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 26. Interests in associates 20232022 Share of net assets 10883 9597 Share of profits for the year 616 815 Share of other comprehensive income/(expense) for the year 171 (158) Details of the Group’s interest in major associate are as follows: Place of Particulars of Group’s Percentage of incorporation issued and effective ownership held Economic nature and operation paid up capital interest by the Bank Principal activity (in millions) Bank of Taizhou Co. Ltd. (Note) Joint stock limited Taizhou RMB 1800 24.8559% 24.8559% Commercial Bank company Note: The Bank which originally held a 10% stake in Bank of Taizhou acquired a total of 14.8559% stake from Ping An Trust Co. Ltd. and Ping An Life Insurance Company of China Ltd. at a total consideration of RMB3121 million on 31 May 2021. Upon the completion of the transaction the Bank held 24.8559% stake of Bank of Taizhou. The Bank can exercise significant influence on Bank of Taizhou and therefore this investment is included in interests in associates.Summarised financial information of the associate which is individually material to the Group is as follows: Other Total Cash Depreciation Net comprehensive comprehensive and cash and Income Assets Liabilities Equity Revenue profit income income equivalents amortisation tax 2023 Bank of Taizhou Co.Ltd. 402413 369702 32711 12552 4639 184 4823 9561 522 1099 Group’s effective interest 98881 91893 6988 3120 1052 46 1098 2376 130 273 2022 Bank of Taizhou Co.Ltd. 372578 343254 29324 11034 4445 (138) 4307 20368 522 1196 Group’s effective interest 91509 85319 6190 2743 1004 (35) 969 5063 130 297 Summarised financial information of the associates that are not individually material to the Group is as follows: Other Total comprehensive comprehensive Net loss income/(expense) expense 2023 Other associates (5308) 781 (4527) Group’s effective interest (436) 125 (311) 2022 Other associates (11527) (737) (12264) Group’s effective interest (189) (123) (312) – F-237 –China Merchants Bank Chapter VIII Financial Statements 223 Annual Report 2023 (H share) 27. Investment properties 20232022 Cost: At 1 January 3301 3135 Transfers (out)/in (159) 13 Disposals (79) – Exchange difference 34 153 At 31 December 3097 3301 Accumulated depreciation: At 1 January 2033 1763 Depreciation 140 132 Transfers (out)/in (204) 33 Disposals (57) – Exchange difference 25 105 At 31 December 1937 2033 Net carrying amount: At 31 December 1160 1268 At 1 January 1268 1372 As at 31 December 2023 no impairment allowance was considered necessary for investment properties by the Group (31 December 2022: Nil).Investment properties of the Group mainly represent the leased properties of CMB WLB and the Bank that have been leased out under operating leases. The fair value of the Group’s investment properties is determined by the market approach and the method of capitalisation of net rental income. As at 31 December 2023 the fair value of these properties was RMB4432 million (31 December 2022: RMB5534 million).The Group’s total future minimum leases receivable under non-cancellable operating leases are as follows: 20232022 Within 1 year (inclusive) 227 289 1 year to 2 years (inclusive) 196 240 2 year to 3 years (inclusive) 165 184 3 year to 4 years (inclusive) 136 153 4 year to 5 years (inclusive) 79 102 Over 5 years 225 275 Total 1028 1243 The fair value hierarchy of the investment properties of the Group are listed as follows: Fair Value as at 31 December Level 1 Level 2 Level 3 2023 Located in the Chinese mainland – 2036 – 2036 Located overseas – – 2396 2396 Total – 2036 2396 4432 Fair Value as at 31 December Level 1 Level 2 Level 3 2022 Located in the Chinese mainland – 3140 – 3140 Located overseas – – 2394 2394 Total – 3140 2394 5534 In estimating the fair value of the properties the highest and best use of the properties is their current use.– F-238 –224 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 28. Property and equipment Aircraft vessels and Land and Construction Computer Leasehold professional buildings in progress equipment improvements equipment Other Total Cost: At 1 January 2023 30501 3787 18516 11678 85741 5478 155701 Additions 40 2879 1145 775 24689 360 29888 Reclassification and transfers 2445 (2686) 28 380 – (8) 159 Disposals (15) – (2374) (82) (6983) (625) (10079) Exchange difference 55 – 23 16 1356 5 1455 At 31 December 2023 33026 3980 17338 12767 104803 5210 177124 Accumulated depreciation: At 1 January 2023 14339 – 14791 8045 13111 4344 54630 Depreciation 1408 – 2064 934 5921 541 10868 Reclassification and transfers 204 – 24 – – (24) 204 Disposals (10) – (2319) (40) (2400) (595) (5364) Exchange difference 43 – 22 7 183 4 259 At 31 December 2023 15984 – 14582 8946 16815 4270 60597 Impairment loss: At 1 January 2023 20 – – – 1132 – 1152 Charge – – – – 183 – 183 Disposals – – – – (175) – (175) Exchange difference – – – – 19 – 19 At 31 December 2023 20 – – – 1159 – 1179 Net carrying amount: At 31 December 2023 17022 3980 2756 3821 86829 940 115348 At 1 January 2023 16142 3787 3725 3633 71498 1134 99919 – F-239 –China Merchants Bank Chapter VIII Financial Statements 225 Annual Report 2023 (H share) 28. Property and equipment (continued) Aircraft vessels and Land and Construction Computer Leasehold professional buildings in progress equipment improvements equipment Other Total Cost: At 1 January 2022 28876 3502 16860 10925 61327 5909 127399 Additions 24 1910 1898 649 26872 357 31710 Reclassification and transfers 1490 (1625) 162 122 – (162) (13) Disposals (150) – (517) (100) (7912) (643) (9322) Exchange difference 261 – 113 82 5454 17 5927 At 31 December 2022 30501 3787 18516 11678 85741 5478 155701 Accumulated depreciation: At 1 January 2022 12998 – 12924 7028 9051 4465 46466 Depreciation 1286 – 2174 1103 5027 557 10147 Reclassification and transfers (33) – 113 – – (113) (33) Disposals (87) – (497) (70) (1653) (578) (2885) Exchange difference 175 – 77 (16) 686 13 935 At 31 December 2022 14339 – 14791 8045 13111 4344 54630 Impairment loss: At 1 January 2022 20 – – – 498 – 518 Charge – – – – 778 – 778 Disposals – – – – (194) – (194) Exchange difference – – – – 50 – 50 At 31 December 2022 20 – – – 1132 – 1152 Net carrying amount: At 31 December 2022 16142 3787 3725 3633 71498 1134 99919 At 1 January 2022 15858 3502 3936 3897 51778 1444 80415 (a) As at 31 December 2023 the process of obtaining the registration certificate for the Group’s properties with an aggregate net carrying value of RMB2476 million (31 December 2022: RMB1108 million) was still in progress. Management is of the view that the aforesaid matter would neither affect the rights of the Group to these assets nor have any significant impact on the business operation of the Group.(b) As at 31 December 2023 the Group had no significant unused property and equipment (31 December 2022: None).(c) As at 31 December 2023 the carrying value of mortgaged aircraft and vessels for placements from banks and other financial institutions of the CMBFL was RMB24508 million (31 December 2022: RMB24512 million).(d) The Group’s total future minimum lease receivables under non-cancellable operating leases are as follows: 20232022 Within 1 year (inclusive) 10711 11306 1 year to 2 years (inclusive) 8993 9601 2 year to 3 years (inclusive) 7906 8134 3 year to 4 years (inclusive) 6808 7087 4 year to 5 years (inclusive) 6363 6151 Over 5 years 21954 19876 Total 62735 62155 – F-240 –226 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 29. Lease contracts (a) Right-of-use assets Motor Land Computer vehicles use rights Buildings equipment and other Total Cost: At 1 January 2023 6000 23926 10 11 29947 Additions – 4161 – 2 4163 Decrease – (3055) – (2) (3057) Exchange difference 2 12 – – 14 At 31 December 2023 6002 25044 10 11 31067 Accumulated depreciation: At 1 January 2023 1375 10953 5 2 12335 Depreciation (note 10) 182 4018 3 2 4205 Decrease – (2584) – (1) (2585) Exchange difference – 12 – – 12 At 31 December 2023 1557 12399 8 3 13967 Impairment loss: At 1 January 2023 59 – – – 59 At 31 December 2023 59 – – – 59 Net carrying amount: At 31 December 2023 4386 12645 2 8 17041 At 1 January 2023 4566 12973 5 9 17553 Motor Land Computer vehicles use rights Buildings equipment and other Total Cost: At 1 January 2022 5985 23070 7 16 29078 Additions – 3656 4 7 3667 Decrease – (2848) (1) (12) (2861) Exchange difference 15 48 – – 63 At 31 December 2022 6000 23926 10 11 29947 Accumulated depreciation: At 1 January 2022 1190 9414 3 9 10616 Depreciation (note 10) 181 3965 3 2 4151 Decrease – (2458) (1) (9) (2468) Exchange difference 4 32 – – 36 At 31 December 2022 1375 10953 5 2 12335 Impairment loss: At 1 January 2022 59 – – – 59 At 31 December 2022 59 – – – 59 Net carrying amount: At 31 December 2022 4566 12973 5 9 17553 At 1 January 2022 4736 13656 4 7 18403 The Group mainly leases land use rights and buildings for its operations. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the length of the non-cancellable period the Group reassesses whether it is reasonably certain to exercise an extension option or not to exercise a termination option upon the occurrence of either a significant event or a significant change in circumstances that is within the control of the lessee.– F-241 –China Merchants Bank Chapter VIII Financial Statements 227 Annual Report 2023 (H share) 29. Lease contracts (continued) (b) Lease liabilities Analysis of the Group’s lease liabilities by remaining maturity is as follows: 20232022 Within 1 month (inclusive) 454 503 1 month to 3 months (inclusive) 578 591 3 months to 1 year (inclusive) 2804 3091 1 year to 2 years (inclusive) 3085 3038 2 years to 5 years (inclusive) 4672 4612 Over 5 years 1082 1178 Total 12675 13013 Interest expense on lease liabilities is set out in note 7.(c) Short-term leases and leases of low-value assets Short-term lease expense and leases of low-value assets expense are disclosed in note 10. The Group entered into short-term leases for buildings computer equipment motor vehicles and other.(d) During the year of 2023 total cash outflow of the Group’s leases amounted to RMB5053 million (2022: RMB4932 million).(e) As at 31 December 2023 and 2022 the leases committed but not yet commenced were not significant.– F-242 –228 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 30. Intangible assets Software and other Core deposits Total Cost/appraisal value: At 1 January 2023 10393 1181 11574 Additions 253 – 253 Disposals (73) – (73) Exchange difference 4 22 26 At 31 December 2023 10577 1203 11780 Accumulated amortisation: At 1 January 2023 7572 600 8172 Charge for the year (note 10) 888 42 930 Disposals (46) – (46) Exchange difference 4 11 15 At 31 December 2023 8418 653 9071 Net carrying amount: At 31 December 2023 2159 550 2709 At 1 January 2023 2821 581 3402 Software and other Core deposits Total Cost/appraisal value: At 1 January 2022 10045 1083 11128 Additions 347 – 347 Disposals (13) – (13) Exchange difference 14 98 112 At 31 December 2022 10393 1181 11574 Accumulated amortisation: At 1 January 2022 6550 512 7062 Charge for the year (note 10) 1021 40 1061 Disposals (10) – (10) Exchange difference 11 48 59 At 31 December 2022 7572 600 8172 Net carrying amount: At 31 December 2022 2821 581 3402 At 1 January 2022 3495 571 4066 – F-243 –China Merchants Bank Chapter VIII Financial Statements 229 Annual Report 2023 (H share) 31. Goodwill As at Addition Decrease As at 31 December during during 31 December 2022 the year the year 2023 CMB WLB (note (i)) 10177 – – 10177 CMFM (note (ii)) 355 – – 355 CMI (note (iii)) 45 – (45) – Zhaoyin Internet (note (iv)) 1 – – 1 Total 10578 – (45) 10533 Less: Impairment allowances – CMB WLB (579) – – (579) Net carrying amount 9999 – (45) 9954 Notes: (i) On 30 September 2008 the Bank acquired a 53.12% equity interests in CMB WLB. On the acquisition date the fair value of CMB WLB’s identifiable net assets was RMB12898 million of which the Bank accounted for RMB6851 million. A sum of RMB10177 million being the excess of acquisition cost over the fair value of the identifiable net assets was recognised as goodwill. The details about CMB WLB are set out in Note 24.(ii) On 28 November 2013 the Bank acquired a 55.00% equity interests in CMFM. On the acquisition date the fair value of CMFM’s identifiable net assets was RMB752 million of which the Bank accounted for RMB414 million. A sum of RMB355 million being the excess of acquisition cost of RMB769 million over the fair value of the identifiable net assets was recognised as goodwill. The details about CMFM are set out in Note 24.(iii) On 30 December 2022 CMB Wing Lung Insurance Company Limited (“CMB WLI”) a subsidiary of CMB WLB issued shares to purchase the business of China Merchants Insurance Company Limited (“CMI”). On the acquisition date the fair value of CMI ‘s identifiable net assets was RMB357 million. A sum of RMB45 million being the excess of acquisition cost of RMB402 million over the fair value of the identifiable net assets was recognised as goodwill. On 29 June 2023 CMI injected capital into CMB WLI. The Group’s shareholding of CMB WLI changed to 45% and lost control of CMB WLI. The Group converted it into an associate and derecognised the goodwill of RMB45 million.(iv) On 1 April 2015 CMBIC acquired the 100% equity interests in Zhaoyin Internet Technology (Shenzhen) Corporation Limited (“ZhaoyinInternet”). On the acquisition date the fair value of Zhaoyin Internet’s identifiable net assets was RMB3 million. A sum of RMB1 million being the excess of acquisition cost over the fair value of the identifiable net assets was recognised as goodwill.Impairment test for goodwill The recoverable amounts of the CGUs are determined based on value in use calculations. These calculations use cash flow projections based on financial forecasts approved by management covering a 5-year period. Cash flows beyond the 5-year period are extrapolated using a steady growth rate. The growth rate does not exceed the long- term average growth rate for the business in which the CGU operates.In assessing the impairment of goodwill the Group assumed that the terminal growth rate is comparable to the forecast long-term economic growth rate issued by authoritative institutions. The discount rate adopted by the Group is the before-tax rate and reflects the specific risk associated with the CGU. A pre-tax discount rates of CMB WLB and CMFM adopted by the Group are 10% and 9% (2022: 11% and 10%). The Group believes any reasonably possible change in the key assumptions on which recoverable amounts are based would not cause the carrying amounts of the CGUs to exceed their recoverable amounts.– F-244 –230 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 32. Deferred tax assets and deferred tax liabilities 20232022 Deferred tax assets 90557 90848 Deferred tax liabilities (1607) (1510) Net amount 88950 89338 (a) Deferred tax assets/(liabilities) and related temporary differences are attributable to the following items: 20232022 Deductible/ Deductible/ (taxable) (taxable) temporary Deferred temporary Deferred difference tax difference tax Deferred tax assets before offsetting qualifying amounts Impairment allowances on loans and advances to customers and other assets at amortised cost 297564 74251 302062 75278 Financial assets at FVTOCI 1605 264 2170 359 Financial instruments at FVTPL 451 113 1839 461 Lease liabilities 12543 3135 12624 3156 Salaries and welfare payable and other 84873 20538 75077 18146 Total 397036 98301 393772 97400 Deferred tax liabilities before offsetting qualifying amounts Financial assets at FVTOCI (9985) (2496) (5487) (1371) Financial instruments at FVTPL (1904) (476) (894) (224) Right-of-use assets (12317) (3133) (12641) (3160) Other (19476) (3246) (19669) (3307) Total (43682) (9351) (38691) (8062) 20232022 Deferred tax assets before offsetting qualifying amounts 98301 97400 Offsetting amounts (7744) (6552) Deferred tax assets after offsetting qualifying amounts 90557 90848 Deferred tax liabilities before offsetting qualifying amounts (9351) (8062) Offsetting amounts 7744 6552 Deferred tax liabilities after offsetting qualifying amounts (1607) (1510) – F-245 –China Merchants Bank Chapter VIII Financial Statements 231 Annual Report 2023 (H share) 32. Deferred tax assets and deferred tax liabilities (continued) (b) Movements of deferred tax Impairment allowances on loans and advances to customers and Financial Financial other assets at assets instruments amortised cost at FVTOCI at FVTPL Other Total At 1 January 2023 75278 (1012) 237 14835 89338 Recognised in profit or loss (1045) (730) (592) 2450 83 Recognised in other comprehensive income – (493) – 9 (484) Exchange difference 18 3 (8) – 13 At 31 December 2023 74251 (2232) (363) 17294 88950 Impairment allowances on loans and advances to customers and Financial Financial other assets at assets instruments amortised cost at FVTOCI at FVTPL Other Total At 1 January 2022 71191 (2764) (4) 11863 80286 Recognised in profit or loss 4061 1160 243 2993 8457 Recognised in other comprehensive income – 578 – (21) 557 Exchange difference 26 14 (2) – 38 At 31 December 2022 75278 (1012) 237 14835 89338 Note: No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not be reversed in the foreseeable future.– F-246 –232 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 33. Other assets 20232022 Amounts pending for settlement 13842 15387 Continuing involvement assets 5274 5274 Interest receivable 4526 4154 Prepaid lease payments 203 209 Repossessed assets (a) 417 456 Guarantee deposits 563 465 Receivable from reinsurers – 329 Prepayment for leasehold improvement and other miscellaneous items 7436 7569 Premium receivables – 196 Post-employment benefits: defined benefit plan (note 39(b)) 50 50 Other 21573 21889 Total 53884 55978 (a) Repossessed assets 20232022 Land and buildings 551 606 Other repossessed assets 5 6 Total 556 612 Less: Impairment allowances (139) (156) Net repossessed assets 417 456 Note: In 2023 the Group disposed of repossessed assets with a total carrying value of RMB56 million (2022: RMB44 million). 34. Deposits from banks and other financial institutions 20232022 Principal (a) 507460 644618 Interest payable 918 1056 Total 508378 645674 (a) Analysed by nature of counterparties 20232022 In the Chinese mainland 496795 633178 – Banks 32286 103250 – Other financial institutions 464509 529928 Outside the Chinese mainland 10665 11440 – Banks 9884 10779 – Other financial institutions 781 661 Total 507460 644618 – F-247 –China Merchants Bank Chapter VIII Financial Statements 233 Annual Report 2023 (H share) 35. Placements from banks and other financial institutions 20232022 Principal (a) 246085 206015 Interest payable 1214 1012 Total 247299 207027 Note: Pursuant to the relevant provisions in the “Interim Measures for the Administration of Gold Leasing Business” (Yin Ban Fa [2022] No. 88) issued by the General Office of the PBOC in July 2022 with respect to the gold leasing business of the Group with financial institutionssince 2023 gold leased in by the Group from other financial institutions is presented under “placements from banks and other financialinstitutions” a change from “financial liabilities at fair value through profit or loss” in prior years. The comparative figures are re-presented accordingly.(a) Analysed by nature of counterparties 20232022 In the Chinese mainland 157360 136235 – Banks 155595 135636 – Other financial institutions 1765 599 Outside the Chinese mainland 88725 69780 – Banks 88512 69571 – Other financial institutions 213 209 Total 246085 206015 36. Financial liabilities at fair value through profit or loss 20232022 Financial liabilities held for trading (a) 16128 18247 Financial liabilities designated at fair value through profit or loss (b) 27830 30897 Total 43958 49144 (a) Financial liabilities held for trading 20232022 Financial liabilities related to precious metal 15748 17634 Short position on bonds 380 613 Total 16128 18247 (b) Financial liabilities designated at fair value through profit or loss 20232022 In the Chinese mainland 21865 22047 – Other 21865 22047 Outside the Chinese mainland 5965 8850 – Certificates of deposit issued 212 383 – Debt securities issued 5179 7709 – Other 574 758 Total 27830 30897 As at 31 December 2023 and 2022 the difference between the fair values of the Group’s financial liabilities designated at fair value through profit or loss and the contractual payable amount at maturity is not significant. The amounts of changes in the fair value of these liabilities that are attributable to changes in credit risk of the Group are not significant during the years ended 31 December 2023 and 2022 and as at 31 December 2023 and 2022.– F-248 –234 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 37. Amounts sold under repurchase agreements 20232022 Principal (a)(b) 134863 107024 Interest payable 215 69 Total 135078 107093 (a) Analysed by nature of counterparties 20232022 In the Chinese mainland 117668 103452 – Banks 108366 103446 – Other financial institutions 9302 6 Outside the Chinese mainland 17195 3572 – Banks 10316 2801 – Other financial institutions 6879 771 Total 134863 107024 (b) Analysed by underlying assets 20232022 Debt securities 117032 95999 – Government bonds 84438 73335 – Bonds issued by policy banks 17266 15330 – Bonds issued by commercial banks and other financial institutions 6592 3476 – Other debt securities 8736 3858 Discounted bills 17831 11025 Total 134863 107024 – F-249 –China Merchants Bank Chapter VIII Financial Statements 235 Annual Report 2023 (H share) 38. Deposits From Customers 20232022 Principal (a) 8155438 7535742 Interest payable 85060 54837 Total 8240498 7590579 (a) Analysed by nature of counterparties 20232022 Corporate customers 4660522 4431553 – Demand deposits 2644685 2762671 – Time deposits 2015837 1668882 Retail customers 3494916 3104189 – Demand deposits 1829612 1983364 – Time deposits 1665304 1120825 Total 8155438 7535742 (b) The deposits taken from customers as collateral or for the purpose of guarantees are as follows: 20232022 Guarantee for acceptance bills 240613 199384 Guarantee for loans 10792 6888 Guarantee for issuing letters of credit 23843 29366 Deposit for letters of guarantee 47694 44732 Other 27788 42490 Total 350730 322860 – F-250 –236 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 39. Staff welfare scheme (a) Salaries and welfare payable 2023 Decrease for the year Charge/ Payment/ arising from Beginning (Decrease) transfers disposal of Ending balance for the year in the year subsidiaries balance Short-term employee benefits (i) 23075 61371 (56099) (33) 28314 Post-employment benefits – defined contribution plans (ii) 765 5540 (5944) – 361 Other long-term employee benefits (iii) – cash settled share-based transactions 26 (18) (4) – 4 Total 23866 66893 (62047) (33) 28679 2022 Charge for the year Charge/ Payment/ Beginning arising from (Decrease) transfers Ending balance combination for the year in the year balance Short-term employee benefits (i) 18065 151 58583 (53724) 23075 Post-employment benefits – defined contribution plans (ii) 1629 – 5110 (5974) 765 Other long-term employee benefits (iii) – cash settled share-based transactions 67 – (41) – 26 Total 19761 151 63652 (59698) 23866 – F-251 –China Merchants Bank Chapter VIII Financial Statements 237 Annual Report 2023 (H share) 39. Staff welfare scheme (continued) (a) Salaries and welfare payable (continued) (i) Short-term employee benefits 2023 Decrease for the year Payment/ arising from Beginning Charge transfers disposal of Ending balance for the year in the year subsidiaries balance Salaries and bonus 18888 52040 (47303) (33) 23592 Welfare expense 17 2883 (2885) – 15 Social insurance 371 1809 (1818) – 362 – Medical insurance 353 1679 (1687) – 345 – Injury insurance 6 41 (41) – 6 – Maternity insurance 12 89 (90) – 11 Housing reserve 157 2602 (2618) – 141 Labour union and employee education expenses 3642 2037 (1475) – 4204 Total 23075 61371 (56099) (33) 28314 2022 Charge for the year Payment/ Beginning arising from Charge transfers Ending balance combination for the year in the year balance Salaries and bonus 14318 151 48682 (44263) 18888 Welfare expense 19 – 2310 (2312) 17 Social insurance 530 – 3311 (3470) 371 – Medical insurance 515 – 3192 (3354) 353 – Injury insurance 6 – 34 (34) 6 – Maternity insurance 9 – 85 (82) 12 Housing reserve 166 – 2309 (2318) 157 Labour union and employee education expenses 3032 – 1971 (1361) 3642 Total 18065 151 58583 (53724) 23075 – F-252 –238 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 39. Staff welfare scheme (continued) (a) Salaries and welfare payable (continued) (ii) Post-employment benefits-defined contribution plans 2023 Payment/ Beginning Charge transfers Ending balance for the year in the year balance Basic retirement insurance 151 3465 (3437) 179 Supplementary pension 591 1996 (2426) 161 Unemployment insurance 23 79 (81) 21 Total 765 5540 (5944) 361 2022 Payment/ Beginning Charge transfers Ending balance for the year in the year balance Basic retirement insurance 157 2821 (2827) 151 Supplementary pension 1450 2221 (3080) 591 Unemployment insurance 22 68 (67) 23 Total 1629 5110 (5974) 765 In accordance with the regulations in the PRC the Group participates in statutory pension schemes organised by the municipal and provincial governments for its employees (endowment insurance). During the year ended 31 December 2023 the Group’s contributions to these pension schemes are determined by local governments and vary at a range of 14% to 16% (2022: 14% to 16%) of the staff salaries and bonuses.In addition to the above statutory pension schemes the Group has established a supplementary defined contribution plan for its employees (annuity insurance) in accordance with relevant annuity policies for corporate entities in the PRC. During the year ended 31 December 2023 the Group’s annual contributions to this plan are determined based on 0% to 8.33% of the staff salaries and bonuses (2022: 0% to 8.33%).For its employees outside the Chinese mainland the Group participates in defined contribution retirement schemes at funding rates determined in accordance with the local practices and regulations.– F-253 –China Merchants Bank Chapter VIII Financial Statements 239 Annual Report 2023 (H share) 39. Staff welfare scheme (continued) (a) Salaries and welfare payable (continued) (iii) Other long-term employee benefits The Group has offered 10 phases of H share appreciation rights under the Scheme the remaining ninth to tenth phases have not been exercised as of 31 December 2023. The share appreciation rights of the Scheme vest after 3 years from the grant date and are then exercisable within a period of 7 years. Each of the share appreciation right is linked to one H share. (1) All share appreciation rights shall be settled in cash. The terms and conditions of the Scheme are listed below: Number of unexercised share Contract period of appreciation rights share appreciation at the end of 2023 Exercise conditions rights (in millions) Share appreciation rights granted on 24 Aug 2016 (Phase IX) 0.210 3 years after the grant date 10 years Share appreciation rights granted on 25 Aug 2017 (Phase X) 0.240 3 years after the grant date 10 years (2) The number and weighted average exercise prices of share appreciation rights are as follows: 20232022 Number Number Weighted of share Weighted of share average appreciation average appreciation exercise price rights exercise price rights (HKD) (in million) (HKD) (in million) Outstanding as at the beginning of the year 15.91 0.61 16.21 1.76 Exercised during the year 12.81 (0.16) – – Forfeited during the year – – 13.65 (1.15) Outstanding at the end of the year 15.11 0.45 15.91 0.61 Exercisable at the end of the year 15.11 0.45 15.25 0.55 The share appreciation rights outstanding at 31 December 2023 had a weighted average exercise price of HKD15.11 (2022: HKD15.91) and a weighted average remaining contractual life of 3.12 years (2022: 3.70 years). Pursuant to the requirements set out in the Scheme if there are any dividends distributed capital reserve converted into shares share split or dilution adjustments to the exercise price will be applied.– F-254 –240 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 39. Staff welfare scheme (continued) (a) Salaries and welfare payable (continued) (iii) Other long-term employee benefits (continued) (3) Fair value of share appreciation rights and assumptions The fair value of services received in return for share appreciation rights granted are measured by reference to the fair value of share appreciation rights granted. The estimate of the fair value of the share appreciation rights granted is measured based on the Black-Scholes model. The contractual life of the rights is used as an input to the model. 2023 Phase IX Phase X Fair value at measurement date (in RMB Yuan) 12.74 6.34 Share price (in HKD) 25.80 25.80 Exercise price (in HKD) 9.49 20.03 Expected volatility 35.40% 35.40% Share appreciation rights remaining life (year) 2.58 3.58 Expected dividends yield 4.45% 4.45% Risk-free interest rate 1.43% 1.43% 2022 Phase VIII Phase IX Phase X Fair value at measurement date (in RMB Yuan) 24.94 25.27 17.75 Share price (in HKD) 43.30 43.30 43.30 Exercise price (in HKD) 12.81 11.38 21.92 Expected volatility 48.34% 48.34% 48.34% Share appreciation rights remaining life (year) 2.50 3.58 4.58 Expected dividends yield 2.93% 2.93% 2.93% Risk-free interest rate 1.43% 1.43% 1.43% The expected volatility is based on the historical volatility (calculated based on the weighted average remaining life of the share appreciation rights) and adjusted for any expected changes to future volatility based on publicly available information. Expected dividend yield is based on historical dividend yields. Changes in the subjective input assumptions could materially affect the fair value estimate.Share appreciation rights were granted under service conditions. The conditions have not been taken into account in the grant date fair value measurement of the services received. There were no market conditions associated with the share appreciation rights granted. (4) The number of share appreciation rights granted: 2023 Accumulated Exercised/ Phase IX Phase X Total Forfeited (in thousands) (in thousands) (in thousands) (in thousands) Wang Liang 210 240 450 360 Total 210 240 450 360 2022 Accumulated Exercised/ Phase VIII Phase IX Phase X Total Forfeited (in thousands) (in thousands) (in thousands) (in thousands) (in thousands) Tian Huiyu – – – – 1230 Wang Liang 157 210 240 607 203 Total 157 210 240 607 1433 Note: In 2023 senior management had exercised 0.16 million shares of appreciation rights (2022: None) and the weighted average exercise price was HKD12.81 (2022: None).– F-255 –China Merchants Bank Chapter VIII Financial Statements 241 Annual Report 2023 (H share) 39. Staff welfare scheme (continued) (b) Post-employment benefits – defined benefit plan The Group’s subsidiary CMB WLB operates a defined benefit plan (the “plan”) for the staff which includes a defined benefit scheme and a defined benefit pension scheme. Contributions to the plan are determined based on periodic valuations by qualified actuaries on the assets and liabilities of the plan. The plan provides benefits based on members’ final salary. The costs are solely funded by CMB WLB.The latest actuarial valuation of the plan as at 31 December 2023 was performed by Towers Watson Hong Kong Limited a professional actuarial firm in accordance with IAS 19 Employee Benefits . The present values of the defined benefit obligation and current service cost of the plan are calculated based on the projected unit credit method. At the valuation date the plan had a funding level of 123% (2022: 121%).The amounts recognised in the consolidated statement of financial position as at 31 December 2023 and 2022 are analysed as follows: 20232022 Fair value of the plan assets 267 285 Present value of the funded defined benefit obligation (217) (235) Net asset recognised in the consolidated statement of financial position 50 50 A portion of the above asset is expected to be recovered after more than one year. However it is not practicable to segregate this amount from the amounts receivable in the next twelve months as future contributions will also relate to future services rendered and future changes in actuarial assumptions and market conditions. No contribution to the plan is expected to be paid in 2024.There was no plan amendment curtailment or settlement impact for the years ended 31 December 2023 and 2022.The amounts recognised in the consolidated statement of profit or loss are as follows: 20232022 Current service cost (8) (9) Net interest income 1 1 Net expense for the year included in retirement benefit costs (7) (8) The actual gain on the plan assets for the year ended 31 December 2023 was RMB9 million (2022: loss of RMB42 million).The movements in the defined benefit obligation during the year are as follows: 20232022 Present value of obligation at 1 January 235 284 Current service cost 8 9 Interest cost 8 4 Actual benefits paid (33) (49) Actuarial gains or losses due to liability experience (1) (4) Actuarial gains or losses due to financial assumption changes (4) (31) Actuarial gains or losses due to demographic assumption changes – – Exchange difference 4 22 Actual obligation at 31 December 217 235 The movements in the fair value of the plan assets during the year are as follows: 20232022 Fair value of the plan assets at 1 January 285 349 Interest income 9 5 Expected return on plan assets – (47) Actual benefits paid (33) (49) Exchange difference 6 27 Fair value of the plan assets at 31 December 267 285 – F-256 –242 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 39. Staff welfare scheme (continued) (b) Post-employment benefits – defined benefit plan (continued) The major categories of the plan assets are as follows: 20232022 Amount % Amount % Equities 145 54.3 153 53.7 Bonds 52 19.5 50 17.5 Cash 70 26.2 82 28.8 Total 267 100.0 285 100.0 As at 31 December 2023 deposit with the Bank included in the amount of the plan assets was RMB61 million (2022: RMB58 million).The principal actuarial assumptions adopted in the valuation are as follows: 20232022 %% Discount rate – Defined benefit scheme 3.1 3.3 – Defined benefit pension scheme 4.1 4.6 Long-term average rate of salary increase for the plan 4.5 5.0 Pension increase rate for the defined benefit pension plan – – In 2023 and 2022 there were no significant change in the amount of retirement benefit plan liabilities due to changes in the above-mentioned actuarial assumptions. 40. Tax payable 20232022 Corporate income tax 7301 13392 Value added tax 4035 4141 Other 2261 1925 Total 13597 19458 41. Contract liabilities 20232022 Credit card points 4132 5319 Other deferred fee and commission income 1354 1360 Total 5486 6679 42. Provisions 20232022 Expected credit loss on provisions 17404 20217 Other 2258 2274 Total 19662 22491 The expected credit loss for loan commitments and financial guarantee contracts by stages are as follows: 20232022 Expected credit loss provisions 17404 20217 Stage 1 (12-month ECL) 15200 12082 Stage 2 (Lifetime ECL – not credit-impaired) 1341 7569 Stage 3 (Lifetime ECL – credit-impaired) 863 566 – F-257 –China Merchants Bank Chapter VIII Financial Statements 243 Annual Report 2023 (H share) 43. Debt securities issued Notes 2023 2022 Subordinated bonds issued (a) – 19994 Debt securities issued (b) 119193 120971 Negotiable interbank certificates of deposit issued 21443 65719 Certificates of deposit and other debt securities issued (note) 34128 15604 Interest payable 1814 1533 Total 176578 223821 Note: Other debt securities issued are notes issued by overseas subsidiaries of the Bank.(a) Subordinated bonds issued As at the end of the reporting period subordinated bonds issued by the Bank were as follows: Issue Discount or Repayment Term to Date of Annual Nominal Beginning during premium during Ending Debt type maturity issuance interest rate value balance the year amortisation the year balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Fixed rate bond 120 months 15 Nov 2018 4.65 RMB20000 19994 – 6 (20000) – Total 19994 – 6 (20000) – (b) Debt securities issued As at the end of the reporting period debt securities issued by the Bank were as follows: Issue Discount or Repayment Term to Date of Annual Nominal Beginning during premium Exchange during Ending Debt type maturity issuance interest rate value balance the year amortisation difference the year balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Medium term note 36 months 25 Sep 2020 3M LIBOR+0.85 USD400 2780 – 2 142 (2924) – Medium term note 36 months 25 Sep 2020 0.95 USD300 2087 – 3 103 (2193) – Fixed rate bond 36 months 6 Nov 2020 3.48 RMB10000 9999 – 1 – (10000) – Fixed rate bond 36 months 11 Mar 2021 3.40 RMB10000 9998 – 1 – – 9999 Fixed rate bond 36 months 3 Jun 2021 3.18 RMB20000 19995 – 2 – – 19997 Fixed rate bond 36 months 24 Aug 2021 2.90 RMB10000 9998 – – – – 9998 Medium term note 60 months 1 Sep 2021 1.25 USD300 2089 – (1) 42 – 2130 Medium term note 24 months 1 Sep 2021 SOFR+0.50 USD300 2087 – 5 87 (2179) – Medium term note 36 months 2 Mar 2022 2.00 USD400 2798 – 4 45 – 2847 Fixed rate bond 36 months 11 May 2022 2.65 RMB5000 4999 – – – – 4999 Fixed rate bond 36 months 1 Sep 2022 2.40 RMB10000 9997 – 1 – – 9998 Fixed rate bond 36 months 27 Mar 2023 2.77 RMB5000 – 5000 (1) – – 4999 Medium term note 36 months 13 Jun 2023 SOFR+0.65 USD400 – 2850 – (4) – 2846 Total 76827 7850 17 415 (17296) 67813 Libor represents London InterBank Offered Rate. SOFR represents Secured Overnight Financing Rate.Note: Financial bonds issued by the Bank that were held by CMB WLB amounted to a total of 354 million RMB equivalent as of 31 December 2023 (31 December 2022: 555 million RMB equivalent). – F-258 –244 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 43. Debt securities issued (continued) (b) Debt securities issued (continued) As at the end of the reporting period debt securities issued by CMBFL and its subsidiary were as follows: Issue Discount or Repayment Term to Date of Annual Nominal Beginning during premium Exchange during Ending Debt type maturity issuance interest rate value balance the year amortisation difference the year balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Fixed rate bond 60 months 13 Mar 2019 4.00 RMB500 500 – – – – 500 Fixed rate bond 60 months 3 Jul 2019 3.00 USD900 6265 – 11 106 – 6382 Fixed rate bond 120 months 3 Jul 2019 3.63 USD100 694 – 1 11 – 706 Fixed rate bond 120 months 14 Jul 2020 4.25 RMB2000 1994 – 1 – – 1995 Fixed rate bond 60 months 12 Aug 2020 1.88 USD800 5571 – 5 94 – 5670 Fixed rate bond 120 months 12 Aug 2020 2.75 USD400 2771 – 3 47 – 2821 Fixed rate bond 36 months 17 Nov 2020 3.85 RMB4000 3997 – 3 – (4000) – Fixed rate bond 36 months 26 Jan 2021 3.60 RMB4000 3996 – 4 – – 4000 Fixed rate bond 60 months 4 Feb 2021 2.00 USD400 2785 – 2 47 – 2834 Fixed rate bond 120 months 4 Feb 2021 2.88 USD400 2765 – 3 47 – 2815 Fixed rate bond 36 months 22 Mar 2021 3.58 RMB2000 1998 – 2 – – 2000 Fixed rate bond 60 months 24 Mar 2021 2.00 USD20 138 – – 3 – 141 Fixed rate bond 36 months 16 Sep 2021 1.25 USD600 4179 – 5 71 – 4255 Fixed rate bond 60 months 16 Sep 2021 1.75 USD300 2081 – 4 35 – 2120 Fixed rate bond 36 months 16 Sep 2021 0.50 EUR100 741 – 1 47 – 789 Fixed rate bond 24 months 22 Dec 2021 0.50 EUR30 222 – – 14 (236) – Floating rate bond 12 months 2 Mar 2022 SOFR+0.80 USD115 802 – – (10) (792) – Floating rate bond 12 months 6 May 2022 SOFR+0.85 USD45 314 – – (3) (311) – Floating rate bond 12 months 6 May 2022 SOFR+1.00 USD75 523 – – (5) (518) – Floating rate bond 12 months 13 Jun 2022 SOFR+0.95 USD120 837 – – 20 (857) – Fixed rate bond 12 months 14 Sep 2022 1.95 EUR80 592 – 1 31 (624) – Floating rate bond 6 months 20 Oct 2022 SOFR+0.75 USD50 349 – – (5) (344) – Fixed rate bond 12 months 25 Nov 2022 3.21 RMB300 300 – – – (300) – Floating rate bond 12 months 14 Dec 2022 SOFR+0.83 USD45 314 – – 9 (323) – Floating rate bond 60 months 16 Dec 2022 SOFR+1.40 USD100 698 – – 11 – 709 Fixed rate bond 12 months 16 Dec 2022 2.90 EUR57 421 – 1 21 (443) – Fixed rate bond 24 months 17 Feb 2023 3.50 RMB500 – 500 (1) – – 499 Floating rate bond 12 months 28 Feb 2023 SOFR+0.75 USD60 – 416 – 10 – 426 Floating rate bond 6 months 28 Feb 2023 SOFR+0.75 USD145 – 1006 – 51 (1057) – Floating rate bond 6 months 2 Mar 2023 SOFR+0.75 USD200 – 1382 – 71 (1453) – Floating rate bond 6 months 15 Mar 2023 SOFR+0.75 USD80 – 552 – 31 (583) – Fixed rate bond 6 months 16 May 2023 4.40 HKD750 – 667 – 30 (697) – Floating rate bond 24 months 31 May 2023 SOFR+1.00 USD75 – 533 – (1) – 532 Floating rate bond 36 months 13 Jun 2023 SOFR+1.05 USD103 – 737 (2) (6) – 729 Floating rate bond 6 months 27 Jun 2023 SOFR+0.70 USD50 – 361 – (4) (357) – Fixed rate bond 18 months 10 Jul 2023 3.05 RMB700 – 700 – – – 700 Floating rate bond 24 months 16 Aug 2023 SOFR+0.95 USD100 – 729 (1) (20) – 708 Floating rate bond 60 months 18 Aug 2023 SOFR+1.30 USD50 – 364 (2) (9) – 353 Floating rate bond 36 months 23 Aug 2023 SOFR+1.00 USD300 – 2188 (7) (59) – 2122 Floating rate bond 24 months 25 Aug 2023 SOFR+0.95 USD100 – 729 (1) (19) – 709 Floating rate bond 6 months 27 Oct 2023 SOFR+0.70 USD20 – 146 – (4) – 142 Floating rate bond 12 months 27 Oct 2023 SOFR+0.75 USD22 – 161 – (5) – 156 Fixed rate bond 36 months 16 Nov 2023 2.80 RMB2500 – 2500 (6) – – 2494 Fixed rate bond 36 months 27 Nov 2023 3.35 RMB350 – 350 (2) – – 348 Floating rate bond 36 months 30 Nov 2023 SOFR+1.10 USD50 – 357 – (2) – 355 Fixed rate bond 36 months 5 Dec 2023 2.90 RMB4000 – 4000 (10) – – 3990 Total 45847 18378 15 655 (12895) 52000 Note: Financial bonds issued by CMBFL that were held by the Bank amounted to a total of 600 million RMB equivalent as of 31 December 2023 (31 December 2022: 1370 million RMB equivalent). Financial bonds issued by CMB International Leasing Management Limited (CMBILM) a wholly-owned subsidiary of CMBFL that were separately held by the Bank CMB WLB and CMBIC amounted to a total of 3212 million RMB equivalent 563 million RMB equivalent and 70 million RMB equivalent as of 31 December 2023 (31 December 2022: 2268 million RMB equivalent 1602 million RMB equivalent and Nil).– F-259 –China Merchants Bank Chapter VIII Financial Statements 245 Annual Report 2023 (H share) 43. Debt securities issued (continued) (b) Debt securities issued (continued) As at the end of the reporting period debt securities issued by CMBIC’s subsidiary was as follows: Issue Discount or Repayment Term to Date of Annual Nominal Beginning during premium Exchange during Ending Debt type maturity issuance interest rate value balance the year amortisation difference the year balance (%) (in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) (RMB in million) Fixed rate bond 36 months 2 June 2021 1.38 USD600 4166 – 19 69 – 4254 Total 4166 – 19 69 – 4254 Note: Financial bond issued by Legend Fortune Limited a wholly-owned subsidiary of CMBIC that was held by CMB WLB amounted to a total of 75 million RMB equivalent as of 31 December 2023 (31 December 2022: 74 million RMB equivalent). 44. Other liabilities 20232022 Clearing and settlement accounts 20845 31534 Salary risk allowances (note) 48950 45500 Continuing involvement liability 5274 5274 Insurance liabilities – 2902 Collecting on behalf of customers 665 827 Cheques and remittances returned 7 39 Other payable 37454 39862 Total 113195 125938 Note: Salary risk allowances are specific funds withheld from the employees’ annual remunerations of which the payments are delayed for the purpose of risk management. The allocation of the funds is based on performance assessment and risk management results taking into account the short term and long term benefit. In the event of a decline in the asset quality a sharp deterioration of risk profiles and profitability the occurrence of legal case or a significant regulatory violation identified by any regulatory authorities the relevant employees will be restricted from the allocation of these allowances. 45. Share capital By type of shares: 2023 and 2022 No. of shares (in million) – A Shares 20629 – H Shares 4591 Total 25220 All H Shares are ordinary shares and rank pari passu with the A Shares. There is no restriction on these shares.Capital No. of shares Amount (in million) At 31 December 2023 and 2022 25220 25220 – F-260 –246 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 46. Other equity instruments (a) Preference Shares Issuance Accounting Dividend Conversion Con- date classification rate Issue price No. Amount Due date conditions version (millions of (RMB in shares) million) Domestic Preference Shares (note (i)) 22 Dec 2017 Equity instruments 3.62% RMB100/Share 275 27468 Perpetual existence Note (ii) None Total 275 27468 The changes of Preference Shares issued were as follows: 1 January 2023 Increase/decrease 31 December 2023 No. Amount No. Amount No. Amount (millions of (RMB in (millions of (RMB in (millions of (RMB in Issuance date shares) million) shares) million) shares) million) Domestic Preference Shares (note (i)) 22 Dec 2017 275 27468 – – 275 27468 Total 275 27468 – – 275 27468 Notes: (i) Pursuant to the approvals by the relevant regulatory authorities in China the Bank issued non-cumulative Domestic Preference Shares in the aggregate nominal value of RMB27500 million on 22 December 2017. Each Domestic Preference Share has a nominal value of RMB100 and 275 million Domestic Preference Shares were issued in total. The dividend rate is initially at 4.81% and subject to reset per agreement subsequently but not exceeds 16.68%. On 18 December 2022 five years after the issuance of the Domestic Preference Shares the Bank adjusted the dividend rate per annum to 3.62% in accordance with market rules.(ii) Domestic Preference Shares have clauses that state certain events would trigger mandatory conversion those clauses are as follows: (1) Upon the occurrence of any additional Tier-1 Capital Instrument Trigger Event that is the Core Tier-1 Capital Adequacy Ratio drops to 5.125% or below the Bank shall have the right to convert without the consent of the holders of Preference Shares all or part of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total nominal value of the Preference Shares in order to restore the Core Tier-1 Capital Adequacy Ratio of the Bank to above 5.125%. In the case of partial conversion the Preference Shares shall be converted on a pro rata basis and on identical conditions. (2) Upon the occurrence of a Tier-2 Capital Trigger Event the Bank shall have the right to convert without the consent of the holders of Preference Shares all or part of the Preference Shares then issued and outstanding into Ordinary A Shares based on the total nominal value of the Preference Shares. A Tier-2 Capital Trigger Event refers the earlier of the following events: 1) NAFR having concluded that without a conversion or write-off the Bank would become non-viable and 2) the relevant authorities having concluded that without a public sector injection of capital or equivalent support the Bank would become non-viable.Upon the occurrence of the above mandatory conversion events the Bank shall report to the NAFR for review and determination. The Bank shall fulfill the relevant information disclosure requirements of the Securities Law the CSRC and Hong Kong’s relevant laws and regulations such as making provisional reports or announcements in accordance with relevant regulatory requirements.Dividends on the Domestic Preference Shares shall be paid in cash. Save for such dividend at the agreed dividend rate the holders of the above Preference Shares are not entitled to share the remaining profits of the Bank with the ordinary shareholders. Dividend is non-cumulative. The Bank has the right to cancel any dividend on Preference Shares and such cancellation shall not be deemed as a default. After the cancellation of all or part of the dividend to preference shareholders the Bank shall not make any ordinary shares distribution until the Preference Shares dividend is resumed in full.As the dividends on the Domestic Preference Shares are non-cumulative the Bank will not distribute the dividends that were cancelled in prior years to Preference Shares holders.The Domestic Preference Shares have no maturity date. However after the fifth anniversary of the issuance date subject to the satisfaction of the redemption conditions and having obtained the prior approval of the NAFR the Domestic Preference Shares may be redeemed in whole or in part at the discretion of the Bank but the Bank does not have the obligation to redeem the Preference Shares. The holders of Preference Shares do not have the right to demand the Bank to redeem the Preference Shares and shall not expect that Preference Shares will be redeemed.After deducting the issuance expenses from the Preference Shares above the total net proceeds of RMB27468 million have been included in additional Tier 1 capital of the Bank.– F-261 –China Merchants Bank Chapter VIII Financial Statements 247 Annual Report 2023 (H share) 46. Other equity instruments (continued) (b) Perpetual Bonds Issuance Accounting Interest Conversion date classification rate Issue price No. Amount Due date conditions Conversion (millions of units) (RMB in million) Domestic Perpetual Bonds (note (i)) 9 Jul 2020 Equity instruments 3.95% RMB100/Unit 500 49989 Perpetual existence None None Domestic Perpetual Bonds (note (ii)) 7 Dec 2021 Equity instruments 3.69% RMB100/Unit 430 42989 Perpetual existence None None Domestic Perpetual Bonds (note (iii)) 1 Dec 2023 Equity instruments 3.41% RMB100/Unit 300 30000 Perpetual existence None None Total 1230 122978 The changes of Perpetual Bonds issued were as follows: 1 January 2023 Increase 31 December 2023 No. Amount No. Amount No. Amount Issuance (millions of (RMB in (millions of (RMB in (millions of (RMB in date units) million) units) million) units) million) Domestic Perpetual Bonds (note (i)) 9 Jul 2020 500 49989 – – 500 49989 Domestic Perpetual Bonds (note (ii)) 7 Dec 2021 430 42989 – – 430 42989 Domestic Perpetual Bonds (note (iii)) 1 Dec 2023 – – 300 30000 300 30000 Total 930 92978 300 30000 1230 122978 Notes: (i) With the approval of the relevant regulatory authorities in China the Bank issued RMB50000 million of 2020 China Merchants Bank Co. Ltd.Undated Additional Tier-1 Capital Bonds (Series 1) (the “Perpetual Bonds 2020”) in the national inter-bank bond market on 9 July 2020. The unit face value is RMB100. The coupon rate adjusted period is every 5 years from the issuance of the Perpetual Bonds 2020. In any coupon rate adjusted period the coupon rate of the Perpetual Bonds will remain at a prescribed fixed rate. The Perpetual Bonds 2020 will continue to be outstanding so long as the Bank continues to operate.(ii) With the approval of the relevant regulatory authorities in China the Bank issued RMB43000 million of 2021 China Merchants Bank Co. Ltd.Undated Additional Tier-1 Capital Bonds (the “Perpetual Bonds 2021”) in the national inter-bank bond market on 7 December 2021. The unit face value is RMB100. The coupon rate adjusted period is every 5 years from the issuance of the Perpetual Bonds 2021. In any coupon rate adjusted period the coupon rate of the Perpetual Bonds will remain at a prescribed fixed rate. The Perpetual Bonds 2021 will continue to be outstanding so long as the Bank continues to operate.(iii) With the approval of the relevant regulatory authorities in China the Bank issued RMB30000 million of 2023 China Merchants Bank Co.Ltd. Undated Additional Tier-1 Capital Bonds (the “Perpetual Bonds 2023 together with Perpetual Bonds 2020 and Perpetual Bonds 2021Perpetual Bonds”) in the national inter-bank bond market on 1 December 2023. The unit face value is RMB100. The coupon rate adjusted period is every 5 years from the issuance of the Perpetual Bonds 2023. In any coupon rate adjusted period the coupon rate of the Perpetual Bonds will remain at a prescribed fixed rate. The Perpetual Bonds 2023 will continue to be outstanding so long as the Bank continues to operate.From the fifth anniversary since the issuance of the Perpetual Bonds the Bank has the right to redeem in whole or in part the Perpetual Bonds on the annual interest payment date (including the interest payment date on the fifth year since the issuance date) subject to the approval of the NAFR and the satisfaction of the redemption preconditions. If after the issuance the Perpetual Bonds no longer qualify as additional Tier 1 capital as a result of an unforeseeable change to relevant provisions of supervisory regulation the Bank has the right to redeem the whole but not part of the Perpetual Bonds.The investors do not have the right to sell back the Perpetual Bonds to the Bank.The claims in respect of the Perpetual Bonds will be subordinated to the claims of depositors general creditors and subordinated debts that rank senior to the Perpetual Bonds and will rank in priority to all classes of shares held by the Bank’s shareholders and rank pari passu with the claims in respect of any other additional Tier-1 capital instruments of the Bank that rank pari passu with the Perpetual Bonds.The coupon rate will be reset on each benchmark rate reset date (i.e. the date of every five years from the issuance date). The adjusted coupon rate will be determined based on the benchmark interest rate at adjustment date plus the fixed spread as determined at the time of issuance. The Perpetual Bonds do not contain interest rate step-up mechanism or any other redemption incentives. The Bank has the right to cancel in whole or in part distributions on the Perpetual Bonds and any such cancellation will not constitute an event of default. The bond interests are non-cumulative and any cancelled distribution is not carried to the following year. The Bank will fully consider the interests of bondholders when exercising this right. The Bank can use the cancelled bond interest for the current period at its discretion to repay other due debts. Cancellation of any distributions to the Perpetual Bonds no matter in whole or in part will not impose any other restriction on the Bank except in relation to dividend distributions to ordinary shares.– F-262 –248 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 46. Other equity instruments (continued) (b) Perpetual Bonds (continued) Notes: (continued) Upon the occurrence of a Non-Viability Trigger Event the Bank has the right to write off in whole or in part without the need for the consent of the bond holders the principal amount of the Perpetual Bonds. A Non-Viability Trigger Event refers to the earlier of the following events: (i) NAFR having concluded that without a write-off the Bank would become non-viable; (ii) the relevant authorities having concluded that without a public sector injection of capital or equivalent support the Bank would become non-viable. The write-off will not be restored.After deducting the issuance expenses the funds raised by the bonds issuances have been used to supplement additional Tier 1 capital of the Bank in accordance with applicable laws and the approval of the relevant authorities.(c) Relative Information Attributed to Equity Instrument Holders 20232022 Equity attributed to shareholders of the Bank 1076370 945503 – Equity attributed to ordinary shareholders of the Bank 925924 825057 – Equity attributed to other equity instrument holders of the Bank 150446 120446 Including: Net profit 4558 5237 Total comprehensive income 4558 5237 Distributions in current year (4558) (5237) Cumulative undistributed dividends – – Equity attributed to non-controlling interests 9359 8735 – Equity attributed to non-controlling holders of ordinary shares 6521 5948 – Equity attributed to non-controlling holders of perpetual debt capital (note 62(a)) 2838 2787 47. Capital reserve Capital reserve primarily represents share premium of the Bank. 20232022 At 1 January 65435 67523 Decrease (3) (2088) At 31 December 65432 65435 48. Investment revaluation reserve 20232022 Debt instruments measured at FVTOCI: investment revaluation reserve 10596 9319 Fair value gain on equity instruments designated at FVTOCI 3009 2606 Remeasurement of defined benefit scheme 82 78 Share of other comprehensive expense of equity-accounted investees (31) (233) Other – 45 Total 13656 11815 49. Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges. Subsequent recognition of the hedged cash flow is accounted for in accordance with the accounting policy adopted for cash flow hedge in Note 4(5).– F-263 –China Merchants Bank Chapter VIII Financial Statements 249 Annual Report 2023 (H share) 50. Surplus reserve Statutory surplus reserve is calculated according to the requirements of the Accounting Standards for Business Enterprises and other relevant regulations issued by the Ministry of Finance (“MOF”) and is provided at 10% of the audited profit after tax of the Bank. 20232022 At 1 January 94985 82137 Appropriation for the year 13752 12848 At 31 December 108737 94985 51. General reserve The general reserve is an integral part of equity. According to the relevant regulations in addition to the impairment allowances the Bank maintains a general reserve to make up for unidentified potential losses. In principle the balance of general reserve shall not be less than 1.5% of the ending balance of risk assets. In addition the general reserve includes 2.5% of the income of mutual fund custody businesses. The general reserve of the Group also includes the general reserve maintained by the subsidiaries of the Group according to the applicable laws and regulations of their industry or region. 20232022 At 1 January 132471 115288 Appropriation for the year 9010 17183 At 31 December 141481 132471 52. Profit appropriations (a) Dividends approved/declared by shareholders 20232022 Ordinary share dividends in 2022 approved and declared: RMB1.738 per share 43832 – Ordinary share dividends in 2021 approved and declared: RMB1.522 per share – 38385 (b) Proposed profit appropriations 20232022 Statutory surplus reserve 13752 12848 General reserve 9010 17183 Dividends – cash dividend: RMB1.972 per share (2022: RMB1.738 per share) 49734 43832 Total 72496 73863 2023 final dividends is proposed in accordance with the resolution passed at the meeting of the Board of Directors held on 25 March 2024 and will be submitted to the 2023 Annual General Meeting for approval. 53. Exchange reserve Exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of operations outside the Chinese mainland.– F-264 –250 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 54. The bank’s statement of financial position and changes in the bank’s equity 20232022 Assets Cash 14499 14787 Precious metals 2245 2251 Balances with central banks 666550 585338 Balances with banks and other financial institutions 55168 47791 Placements with banks and other financial institutions 261190 247973 Amounts held under resale agreements 169450 276292 Loans and advances to customers 5916313 5482692 Financial assets at fair value through profit or loss 465708 369391 Derivative financial assets 18014 17859 Debt investments at amortised cost 1707032 1533546 Debt investments at fair value through other comprehensive income 783051 675484 Equity investments designated at fair value through other comprehensive income 10956 10724 Investments in subsidiaries 54731 50767 Interests in joint ventures 15111 13341 Interests in associates 6991 6190 Investment properties 836 907 Property and equipment 26690 26541 Right-of-use assets 16321 16764 Intangible assets 1720 2422 Deferred tax assets 87177 88056 Other assets 37470 41440 Total assets 10317223 9510556 Liabilities Borrowing from central banks 378504 129745 Deposits from banks and other financial institutions 484620 621621 Placements from banks and other financial institutions 71077 57489 Financial liabilities at fair value through profit or loss 21281 25865 Derivative financial liabilities 16653 18207 Amounts sold under repurchase agreements 114008 95970 Deposits from customers 7953958 7327974 Salaries and welfare payable 23911 19136 Tax payable 11904 17221 Contract liabilities 5466 6653 Lease liabilities 12039 12285 Provisions 19530 22410 Debt securities issued 107858 172402 Other liabilities 89220 96680 Total liabilities 9310029 8623658 Equity Share capital 25220 25220 Other equity instruments 150446 120446 Capital reserve 76079 76082 Investment revaluation reserve 14354 13144 Hedging reserve 11 – Surplus reserve 108737 94985 General reserve 129085 121230 Retained earnings 453168 391579 Proposed profit appropriation 49734 43832 Exchange reserve 360 380 Total equity 1007194 886898 Total equity and liabilities 10317223 9510556 – F-265 –China Merchants Bank Chapter VIII Financial Statements 251 Annual Report 2023 (H share) 54. The bank’s statement of financial position and changes in the bank’s equity (continued) Other equity instruments Investment Proposed Share Preference Perpetual Capital revaluation Hedging Surplus General Retained profit Exchange capital shares bonds reserve reserve reserve reserve reserve earnings appropriation reserve Total At 1 January 2023 25220 27468 92978 76082 13144 – 94985 121230 391579 43832 380 886898 Changes in equity for the year – – 30000 (3) 1210 11 13752 7855 61589 5902 (20) 120296 Net profit for the year – – – – – – – – 137521 – – 137521 Other comprehensive income for the year – – – – 1177 11 – – – – (20) 1168 Total comprehensive income for the year – – – – 1177 11 – – 137521 – (20) 138689 Issue of perpetual bonds – – 30000 (3) – – – – – – – 29997 Profit appropriations – – – – – – 13752 7855 (75899) 5902 – (48390) Appropriation to statutory surplus reserve – – – – – – 13752 – (13752) – – – Appropriation to general reserve – – – – – – – 7855 (7855) – – – Dividends paid for the year 2022 – – – – – – – – – (43832) – (43832) Proposed dividends for the year 2023 – – – – – – – – (49734) 49734 – – Dividends to preference shares – – – – – – – – (996) – – (996) Distribution to perpetual bonds – – – – – – – – (3562) – – (3562) Transfers within equity upon disposal of equity instruments designated at FVTOCI – – – – 33 – – – (33) – – – At 31 December 2023 25220 27468 122978 76079 14354 11 108737 129085 453168 49734 360 1007194 Other equity instruments Investment Proposed Share Preference Perpetual Capital revaluation Surplus General Retained profit Exchange capital shares bonds reserve reserve reserve reserve earnings appropriation reserve Total At 1 January 2022 25220 34065 92978 76681 14866 82137 105941 340271 38385 144 810688 Changes in equity for the year – (6597) – (599) (1722) 12848 15289 51308 5447 236 76210 Net profit for the year – – – – – – – 128484 – – 128484 Other comprehensive income for the year – – – – (1692) – – – – 236 (1456) Total comprehensive income for the year – – – – (1692) – – 128484 – 236 127028 Redemption of preference shares – (6597) – (599) – – – – – – (7196) Profit appropriations – – – – – 12848 15289 (77206) 5447 – (43622) Appropriation to statutory surplus reserve – – – – – 12848 – (12848) – – – Appropriation to general reserve – – – – – – 15289 (15289) – – – Dividends paid for the year 2021 – – – – – – – – (38385) – (38385) Proposed dividends for the year 2022 – – – – – – – (43832) 43832 – – Dividends to preference shares – – – – – – – (1675) – – (1675) Distribution to perpetual bonds – – – – – – – (3562) – – (3562) Transfers within equity upon disposal of equity instruments designated at FVTOCI – – – – (30) – – 30 – – – At 31 December 2022 25220 27468 92978 76082 13144 94985 121230 391579 43832 380 886898 – F-266 –252 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 55. Notes to consolidated cash flow statement (a) Analysis of the balances of cash and cash equivalents (including assets with original maturity within 3 months): 20232022 Cash and Balances with central banks 140809 66055 Balance with banks and other financial institutions 84593 81928 Placements with banks and other financial institutions 105953 93704 Amounts held under resale agreements 171542 275051 Debt securities investments and discounted bills 96122 50460 Total 599019 567198 (b) Reconciliation of liabilities arising from financing activities The table below details changes in the Group’s liabilities from financing activities including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were classified in the Group’s consolidated cash flows statement as cash flows from financing activities.Negotiable Certificates Debt interbank of deposit securities Interest Other certificates issued issued payable Dividend financial Lease of deposit (Note) (Note) on bonds payable liabilities liabilities Total At 1 January 2023 65719 15987 148674 1533 26 22719 13013 267671 Cash changes: Proceeds from the issue 68608 66504 25201 – – 17303 – 177616 Repayment (112584) (48267) (51146) – – (7210) (5053) (224260) Interest/dividend paid (2086) – – (5396) (48860) – – (56342) Non-cash changes: Additions of lease liabilities – – – – – – 4235 4235 Accrued interest – – – 5677 – – 480 6157 Dividend declared – – – – 48860 – – 48860 Discount or premium amortisation 1786 265 53 – – – – 2104 Fair value adjustments – 3 191 – – (236) – (42) Exchange difference – (152) 1399 – – 40 – 1287 At 31 December 2023 21443 34340 124372 1814 26 32616 12675 227286 Negotiable Certificates Debt interbank of deposit securities Interest Other certificates issued issued payable Dividend financial Lease of deposit (Note) (Note) on bonds payable liabilities liabilities Total At 1 January 2022 240284 11092 201142 2104 26 26650 13812 495110 Cash changes: Proceeds from the issue 78666 20287 21481 – – 10796 – 131230 Repayment (250996) (16504) (78735) – – (14959) (4932) (366126) Interest/dividend paid (5714) – – (6686) (44103) – – (56503) Non-cash changes: Additions of lease liabilities – – – – – – 3623 3623 Accrued interest – – – 6115 – – 510 6625 Dividend declared – – – – 44103 – – 44103 Discount or premium amortisation 3479 31 37 – – – – 3547 Fair value adjustments – (26) (544) – – (9) – (579) Exchange difference – 1107 5293 – – 241 – 6641 At 31 December 2022 65719 15987 148674 1533 26 22719 13013 267671 Note: Including financial liabilities designated at fair value through profit or loss.(c) Significant non-cash transactions There were no significant non-cash transactions during the years ended 31 December 2023 and 2022.– F-267 –China Merchants Bank Chapter VIII Financial Statements 253 Annual Report 2023 (H share) 56. Operating segments The Group’s principal activities are providing corporate and personal banking services conducting treasury business providing asset management and other financial services.The Group manages its businesses by divisions which are organised by both business lines and geography. (1) Wholesale finance business The financial services for corporate clients government agencies and financial institutions include: loan and deposit service settlement and cash management service trade finance and offshore business investment banking business inter-bank business such as placement and repurchase asset custody business financial market business and other services. (2) Retail finance business The financial services provided to retail customers include: loan and deposit service bank card service wealth management services private banking and other services. (3) Other Business Other business covers investment properties subsidiaries except for CMB WLB and CMBFL associates and joint ventures. None of these segments meet any of the quantitative thresholds so far for segment division.For the purpose of operating segment analysis external net interest income/expense represents the net interest income earned or expense incurred on banking services provided to external parties. Internal net interest income/ expense represents the assumed profit or loss by the internal funds transfer pricing mechanism which has taken into account the structure and market returns of the assets and liabilities portfolio. Cost allocation is based on direct costs attributable to each reporting segment and apportion according to the relevant factors.The accounting policies of the operating segments are the same as the Group’s accounting policies as stated in Note 4. Operating segment income represents income generated from external customers inter-segment transactions are offset. No customer contributed 10% or more to the Group’s revenue for 2023 and 2022. Internal transactions are conducted at fair value.– F-268 –254 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 56. Operating segments (continued) (a) Segment results assets and liabilities Wholesale finance business Retail finance business Other business Total 20232022202320222023202220232022 External net interest income 23074 28165 129075 140443 62520 49627 214669 218235 Internal net interest income/(expense) 60952 62294 7679 (9054) (68631) (53240) – – Net interest income 84026 90459 136754 131389 (6111) (3613) 214669 218235 Net fee and commission income 16710 25540 56419 57279 10979 11456 84108 94275 Other net income 33889 26095 1142 2747 2794 863 37825 29705 Operating income 134625 142094 194315 191415 7662 8706 336602 342215 Operating expenses – Property and equipment and investment properties depreciation (7798) (7103) (2771) (2942) (439) (234) (11008) (10279) – Right-of-use assets depreciation (1610) (1676) (2312) (2250) (283) (225) (4205) (4151) – Other (41812) (43495) (58860) (58079) (5106) (6057) (105778) (107631) Reportable segment profit before impairment losses 83405 89820 130372 128144 1834 2190 215611 220154 Expected credit losses and impairment losses on other assets (10640) (22671) (30459) (33966) (370) (929) (41469) (57566) Share of profits of associates and joint ventures – – – – 2476 2525 2476 2525 Reportable segment profit before taxation 72765 67149 99913 94178 3940 3786 176618 165113 Capital expenditure (note) 26630 28884 2809 2660 702 513 30141 32057 Wholesale finance business Retail finance business Other business Total 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 20232022202320222023202220232022 Reportable segment assets 6236513 5633640 3358721 3081290 1325116 1314820 10920350 10029750 Of which: Interest in associates and joint ventures – – – – 26590 23844 26590 23844 Reportable segment liabilities 5671256 5495463 3562087 3157321 628708 446949 9862051 9099733 Note: Capital expenditure represents the amount incurred for acquiring segment assets which are expected to be used for more than one year.– F-269 –China Merchants Bank Chapter VIII Financial Statements 255 Annual Report 2023 (H share) 56. Operating segments (continued) (b) Reconciliations of reportable segment revenue profit or loss assets liabilities and other material items 20232022 Operating income for reportable segments 336602 342215 Total profit before income tax for reportable segments 176618 165113 31 December 2023 31 December 2022 Assets Total assets for reportable segments 10920350 10029750 Goodwill 9954 9999 Intangible assets 550 581 Deferred tax assets 90557 90848 Other unallocated assets 7072 7734 Consolidated total assets 11028483 10138912 Liabilities Total liabilities for reportable segments 9862051 9099733 Tax payable 13597 19458 Deferred tax liabilities 1607 1510 Other unallocated liabilities 65499 63973 Consolidated total liabilities 9942754 9184674 – F-270 –256 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 56. Operating segments (continued) (c) Geographical segments The Group operates principally in the PRC with branches located in major provinces autonomous regions and municipalities directly under the central government in the Chinese mainland. The Group also has branches operating in Hong Kong New York Singapore Luxembourg London and Sydney subsidiaries operating in Hong Kong Shenzhen Shanghai Beijing and Luxembourg and representative offices in New York and Taipei.In presenting information on the basis of geographical segments operating income is allocated based on the location of the branches and subsidiaries that generate the revenue. Segment assets and non-current assets are allocated based on the location of the underlying assets.To support the Bank’s operations and management’s assessments the geographical segments are defined as follows: – “Headquarter” refers to the Group headquarter credit card centres and fund operation centres; – “Yangtze River Delta region” refers to branches in Shanghai municipality Zhejiang province and Jiangsu province; – “Bohai Rim region” refers to branches in Beijing municipality Tianjin municipality Shandong province and Hebei province; – “Pearl River Delta and West Coast region” refers to branches in Guangdong province and Fujian province; – “Northeast region” refers to branches in Liaoning province Heilongjiang province and Jilin province; – “Central region” refers to branches in Henan province Anhui province Hunan province Hubei province Jiangxi province Shanxi province and Hainan province; – “Western region” refers to branches in Sichuan province Chongqing municipality Guizhou province Yunnan province Shaanxi province Gansu province Ningxia Hui Autonomous region Xinjiang Uyghur autonomous region Guangxi Zhuang autonomous region Inner Mongolia autonomous region Qinghai province and Tibet autonomous region; – “Overseas” refers to overseas branches in Hong Kong New York Singapore Luxembourg London Sydney and representative offices in New York and Taipei; and – “Subsidiaries” refers to subsidiaries wholly owned or controlled by the Group including CMB WLB CMBIC CMBFL CMFM CMBWM CMB Europe S.A. and CIGNA & CMAM.Total assets Total liabilities Non-current assets Profit before tax Operating income 31 December 31 December 31 December 31 December 31 December 31 December Geographical information 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Headquarter 4985615 4580315 4107566 3841548 54625 52166 77737 51396 135401 140083 Yangtze River Delta region 1417890 1304806 1404463 1283400 5995 5774 21578 22939 45485 45768 Bohai Rim region 916860 827394 902114 811449 4187 4354 18801 19759 33583 34105 Pearl River Delta and West Coast region 1166744 1083521 1156219 1063334 4125 4232 18491 26479 34947 37583 Northeast region 168687 170632 166551 166486 1440 1505 2808 4075 6444 6485 Central region 676618 636801 670811 628361 3299 3602 9358 10740 19953 20989 Western region 681255 632766 674635 623631 3051 3497 8554 11755 20579 20931 Overseas 213303 194412 217502 193651 618 707 2438 2046 4474 3557 Subsidiaries 801511 708265 642893 572814 95462 80148 16853 15924 35736 32714 Total 11028483 10138912 9942754 9184674 172802 155985 176618 165113 336602 342215 Note: Non-current assets include interests in joint ventures interests in associates property and equipment investment properties right-of-use assets intangible assets and goodwill.– F-271 –China Merchants Bank Chapter VIII Financial Statements 257 Annual Report 2023 (H share) 57. Assets pledged as security The following assets have been pledged as collateral for borrowing from central banks and liabilities under repurchase or placement arrangements: 20232022 Borrowing from central banks 377189 129438 Placements from banks and other financial institutions 9099 8620 Amounts sold under repurchase agreements 134863 107024 Total 521151 245082 Assets pledged – Financial assets at fair value through profit or loss 98223 24093 – Debt investments at amortised cost 333718 99199 – Debt investments at fair value through other comprehensive income 41743 25267 – Loans and advances to customers 130616 105531 Total 604300 254090 The transactions under repurchase or placement agreements are conducted under terms that are usual and customary to standard borrowing and placing activities. 58. Contingent liabilities and commitments (a) Credit commitments At any given time the Group has outstanding commitments to extend credit. These commitments take the form of approved loans and credit card limits.The Group provides financial guarantees and letters of credit to guarantee the performance of customers to third parties. Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be settled simultaneously with the reimbursement from the customers.The contractual amounts of commitments and contingent liabilities are set out in the following table by category.The amounts reflected in the table for commitments assume that amounts are fully advanced. The amounts reflected in the table for guarantees and letters of credit represent the maximum potential loss that would be recognised at the end of the reporting period if counterparties default. 2023 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Irrevocable guarantees 320170 3940 278 324388 Of which: Financial guarantees 44570 1104 3 45677 Non-financing letters of guarantees 275600 2836 275 278711 Irrevocable letters of credit 227114 1505 – 228619 Bills of acceptances 485393 2294 500 488187 Irrevocable loan commitments 171198 2285 95 173578 – with an original maturity within 1 year (inclusive) 23559 1 – 23560 – with an original maturity over 1 year 147639 2284 95 150018 Credit card unused commitments 1509253 6400 21 1515674 Other 87367 156 – 87523 Total 2800495 16580 894 2817969 – F-272 –258 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 58. Contingent liabilities and commitments (continued) (a) Credit commitments (continued) 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Irrevocable guarantees 245003 9818 272 255093 Of which: Financial guarantees 44805 7341 3 52149 Non-financing letters of guarantees 200198 2477 269 202944 Irrevocable letters of credit 231849 1344 – 233193 Bills of acceptances 427150 3733 500 431383 Irrevocable loan commitments 155775 1607 – 157382 – with an original maturity within 1 year (inclusive) 22638 4 – 22642 – with an original maturity over 1 year 133137 1603 – 134740 Credit card unused commitments 1406911 9613 85 1416609 Other 81225 245 – 81470 Total 2547913 26360 857 2575130 As at 31 December 2023 the Group’s irrevocable letters of credit included sight letters of credit of RMB22254 million (31 December 2022: RMB22525 million) usance letters of credit of RMB9361 million (31 December 2022: RMB6965 million) and other commitments of RMB197004 million (31 December 2021: RMB203703 million).Irrevocable loan commitments include credit limits granted to offshore customers by overseas branches subsidiaries and onshore and offshore syndicated loans etc.Apart from the irrevocable loan commitments the Group had loan commitments of RMB5878801 million at 31 December 2023 (31 December 2022: RMB5159127 million) which are unconditionally cancellable by the Group or automatically cancellable due to deterioration in the creditworthiness of the borrower as stipulated in respective lending agreements. The Group will not assume any risks on the unused credit limits for these loan customers. As a result such balances are not included in the above contingent liabilities and commitments. 20232022 Credit risk weighted amounts of contingent liabilities and commitments 650343 595977 The Group calculated the credit risk weighted amount of its contingent liabilities and commitments in accordance with the requirements of the Administrative Measures on Capital of Commercial Banks (Provisional) issued by the former CBIRC. The amount within the scope approved by the former CBIRC in April 2014 is calculated using the Internal Ratings-Based Approach and the Weighted Approach is used for those items that are not eligible for the Internal Ratings-Based Approach.– F-273 –China Merchants Bank Chapter VIII Financial Statements 259 Annual Report 2023 (H share) 58. Contingent liabilities and commitments (continued) (b) Capital commitments The authorised capital commitments of the Group were as follows: 20232022 Contracted for 219 370 Authorised but not contracted for 191 189 Total 410 559 The lease commitments of the Group as a lessor are detailed in note 58(e).(c) Outstanding litigations At 31 December 2023 the Bank or other group entities was a defendant in certain outstanding litigations with total gross claims of RMB3205 million (2022: RMB1910 million). The Group considers that no material losses would be incurred by the Group as a result of these outstanding litigations and therefore no provision has been made in the consolidated financial statements.(d) Redemption obligations As an underwriting agent of PRC government bonds the Group has the responsibility to make advances to bond holders if the holders decide to early redeem the bonds held. The redemption price for the bonds at any time before their maturity date is based on the nominal value plus any interest unpaid and accrued up to the redemption date.Accrued interest payables to the bond holders are calculated in accordance with relevant requirements set by the MOF or the PBOC. The redemption price may be different from the fair value of similar instruments traded at the redemption date.The redemption obligations below represent the nominal value of government bonds underwritten and sold by the Group but not yet matured at the end of the reporting period: 20232022 Redemption obligations 29144 27401 The Group expects that the amount of redemption before the maturity date of these government bonds through the Group will not be material.(e) Lease commitments Operating lease commitments and financial lease commitments where the Group is a lessor at the end of the reporting period are as follows: 20232022 Operating lease commitments 25816 30519 Financial lease commitments 12859 8025 Total 38675 38544 – F-274 –260 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 59. Transactions on behalf of customers (a) Entrusted lending business The Group’s entrusted lending business refers to activities where principals such as government departments business entities and individuals provide capital for loan advances through the Group to their specified targets on their behalf in accordance with specific terms and conditions with the help of the Group in monitoring loan usage and seeking loan recovery. The entrusted lending business does not expose the Group to any credit risk. As instructed by these principals the Group holds and manages underlying assets and liabilities only in the capacity of an agent and charges handling fees for related services.Entrusted lending are not assets of the Group and are not recognised in the consolidated statement of financial position. Income received and receivable for providing these services are recognised in the consolidated statement of profit or loss as fee and commission income.At the end of the reporting period the entrusted assets and liabilities were as follows: 20232022 Entrusted loans 221292 231266 Entrusted funds (221292) (231266) (b) Wealth management services The Group’s wealth management services to customers mainly represent sales of wealth management products to corporate and personal banking customers by the Bank and CMBWM. The funds obtained from wealth management services are invested in investment products including government bonds policy bank bonds short term corporate debt instruments and trust loans. The Group initiated the launch of wealth management products. The investment risk associated with these products is borne by the customers who invest in these products. The Group does not consolidate these wealth management products. The Group earns commission which represents the charges on customers in relation to the provision of custody sales and management services.The wealth management products and funds obtained are not assets and liabilities of the Group and are not recognised in the consolidated statement of financial position. The funds received from customer for wealth management business that yet to be invested are recorded under other liabilities.At the end of the reporting period funds received from customers under unconsolidated wealth management services were RMB2403038 million as at 31 December 2023 (31 December 2022: RMB2552408 million).(c) Entrusted management of insurance funds The entrusted management of insurance funds mainly refers to the business that the Group carries out investment activities on funds entrusted by insurance companies according to the regulatory policies and the investment guidelines from insurance companies and charges fees for providing such services.At the end of the reporting period the balances of entrusted funds were as follows: 20232022 Entrusted management of insurance funds 144963 108868 – F-275 –China Merchants Bank Chapter VIII Financial Statements 261 Annual Report 2023 (H share) 60. Risk management (a) Credit risk Credit risk represents the potential losses that may arise from the failure of a counterparty or a debtor to meet its obligation or commitment to the Group. Credit risk increases when all counterparties are concentrated in a single industry or a geographical region as different counterparties in the same region or industry may be affected by the same economic factors which may eventually affect their repayment abilities.The Group designs its organisation framework credit policies and processes with an objective to identify evaluate and manage its credit risk effectively. The Risk and Capital Management Committee set up and appointed by the Board of Directors is responsible for supervising and evaluating the set-up organisational structure work process and effectiveness of various risk management functions.With respect to daily operations the Risk Management Department as directed by the Risk and Capital Management Committee participates in coordinates and monitors the work of other risk management functions including each business unit and the Legal and Compliance Department. The Group manages credit risk throughout the entire credit process including pre-lending evaluations credit approval and post-lending monitoring. The Group has also further optimised the foundation related to the implementation of ECL measures during the year in accordance with the Implementation Rules on Expected Credit Loss Approach of Commercial Banks (Yin Bao Jian Gui [2022] No. 10).With respect to the credit risk management of wholesale financial business the Group formulates credit policy guidelines enhances the standards on credit acceptance and management requirements for corporate interbank and institutional clients and implements limits in key risk areas to improve the quality of credit exposure.With respect to credit risk management of retail financial business the Group mainly relies on the credit assessment of applicants as the basis for loan approval which takes into consideration the income level credit history and repayment ability of the applicant. The Group monitors post-lending conditions by focusing on borrowers’ repayment ability the status of collateral and any changes to collateral value. Once a loan becomes overdue the Group starts the collection process according to standard retail loans collection procedures.To mitigate risks the Group requests customers to provide collateral and guarantees when necessary. Certain guidelines have been set for the acceptability of specific types of collateral or risks mitigating measures. Collateral portfolio and legal covenants are reviewed regularly to ensure that they remain sufficient for the given risks and be consistent with market practices.In respect of asset quality classification the Group adopts a risk based asset quality classification methodology.Currently the Group categorises its loans on a ten-grade loan classification basis to refine internal risk classification management (normal (grades 1-5) special mention (grades 1-2) substandard doubtful and loss).The risks involved in contingent liabilities and commitments are essentially the same as the credit risk involved in loans and advances to customers. These transactions are therefore subject to the same credit application post- lending monitoring and collateral requirements as for customers applying for loans.Concentration of credit risk: when certain number of customers carry out the same business activities locate in the same geographical region or their industries share similar economic characteristics their ability to meet their obligations may be affected by the same economic factors. The level of concentration of credit risk reflects the sensitivity of the Group’s operating result to a specific industry or geographical region. To prevent concentration of credit risk the Group has formulated a limit management policy to monitor and analyse its loan portfolio.Analysis of loans and advances by industry and loan portfolio are presented in Note 22.– F-276 –262 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (a) Credit risk (continued) (i) Internal credit risk rating The Group classifies credit risk based on probability of default. The internal credit risk rating is based on the forecasted default risk taking into consideration qualitative and quantitative factors. For customers of wholesale business such factors include net profit growth rate sales growth rate industry etc. For customers of retail business such factors include maturity ageing collateral ratio etc.(ii) Significant increase in credit risk As describe in Note 4(5) the Group recognises lifetime ECL if there are significant increases in credit risk.In assessing whether the credit risk has increased significantly since initial recognition the Group compares the risk of default occurring on the financial instrument and other items at the reporting date with that at the date of initial recognition. In making this assessment the Group considers an actual or expected significant deterioration in the financial instrument’s internal credit risk rating (Note 60(a)(i)) as well as internal early warning signal the result of 5-tier classification and overdue information. The Group regularly reviews whether the evaluation criteria are applicable to the current situation.For wholesale business credit risk is considered as significantly increased if any of the following conditions is met: the 5-tier classification is special mention; more than 30 days (inclusive) overdue; the internal credit risk rating of the customer has been downgraded to certain level; the early warning signal of the customer has reached a certain level; or the customer has other significant risk signals identified by the Group.For retail and credit card business credit risk is considered as significantly increased if any of the following conditions is met: the 5-tier classification is special mention; more than 30 days (inclusive) overdue; the customer or the debt has credit risk early warning signal; or the customer has other significant risk signals identified by the Group.A debt instrument is determined to have low credit risk if i) it has a low risk of default ii) the borrower has a strong capability to meet its contractual cash flow obligations in the near term and iii) adverse changes in economic and business conditions in the longer term may not necessarily reduce the ability of the borrower to fulfill its contractual cash flow obligations.For loan commitment and financial guarantee the date when the commitment becomes irrevocable is considered as the initial recognition date.The Group considers that a debt instrument is impaired and classified as stage 3 when the debt instrument is more than 90 days (inclusive) overdue or the 5-tier classification of this debt instrument is substandard doubtful or loss (these three categories include debt instruments with more than 90 days (inclusive) overdue).(iii) Measurement of ECL The key inputs used for measuring ECL are: * probability of default (PD): is an estimate of the likelihood of default over 12 months or lifetime horizon; * loss given default (LGD): is the proportion of the loss arising on default to the exposure at default; * exposure at default (EAD): is the risk exposure on a debt.These figures are generally derived from internally developed statistical models and other historical data and they are adjusted to reflect forward-looking information.– F-277 –China Merchants Bank Chapter VIII Financial Statements 263 Annual Report 2023 (H share) 60. Risk management (continued) (a) Credit risk (continued) (iv) Incorporation of forward-looking information The Group divides financial assets into different asset groups based on their different risk characteristics. According to the risk characteristics of the asset group the Group collects external data released by authoritative institutions and internal risk data without undue cost or effort for modelling. Apart from the common economic indicators such as Gross Domestic Product (“GDP”) Consumer Price Index (“CPI”) Producer Price Index and Broad Money Supply various other categories of indicators such as industry index interest and exchange rate and survey index are also included. Based on statistical analysis and expert judgements the Group sets up multiple forward-looking scenarios to predict macroeconomic indicators and risk parameters. The Group sets the forecasts issued by external authoritative institutions as the forecasts of economic indicators under the baseline scenario with reference to the professionals of the Bank and the outputs of the models. For the forecasts of economic indicators under the remaining scenarios the Group will refer to the actual historical data for analysis and forecast. Taking GDP (year-on- year growth rate) and CPI (month-on-month increase) as an example the forecasts for the next year adopted by the Group for 2024 under the baseline scenario are 4.80% (2023: 4.80%) and 1.50% (2023: 2.80%) respectively.Combined with quantitative measurement and expert judgement the Group sets the weighting of multiple scenarios based on the principle of taking the baseline scenario as the main and the other scenarios as supplement. The weight of the baseline scenario of the Group as at 31 December 2023 is the highest. According to the sensitivity test results of the Group when the weighting of the optimistic scenario increases by 10% and the weighting of the baseline scenario decreases by 10% the ECL amount at 31 December 2023 will decrease by approximately 2.8% compared to the current result (at 31 December 2022: will decrease by approximately 3.1%). When the weighting of the pessimistic scenario increases by 10% and the weighting of the baseline scenario decreases by 10% the ECL amount at 31 December 2023 will increase by approximately 5.6% compared to the current result (at 31 December 2022: will increase by approximately 5.2%). The Group periodically forecasts macroeconomic indicators and calculates the ECL based on a weighted 12-month expected credit loss (stage 1) or a weighted lifetime expected credit loss (stage 2 and stage 3).(v) Groupings based on shared risk characteristics The Group divides the primary business into wholesale business retail business and credit card business. The models are divided based on shared risk characteristics and the reference indicators include the 5-tier classification business type and collateral type.(vi) Maximum exposure The Group’s maximum exposure to credit risk without taking into account any collateral held or other credit enhancements is the carrying amount of the relevant financial instruments as disclosed in the consolidated statement of financial position and the contract amount of the off balance sheet items disclosed in Note 58(a). At 31 December 2023 the amount of the Group’s maximum credit risk exposure was RMB13537727 million (31 December 2022: RMB12440947 million).– F-278 –264 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (a) Credit risk (continued) (vii) Renegotiated loans and advances to customers The carrying amount of loans and advances that were credit impaired and the terms had been renegotiated was RMB13007 million as at 31 December 2023 (31 December 2022: RMB12076 million).(viii) Non-performing loans Under the 5-tier loan classification system non-performing loans of the Group are divided into substandard loans doubtful loans and loss loans. As at 31 December 2023 the Group had balance of non-performing loans of RMB61579 million (31 December 2022: RMB58004 million).(ix) Credit quality of bond investments rating results At the end of the reporting period the analysis of the credit quality of bond investments by designated external credit assessment institution Standard & Poor’s is as follows: 20232022 Impaired gross amount of debt investments 808 398 Impairment allowances (499) (243) Subtotal 309 155 Neither overdue nor impaired AAA 2577388 2187978 AA+ to AA- 65894 53526 A+ to A- 132191 124554 Lower than A- 27220 33429 Unrated 41184 38966 Impairment allowances (10661) (5958) Subtotal 2833216 2432495 Total 2833525 2432650 Notes: (i) Bonds issued by the governments and policy banks held by the Group amounted to RMB2448279 million as at 31 December 2023 (31 December 2022: RMB2094902 million).(ii) The impairment allowances above is for debt investments at amortised cost only.– F-279 –China Merchants Bank Chapter VIII Financial Statements 265 Annual Report 2023 (H share) 60. Risk management (continued) (a) Credit risk (continued) (x) Collateral An estimate of the fair value of collateral and other credit enhancements held against financial assets that are overdue but not impaired is as follows: 20232022 Estimate of the fair value of collateral and other credit enhancements held against following financial assets – Loans and advances to customers 20797 25148 (xi) Movements of loans and advances and debt investments measured at amortised cost Loans and advances measured at amortised cost: 2023 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 5217868 156240 58004 5432112 Net changes for the year 557973 (27551) (1288) 529134 Transfer to – Stage 1 30084 (29822) (262) – – Stage 2 (94405) 95148 (743) – – Stage 3 (24861) (28910) 53771 – Write-offs – – (47922) (47922) Balance as at the end of the year 5686659 165105 61560 5913324 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 4912836 111354 50862 5075052 Net changes for the year 425054 (27002) (1831) 396221 Transfer to – Stage 1 18758 (18644) (114) – – Stage 2 (103532) 103794 (262) – – Stage 3 (35248) (13117) 48365 – Write-offs – (145) (39016) (39161) Balance as at the end of the year 5217868 156240 58004 5432112 – F-280 –266 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (a) Credit risk (continued) (xi) Movements of loans and advances and debt investments measured at amortised cost (continued) Debt investments at amortised cost: 2023 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 1543652 2073 34120 1579845 Net changes for the year 195645 (238) (4323) 191084 Transfer to – Stage 1 1 (1) – – – Stage 2 (339) 339 – – – Stage 3 – (655) 655 – Write-offs (14) (1) (2904) (2919) Balance as at the end of the year 1738945 1517 27548 1768010 2022 – Stage 2 (Lifetime – Stage 3 – Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- ECL) impaired) impaired) Total Balance as at the beginning of the year 1183320 1962 24077 1209359 Net changes for the year 361916 (275) 9395 371036 Transfer to – Stage 1 3 (3) – – – Stage 2 (1276) 1276 – – – Stage 3 (311) (887) 1198 – Write-offs – – (550) (550) Balance as at the end of the year 1543652 2073 34120 1579845 – F-281 –China Merchants Bank Chapter VIII Financial Statements 267 Annual Report 2023 (H share) 60. Risk management (continued) (a) Credit risk (continued) (xii) Credit quality of financial instruments The staging analysis for loans and advances to customers and debt investments at amortised cost are disclosed in note 22 note 23(b) and note 60(a)(xi) respectively. The staging analysis for credit commitments and the expected credit loss allowances of financial guarantees and loan commitments are disclosed in notes 58(a) and 42 respectively.The staging analysis for other financial instruments is as follows: 2023 Principal Expected credit loss Stage 2 Stage 2 (Lifetime Stage 3 (Lifetime Stage 3 Stage 1 ECL – not (Lifetime Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- (12-month credit- ECL – credit- ECL) impaired) impaired) Total ECL) impaired) impaired) Total Balances with central banks 667569 – – 667569 – – – – Balances with banks and other financial institutions 100745 1 11 100757 (211) (1) (11) (223) Placements with banks and other financial institutions 286046 201 – 286247 (518) (1) – (519) Amounts held under resale agreements 172568 – 140 172708 (449) – (140) (589) Debt investments at FVTOCI 889105 390 241 889736 (5586) (132) (1094) (6812) 2022 Principal Expected credit loss Stage 2 Stage 2 (Lifetime Stage 3 (Lifetime Stage 3 Stage 1 ECL – not (Lifetime Stage 1 ECL – not (Lifetime (12-month credit- ECL – credit- (12-month credit- ECL – credit- ECL) impaired) impaired) Total ECL) impaired) impaired) Total Balances with central banks 587533 – – 587533 – – – – Balances with banks and other financial institutions 91574 2 11 91587 (497) (1) (11) (509) Placements with banks and other financial institutions 265415 – – 265415 (2658) – – (2658) Amounts held under resale agreements 277421 – 140 277561 (954) – (140) (1094) Debt investments at FVTOCI 767905 3211 155 771271 (4472) (479) (1589) (6540) Note: The balances disclosed above do not include interest receivable.– F-282 –268 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (b) Market risk Market risk refers to the risk of loss due to changes in observable market factors such as interest rates exchange rates commodity prices and stock prices resulting in changes in the fair value or future cash flows of the Group’s financial instruments. Interest rate and foreign exchange rate are the two major market risk factors relevant to the Group. The Group is exposed to market risk through the financial instruments under the trading book and banking book. The financial instruments and positions under the trading book are held for trading purposes or for the purposes of hedging the risks arising from the trading book position and these financial instruments can be traded without any restriction. The financial instruments under the banking book are assets and liabilities held by the Group for determinable return with relative stable market value or for the purposes of hedging the risks which include both the Group’s on-balance sheet and off-balance sheet exposure.(i) Foreign exchange risk Foreign exchange risk arises from the holding of foreign currency assets liabilities and equity items and the foreign currency and foreign currency derivative positions which expose the Group to potential losses in the event of unfavourable foreign exchange rate movement. The financial assets and liabilities of the Group are denominated in RMB and the other currencies are mainly in USD and HKD. The Group segregates the policy setting execution and supervision of foreign exchange risk management and establishes a foreign currency risk management governance structure. This structure specifies the roles responsibilities and reporting lines of the Board of Directors the Board of Supervisors senior management designated committees and relevant departments of the Bank in the management of foreign exchange risk. The Group is prudent in its foreign exchange risk appetite and would not voluntarily take foreign exchange risk which suits the current development stage of the Group. The current foreign exchange risk management policies and procedures of the Group meet the regulatory requirements and the requirements of the Group. (1) Trading book The Group has established a market risk structure and system of the trading book which covers exchange rate risk to quantify the exchange rate risk of the trading book to facilitate centralised management. The structure process and method of exchange rate risk management of trading book are consistent with that of the interest rate risk of trading book.The Group adopts quantitative indicators such as exposure indicator market value at risk indicator (VaR covers interest rate foreign exchange rate and commodity risk factors) exchange rate scenario stress test loss index exchange rate sensitivity index and cumulative loss index in its management of foreign exchange risk. The management methods include delegation setting limits daily monitoring and continuous reporting etc.– F-283 –China Merchants Bank Chapter VIII Financial Statements 269 Annual Report 2023 (H share) 60. Risk management (continued) (b) Market risk (continued) (i) Foreign exchange risk (continued) (2) Banking book The Group’s foreign exchange risk under the banking book is centrally managed by the Head Office. The Asset and Liability Management Department as the treasurer of the Bank is in charge of the banking book foreign exchange risk management. The Internal Audit Department is responsible for auditing this. The treasurer is responsible for managing the foreign exchange risk under the banking book with a prudent approach and compliance with the regulatory requirements and through approaches such as transaction limits and adjustment of plans.The banking book foreign exchange risk of the Group arises from the mismatch of the non-RMB financial assets and liabilities. The Group stringently monitors its foreign exchange risk exposures to control it within an acceptable range.The Group has adopted foreign exchange exposure analysis scenario simulation analysis and stress testing for the measurement and analysis of foreign exchange risk. The Group regularly measures and analyses the foreign exchange risk exposure fluctuations monitors and reports foreign exchange risk on a monthly basis under the limit control framework and adjusts the foreign exchange exposures based on the trend of foreign exchange rate movements to mitigate the foreign exchange risk on its banking book.The Group continues to strengthen banking book exchange rate risk monitoring and authorisation management of limits to ensure that risks are controlled within a reasonable range. (3) Assets and liabilities by original currency are shown as follows: 2023 In RMB Equivalent Main original currency RMB USD HKD Other Total USD HKD Assets Cash and balances with central banks 632195 45869 1373 3063 682500 6468 1512 Amounts due from banks and other financial institutions 425397 116308 3919 12757 558381 16400 4316 Loans and advances to customers 5938668 133774 147467 22151 6242060 18862 162431 Financial investments (including derivative financial assets) 2883787 244690 40754 13652 3182883 34502 44888 Other assets (note (i)) 216402 117867 16161 12229 362659 16620 17802 Total 10096449 658508 209674 63852 11028483 92852 230949 Liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1132441 117899 5676 9581 1265597 16624 6252 Deposits from customers 7562175 384719 154568 53976 8155438 54247 170253 Financial liabilities at FVTPL (including derivative financial liabilities) 52624 8368 206 203 61401 1180 227 Debt securities issued 101849 67474 3366 2075 174764 9514 3708 Other liabilities (note (i)) 258062 18858 7103 1531 285554 2658 7824 Total 9107151 597318 170919 67366 9942754 84223 188264 Net position 989298 61190 38755 (3514) 1085729 8629 42685 Off-balance sheet position: Credit commitments (note (ii)) 2689139 83364 25385 20081 2817969 11755 27961 Derivatives (nominal amounts): – forward purchased 418103 431449 34270 34929 918751 60836 37747 – forward sold (386228) (440704) (13642) (22002) (862576) (62141) (15026) – net currency option position (76687) 67549 357 (4250) (13031) 9525 393 Total (44812) 58294 20985 8677 43144 8220 23114 – F-284 –270 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (b) Market risk (continued) (i) Foreign exchange risk (continued) (3) Assets and liabilities by original currency are shown as follows: (continued) 2022 In RMB Equivalent Main original currency RMB USD HKD Other Total USD HKD Assets Cash and balances with central banks 555828 41978 2766 2170 602742 6039 3103 Amounts due from banks and other financial institutions 491188 100870 22244 16000 630302 14511 24951 Loans and advances to customers 5466679 148993 157628 23246 5796546 21433 176812 Financial investments (including derivative financial assets) 2534659 188200 31130 9233 2763222 27073 34920 Other assets (note (i)) 244335 94908 3313 3544 346100 13653 3716 Total 9292689 574949 217081 54193 10138912 82709 243502 Liabilities Borrowing from central banks and amounts due to banks and other financial institutions 982369 95258 3961 5507 1087095 13704 4443 Deposits from customers 6964197 361242 160496 49807 7535742 51967 180029 Financial liabilities at FVTPL (including derivative financial liabilities) 52044 15280 421 35 67780 2197 473 Debt securities issued 162146 58447 790 905 222288 8408 886 Other liabilities (note (i)) 247669 11239 11944 917 271769 1619 13397 Total 8408425 541466 177612 57171 9184674 77895 199228 Net position 884264 33483 39469 (2978) 954238 4814 44274 Off-balance sheet position: Credit commitments (note (ii)) 2456047 82618 21961 14504 2575130 11885 24634 Derivatives (nominal amounts): – forward purchased 280979 288388 26409 20844 616620 41486 29623 – forward sold (253696) (294290) (19462) (14878) (582326) (42335) (21831) – net currency option position 29143 (32690) (10) 41 (3516) (4703) (11) Total 56426 (38592) 6937 6007 30778 (5552) 7781 Notes: (i) Interest receivable and interest payable of financial instruments are included in “other assets” and “other liabilities” respectively.(ii) Credit commitments generally expire before they are drawn down therefore the above net position does not represent the future cash outflows.– F-285 –China Merchants Bank Chapter VIII Financial Statements 271 Annual Report 2023 (H share) 60. Risk management (continued) (b) Market risk (continued) (i) Foreign exchange risk (continued) (4) Sensitivity analysis Under the existing managed floating exchange rate regime the Group uses sensitivity analysis to measure the potential effect of changes in foreign currency exchange rates on the Group’s net profit and equity. The following table sets forth the results of the Group’s foreign exchange risk sensitivity analysis on the assets and liabilities of all foreign currencies involved at 31 December 2023 and 31 December 2022. 20232022 Change in foreign currency exchange rate Down by 1% Up by 1% Down by 1% Up by 1% (Decrease)/increase in net profit (101) 101 (64) 64 (Decrease)/increase in equity (334) 334 (284) 284 Actual changes in the Group’s net profit and equity resulting from increases or decreases in foreign exchange rates may be different from the results of this sensitivity analysis.(ii) Interest rate risk Interest rate risk arises from unfavourable changes in interest rates and maturity profiles which may result in loss to the income and decline in market value of financial instruments and positions held by the Group. (1) Trading book According to the basic principles of risk management the Group has built and continuously improved the market risk management system and established the management process of market risk identification measurement monitoring control and reporting covering interest rate risk exchange rate risk commodity and other risks involved in the trading book business. Under the market risk preference formulated by the Board of Directors the Group manages the trading book by clearly identifying accurately measuring and effectively managing the trading book market risk to ensure that the trading book risk exposure is within an acceptable range and achieves a reasonable balance of risk and return. The Group constantly improves the risk-adjusted return level to maximise the shareholders’ value.The trading book market risk governance organisation structure defines the responsibilities division of labour and reporting lines of the Board of Directors Risk and Capital Management Committee under the Board of Directors senior management and relevant departments of the Bank and safeguards the achievement of management objectives. The Market Risk Management Department is responsible for the Group’s trading book market risk and undertakes the task of risk policy formulation and management.– F-286 –272 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (b) Market risk (continued) (ii) Interest rate risk (continued) (1) Trading book (continued) According to the business practices and market risk governance organisation structure the Group establishes the trading book market risk limits management system. A top level limit is set based on the risk appetite determined by the Board of Directors and is transmitted from top to bottom level by level. Within the scope of their authorisation management departments at all levels allocate and set limits according to risk characteristics product types and trading strategies etc. The business departments carry out the business according to the authorisation and limits requirements and the supervisory and administrative departments at all levels continuously monitor and report according to the limits management regulations.The trading book market risk management adopts the scale index stop loss index sensitivity index value at risk index stress test index and other risk measurement indices as the limits index and sets the limit value by comprehensively considering the risk appetite risk tolerance business operation strategy risk return management conditions and other factors.The Group uses valuation sensitivity analysis value-at-risk analysis stress test and other measurement methods to identify and quantify risk factors in the interest rate market. The Group applies the market risk measurement model in its daily risk management and takes market risk measurement as the basis for business planning resource allocation financial market business operation and risk management. (2) Banking book According to the external regulatory requirements and the internal banking book interest rate risk management policy the Group has built and continuously improved the banking book interest rate risk management system established the management process of interest rate risk identification measurement monitoring control and reporting and covered all on- and off-balance sheet business of the Bank. The Group clearly identifies accurately measures and effectively manages the interest rate risk of the banking book under the interest rate risk appetite of the banking book formulated by the Board of Directors to ensure that the net interest income (NII) and the economic value of shareholders’ equity (EVE) increase steadily within the acceptable range of the banking book risk.The Group’s governance and management framework specifies the responsibilities division of labor and reporting lines of the Board of Directors senior management designated committees and relevant departments to ensure the effectiveness of interest rate risk management. Interest rate risk of the banking book is managed by the Asset and Liability Management Department of the Head Office. Internal Audit Department of the Head Office is responsible for independent audit.The preference of the Group in respect of the interest rate risk in the banking book is prudent. The Group establishes a banking book interest rate risk limit management system based on the actual business and the banking book interest rate risk governance structure. The quantitative index of risk appetite set by the Board of Directors is the highest level limit which is transmitted through the limit level from top to bottom and level by level. Within the scope of their authorisation all levels set limits and continuously monitor and report according to risk tolerance business operation strategy and risk management objectives. The Group formulates interest rate risk management strategies and regularly tracks and reviews them based on risk measurement and monitoring results and in combination with macroeconomic and interest rate environment.The key measures for risk management of the Group include the adjustment in business volume duration structure and interest rate structure of on-balance sheet asset and liability business and off-balance sheet derivative to offset risk exposure.The Group has mainly adopted scenario simulation analysis re-pricing exposure analysis and duration analysis for the regular measurement and analysis of interest rate risk under the banking book. Stress test is a form of scenario simulation used to assess the changes in net interest income at risk and economic value of equity indicators when there is an extreme fluctuation in interest rates. The Group measures and monitors the interest rate risk of banking book through the asset-liability management system and the main models and parameter assumptions used in the measurement process are independently verified before being adopted and are regularly reviewed and verified after being adopted. The various indicators of interest rate risk during the reporting period showed that the interest rate risk of banking book of the Bank was generally stable and stay within the set limits.– F-287 –China Merchants Bank Chapter VIII Financial Statements 273 Annual Report 2023 (H share) 60. Risk management (continued) (b) Market risk (continued) (ii) Interest rate risk (continued) (3) The following tables indicate the expected next repricing dates (or maturity dates whichever are earlier) for assets and liabilities at the end of the reporting period. 2023 3 months or less Over 3 Non- (include months Over 1 year Over interest Total overdue) to 1 year to 5 years 5 years bearing Assets Cash and balances with central banks 682500 658781 – – – 23719 Amounts due from banks and other financial institutions 558381 418055 133899 6414 13 – Loans and advances to customers (note (i)) 6242060 2497757 3076798 605016 62489 – Financial investments (including derivative financial assets) 3182883 351796 358289 1104825 1307233 60740 Other assets (note (ii)) 362659 – – – – 362659 Total assets 11028483 3926389 3568986 1716255 1369735 447118 Liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1265597 1013853 231786 19670 288 – Deposits from customers 8155438 5450058 1300112 1373425 28172 3671 Financial liabilities at FVTPL (including derivative financial liabilities) 61401 588 – 5321 – 55492 Lease liabilities 12675 1032 2804 7757 1082 – Debt securities issued 174764 44549 78880 43959 7376 – Other liabilities (note (ii)) 272879 187 – 2889 – 269803 Total liabilities 9942754 6510267 1613582 1453021 36918 328966 Asset-liability gap 1085729 (2583878) 1955404 263234 1332817 118152 – F-288 –274 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (b) Market risk (continued) (ii) Interest rate risk (continued) (3) The following tables indicate the expected next repricing dates (or maturity dates whichever are earlier) for assets and liabilities at the end of the reporting period. (continued) 2022 3 months or less Over 3 Non- (include months Over 1 year Over interest Total overdue) to 1 year to 5 years 5 years bearing Assets Cash and balances with central banks 602742 575932 – – – 26810 Amounts due from banks and other financial institutions 630302 516942 99288 14059 13 – Loans and advances to customers (note (i)) 5796546 2234889 3028371 473932 59354 – Financial investments (including derivative financial assets) 2763222 217442 356451 975413 1164031 49885 Other assets (note (ii)) 346100 – – – – 346100 Total assets 10138912 3545205 3484110 1463404 1223398 422795 Liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1087095 931481 143285 10501 1828 – Deposits from customers 7535742 5528249 860746 1111583 31365 3799 Financial liabilities at FVTPL (including derivative financial liabilities) 67780 – 3006 5231 73 59470 Lease liabilities 13013 1094 3091 7650 1178 – Debt securities issued 222288 35587 69617 89565 27519 – Other liabilities (note (ii)) 258756 203 – 2752 – 255801 Total liabilities 9184674 6496614 1079745 1227282 61963 319070 Asset-liability gap 954238 (2951409) 2404365 236122 1161435 103725 Notes: (i) For loans and advances to customers the “3 months or less” category includes overdue amounts as at 31 December 2023 and 31 December 2022 net of allowances for impairment losses. Overdue amounts represent loans of which the whole or part of the principals or interests were overdue.(ii) Interest receivable and interest payable of financial instruments are included in “other assets” and “other liabilities” respectively. (4) Sensitivity analysis The Group uses sensitivity analysis to measure the potential effect of changes in interest rates on the Group’s net interest income and equity. The following table sets forth the results of the Group’s interest rate sensitivity analysis on the assets and liabilities as at 31 December 2023 and 31 December 2022. 20232022 Change in interest rates (in basis points) Up by 25 Down by 25 Up by 25 Down by 25 (Decrease)/increase in net interest income (4118) 4118 (4412) 4412 (Decrease)/increase in equity (9319) 9477 (8462) 8586 The above-mentioned interest rate sensitivity analysis shows the changes in net interest income and equity in the next 12 months under the assumption of changes in interest rates in the above table. As the actual situation and assumptions may be different the actual changes in the Group’s net interest income and equity caused by the increase or decrease in interest rates may be different from the results of this sensitivity analysis.– F-289 –China Merchants Bank Chapter VIII Financial Statements 275 Annual Report 2023 (H share) 60. Risk management (continued) (c) Liquidity risk Liquidity risk is the risk that the Group is not able to obtain sufficient funds at a reasonable cost and in a timely manner to deal with the appreciation of asset growth to meet its maturity obligations or to perform other payment obligations.According to the liquidity risk management policy the Group segregates the policy setting execution and supervision of liquidity risk management and puts in place a governance framework which defines the roles responsibilities and reporting lines of the Board of Directors the Board of Supervisors senior management designated committees and relevant departments to ensure the effectiveness of the liquidity risk management. The Board of Directors takes the ultimate responsibility for liquidity risk management ensures the Group can effectively identify measure monitor and control liquidity risk and is responsible for determining liquidity risk level which the Group can tolerate. The Risk and Capital Management Committee under the Board of Directors shall perform its responsibilities in liquidity risk management according to the requirements of the Board of Directors. The Board of Supervisors is responsible for the supervision and evaluation of the performance of the Board of Directors and senior management in the liquidity risk management and reports to the general meeting of shareholders. The senior management is responsible for the liquidity risk management work and develops a timely understanding of changes in liquidity risks and reports the same to the Board of Directors. The Asset and Liability Management Committee (ALCO) exercises specific liquidity risk management functions as required by the senior management. The Assets and Liabilities Management Department of the Head Office is a day-to-day working body of ALCO and responsible for various concrete management work including formulating policies and procedures relating to liquidity risk management and conducting qualitative and quantitative analysis of liquidity risk. The Internal Audit Department of the Head Office conducts comprehensive audit on the Group’s liquidity risk management.The Group is prudent in managing its liquidity risk which suits its current development stage. The Group’s existing liquidity risk management policies and systems meet regulatory requirements and suit its own management needs.The Group’s liquidity risk management is coordinated by Head Office with branches acting in concert. The Asset and Liability Management Department acting as the treasurer of the Group is in charge of daily liquidity risk management. According to a prudent basis under regulatory requirements the treasurer is conducting centralised liquidity management through limits management budget control initiative debt management as well as internal fund transfer pricing.The Group measures monitors and identifies liquidity risk by short-term reserves as well as medium and long-term structures. It monitors the limit indicators closely at fixed intervals.The Group regularly conducts stress testing to assess its liquidity risk resistance under extreme circumstances. Except for the annual stress testing required by the regulatory authorities the Group conducts monthly stress testing on the liquidity risk of local and foreign currencies. The Group sets up liquidity contingency plans and conducts liquidity contingency drills to continuously improve its capability to handle any liquidity crisis.– F-290 –276 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (c) Liquidity risk (continued) Analysis of the Group’s assets and liabilities by contractual remaining maturity is as follows: 2023 Over Over Repayable Within 1 month to 3 months to Over 1 year Over on demand 1 month 3 months 1 year to 5 years 5 years Indefinite Overdue Total Cash and balances with central banks (note (i)) 140809 255 223 1863 – – 539350 – 682500 Amounts due from banks and other financial institutions 64142 301382 51889 133647 7308 13 – – 558381 Loans and advances to customers 38971 583687 497465 1520502 1843531 1734232 – 23672 6242060 Financial investments and derivative financial assets (note (ii)) 2756 182087 149778 360604 1158573 1298096 28673 2316 3182883 – Financial investments at FVTPL (including derivative financial assets) 2756 138053 59690 140317 159012 36026 9024 – 544878 – Debt investments at amortised cost – 29336 41940 96841 554608 1003589 – 2306 1728620 – Debt investments at FVTOCI – 14698 48148 123446 444953 258481 – 10 889736 – Equity investments designated at FVTOCI – – – – – – 19649 – 19649 Other assets (note (iii)) 33120 11473 15382 21518 15266 5155 256260 4485 362659 Total assets 279798 1078884 714737 2038134 3024678 3037496 824283 30473 11028483 Borrowing from central banks and amounts due to banks and other financial institutions 449682 366937 157079 243626 41428 6845 – – 1265597 Deposits from customers 4474297 432094 542828 1301368 1375860 28991 – – 8155438 Financial liabilities at FVTPL (including derivative financial liabilities) 8577 7753 4731 8601 12077 19662 – – 61401 Lease liabilities – 454 578 2804 7757 1082 – – 12675 Debt securities issued – 9901 25288 82023 50176 7376 – – 174764 Other liabilities (note (iii)) 145327 31190 18236 45907 31803 416 – – 272879 Total liabilities 5077883 848329 748740 1684329 1519101 64372 – – 9942754 (Short)/long position (4798085) 230555 (34003) 353805 1505577 2973124 824283 30473 1085729 – F-291 –China Merchants Bank Chapter VIII Financial Statements 277 Annual Report 2023 (H share) 60. Risk management (continued) (c) Liquidity risk (continued) 2022 Over Over Repayable Within 1 month to 3 months to Over 1 year Over on demand 1 month 3 months 1 year to 5 years 5 years Indefinite Overdue Total Cash and balances with central banks (note (i)) 66055 – – 1201 – – 535486 – 602742 Amounts due from banks and other financial institutions 62456 368901 84572 99288 15072 13 – – 630302 Loans and advances to customers 26008 499842 399192 1514348 1626514 1706378 – 24264 5796546 Financial investments and derivative financial assets (note (ii)) 4213 99154 105394 372002 995867 1166665 19139 788 2763222 – Financial investments at FVTPL (including derivative financial assets) 4213 79576 42022 99531 158992 52081 5723 – 442138 – Debt investments at amortised cost – 13554 35043 133748 449002 904281 – 769 1536397 – Debt investments at FVTOCI – 6024 28329 138723 387873 210303 – 19 771271 – Equity investments designated at FVTOCI – – – – – – 13416 – 13416 Other assets (note (iii)) 36461 10932 15526 18475 15859 5798 238895 4154 346100 Total assets 195193 978829 604684 2005314 2653312 2878854 793520 29206 10138912 Borrowing from central banks and amounts due to banks and other financial institutions 515446 269349 125671 149389 20817 6423 – – 1087095 Deposits from customers 4746035 384557 393284 861631 1115153 35082 – – 7535742 Financial liabilities at FVTPL (including derivative financial liabilities) 12950 7416 4271 11555 11457 20131 – – 67780 Lease liabilities – 503 591 3091 7650 1178 – – 13013 Debt securities issued – 3939 27886 73379 89565 27519 – – 222288 Other liabilities (note (iii)) 159820 26774 19358 23694 28868 242 – – 258756 Total liabilities 5434251 692538 571061 1122739 1273510 90575 – – 9184674 (Short)/long position (5239058) 286291 33623 882575 1379802 2788279 793520 29206 954238 Notes: (i) For cash and balances with central banks the amounts with indefinite maturities represent statutory deposit reserve and fiscal deposit balances.(ii) For financial investments at FVTPL included in financial investments their maturity dates do not represent the Group’s intention to hold them to maturity.(iii) Interest receivable and interest payable of financial instruments are included in “other assets” and “other liabilities” respectively.– F-292 –278 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (c) Liquidity risk (continued) The following table provides an analysis of the contractual undiscounted cash flow of the non-derivative financial assets non-derivative financial liabilities and loan commitments of the Group as at the end of the reporting period.The Group’s actual cash flows on these instruments may vary significantly from this analysis. 2023 Over Over Over Carrying Repayable Within 1 month to 3 months 1 year Over amount Total on demand 1 month 3 months to 1 year to 5 years 5 years Indefinite Overdue Non-derivative financial assets Cash and balances with central banks 682500 682500 140809 255 223 1863 – – 539350 – Amounts due from banks and other financial institutions 558381 562870 64150 301674 52393 136751 7889 13 – – Loans and advances to customers 6242060 7530562 38971 602390 539585 1708061 2267026 2350857 – 23672 Financial investments 3164150 3758609 2676 184830 159063 408936 1373493 1598622 28673 2316 – Financial investments at FVTPL 526145 530575 2676 134391 56151 134875 156588 36870 9024 – – Debt investments at amortised cost 1728620 2155149 – 33629 50472 133924 712112 1222706 – 2306 – Debt investments at FVTOCI 889736 1053236 – 16810 52440 140137 504793 339046 – 10 – Equity investments designated at FVTOCI 19649 19649 – – – – – – 19649 – Other assets 90873 90873 31314 11445 15314 20884 1975 427 5029 4485 Total 10737964 12625414 277920 1100594 766578 2276495 3650383 3949919 573052 30473 2023 Over Over Over Carrying Repayable Within 1 month to 3 months 1 year Over amount Total on demand 1 month 3 months to 1 year to 5 years 5 years Indefinite Overdue Non-derivative financial liabilities and lease liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1265597 1300017 449843 375736 168105 251248 47192 7893 – – Deposits from customers 8155438 8434777 4559684 434432 554142 1360396 1496187 29936 – – Financial liabilities at FVTPL 43958 44074 8566 4696 1053 2996 7146 19617 – – Lease liabilities 12675 13664 – 457 586 2880 8461 1280 – – Debt securities issued 174764 182443 – 10401 26108 84324 53672 7938 – – Other liabilities 175135 175135 50536 30287 18080 44377 31439 416 – – Total 9827567 10150110 5068629 856009 768074 1746221 1644097 67080 – – Gross loan commitments – 1689252 1689252 – – – – – – – – F-293 –China Merchants Bank Chapter VIII Financial Statements 279 Annual Report 2023 (H share) 60. Risk management (continued) (c) Liquidity risk (continued) 2022 Over Over Over Carrying Repayable Within 1 month to 3 months 1 year Over amount Total on demand 1 month 3 months to 1 year to 5 years 5 years Indefinite Overdue Non-derivative financial assets Cash and balances with central banks 602742 602742 66055 – – 1201 – – 535486 – Amounts due from banks and other financial institutions 630302 631756 62467 369164 85088 99900 15124 13 – – Loans and advances to customers 5796546 7132934 26024 516746 433106 1694961 2071922 2365750 – 24425 Financial investments 2744551 3251681 4102 101509 112634 415839 1184020 1413650 19139 788 – Financial investments at FVTPL 423467 439231 4102 76314 38048 96166 161826 57052 5723 – – Debt investments at amortised cost 1536397 1919576 – 17387 42650 166559 588262 1103949 – 769 – Debt investments at FVTOCI 771271 879458 – 7808 31936 153114 433932 252649 – 19 – Equity investments designated at FVTOCI 13416 13416 – – – – – – 13416 – Other assets 88792 88792 35078 10381 15434 17310 1534 605 4296 4154 Total 9862933 11707905 193726 997800 646262 2229211 3272600 3780018 558921 29367 2022 Over Over Over Carrying Repayable Within 1 month 3 months 1 year Over amount Total on demand 1 month to 3 months to 1 year to 5 years 5 years Indefinite Overdue Non-derivative financial liabilities and lease liabilities Borrowing from central banks and amounts due to banks and other financial institutions 1087095 1098720 515448 270368 127266 152122 26391 7125 – – Deposits from customers 7535742 7794971 4847726 389687 403223 894832 1223242 36261 – – Financial liabilities at FVTPL 49144 49336 12085 4390 227 4626 7988 20020 – – Lease liabilities 13013 14292 – 505 599 3328 8386 1474 – – Debt securities issued 222288 235656 – 4480 28783 76447 96703 29243 – – Other liabilities 162436 162436 62796 27724 11623 28897 31154 242 – – Total 9069718 9355411 5438055 697154 571721 1160252 1393864 94365 – – Gross loan commitments – 1573991 1573991 – – – – – – – Note: Interest receivable and interest payable of financial instruments are included in “other assets” and “other liabilities” respectively.– F-294 –280 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (d) Operational risk Operational risk arises from the loss due to deficiency in internal procedures staffing or IT structure as well as external events which have effect on operation including legal risk but not strategy risk and reputation risk.During the reporting period through stepping up the identification evaluation and monitoring of operational risk in key areas and by focusing on process policy employee system and existing problems of critical control segments the Group further improves the risk management method appraisal and assessment mechanism and strengthens economic capital allocation mechanism with the goal of enhancing the ability and effectiveness of operational risk’s management of the Group. All major indexes meet the requirements of the Group’s risk preference.In view of the challenges from internal and external operations and management the Group will based on its risk appetite continue to upgrade its risk management capabilities and strengthen operational risk monitoring and controls in order to prevent and reduce operational risk losses.(e) Capital management The objectives of the Group’s capital management are to: – Keep capital adequacy ratios at reasonable levels satisfy capital-specific regulatory provisions and policy requirements on an ongoing basis and maintain a solid capital base in support of its business expansion social responsibility and strategic planning implementation to achieve a comprehensive coordinated and sustainable growth; – Comply with capital regulatory requirements perform procedures to assess internal capital adequacy openly disclose information related to capital management fully cover all risks and ensure safe operation of the entire group; – Put in place an economic capital-centred banking value management system by fully applying various risk- specific quantitative deliverables enhance decision-making processes and management application regimes strengthen capital restraint and capital incentive mechanisms reinforce capabilities to facilitate customer pricing and decision-making and increase capital deployment efficiency; – Reasonably use all kinds of capital instruments continue to upgrade capital strengths improve capital structures raise capital quality lower capital costs and create the best returns for shareholders.The Group manages its capital structure and adjusts it based on the economic condition and the risk characteristics of its operations. To maintain or adjust its capital structure the Group may modify its profit distribution policy issue or repurchase shares additional tier-1 capital instruments eligible tier-2 capital instruments and convertible debentures. The Group’s management regularly monitors capital adequacy ratio under the approaches stipulated by regulators. The Group and the Bank submit required information to the NAFR every quarter.– F-295 –China Merchants Bank Chapter VIII Financial Statements 281 Annual Report 2023 (H share) 60. Risk management (continued) (e) Capital management (continued) The Group’s capital adequacy ratio calculation covers the Bank and its subsidiaries. The Bank’s capital adequacy ratio calculation covers all branches of the Bank. As at 31 December 2023 the Group’s subsidiaries that were within the capital adequacy ratio calculation included: CMB WLB CMBIC CMBFL CMFM CMBWM CIGNA & CMAM and CMB Europe S.A.Since 1 January 2013 the Group has calculated its capital adequacy ratio in accordance with the former CBIRC’s Administrative Measures on the Capital of Commercial Banks (Provisional) and other relevant regulations. On 18 April 2014 former CBIRC approved the Bank to adopt the Advanced Measurement Approach. Within the approved scope the Bank could calculate corporation and financial institutions risk exposure using the Foundation Internal Ratings-Based Approach retail risk exposure using the Advanced Internal Ratings-Based Approach market risk using the Internal Model-Based Approach and operational risk using the Standardised Measurement Approach. At the same time former CBIRC implemented a transition period for commercial banks that were approved to adopt the Advanced Measurement Approach. During the transition period commercial banks should use both the Advanced Measurement Approach and other approaches to calculate capital adequacy ratios and comply with the capital floor requirements.The Group’s capital management focuses on the capital adequacy ratio management. The capital adequacy ratio reflects the Group’s capability of sound operations and risk resistance. The Group’s capital adequacy ratio management’s objective is to carefully determine capital adequacy ratio as legally required by regulators according to actual risk profiles and with reference to capital adequacy ratio levels of globally leading market peers and the Group’s operating conditions.The Group adopts the scenario simulation and stress testing methods to forecast plan and manage its capital adequacy ratio with considerations of factors such as strategic development planning business expansion status and risk movement trends.(f) Use of derivatives Derivatives include forwards swaps and option transactions undertaken by the Group in the foreign exchange and interest rate markets.The Group enters into interest rate foreign currency and other financial derivative transactions for treasury business and its assets and liabilities management purpose. The Group’s derivatives can be divided into financial instruments that are held for fair value hedge and cash flow hedging purpose and that are at fair value through profit or loss.The Group formulates appropriate hedging strategies and uses proper tools in light of the risk profile of interest rates or foreign exchange rates associated with its assets and liabilities as well as its analysis and judgement regarding future movements of interest rates or foreign exchange rates.The Group is exposed to foreign exchange risk when assets or liabilities are denominated in foreign currencies. Such risk can be offset through the use of foreign exchange forwards or foreign exchange options.– F-296 –282 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (f) Use of derivatives (continued) In cash flow hedges the Group uses interest rate swaps as hedging instruments to hedge the interest rate risks arising from RMB loans and interbank assets or liabilities. In fair value hedge the Group uses interest rate swaps as hedging instruments to hedge the interest rate risks arising from bond investments measured at fair value through other comprehensive income.The following tables provide an analysis of the notional amounts and the corresponding fair values of derivatives of the Group by remaining maturities at the end of the reporting period. The notional amounts of the derivatives indicate the transaction volume that has not been delivered at the end of the reporting period and do not represent the amounts at risk. 2023 Notional amounts with remaining life Fair value Between Between Within 3 months 1 year Over 3 months and 1 year and 5 years 5 years Total Assets Liabilities Derivatives at fair value through profit or loss Interest rate derivatives 323413 805040 676727 1791 1806971 5328 (5314) Interest rate swaps 323239 805030 676727 1791 1806787 5327 (5314) Bond futures 174 – – – 174 1 – Interest rate options – 10 – – 10 – – Currency derivatives 664819 717287 39675 1199 1422980 11692 (10372) Forwards 35148 17293 257 1199 53897 375 (480) Foreign exchange swaps 426525 394675 30310 – 851510 8853 (7824) Futures 1949 3503 – – 5452 – – Options 201197 301816 9108 – 512121 2464 (2068) Other derivatives 135119 1553 52 35 136759 1485 (1300) Equity options purchased 63675 293 – 35 64003 1110 – Equity options written 63675 293 – – 63968 – (876) Commodity trading swaps 7769 327 52 – 8148 375 (354) Credit default swaps – 640 – – 640 – (70) Fair value hedge derivatives Interest rate derivatives – – 513 2838 3351 – (123) Interest rate swaps – – 513 2838 3351 – (123) Currency derivatives – 753 7529 – 8282 123 (295) Foreign exchange swaps – 753 7529 – 8282 123 (295) Cash flow hedge derivatives Interest rate derivatives 1752 3685 2890 369 8696 105 (38) Interest rate swaps 1752 3685 2890 369 8696 105 (38) Derivatives managed in conjunction with financial instruments designated at FVTPL Interest rate derivatives 213 – – – 213 – (1) Interest rate swaps 213 – – – 213 – (1) Total 1125316 1528318 727386 6232 3387252 18733 (17443) – F-297 –China Merchants Bank Chapter VIII Financial Statements 283 Annual Report 2023 (H share) 60. Risk management (continued) (f) Use of derivatives (continued) 2022 Notional amounts with remaining life Fair value Between Between Within 3 months 1 year Over 3 months and 1 year and 5 years 5 years Total Assets Liabilities Derivatives at fair value through profit or loss Interest rate derivatives 60013 734650 735046 4720 1534429 6246 (6062) Interest rate swaps 60013 734241 735046 4720 1534020 6246 (6062) Bond futures – 409 – – 409 – – Currency derivatives 513568 329319 27320 1198 871405 11348 (11449) Forwards 21443 4812 645 1198 28098 487 (328) Foreign exchange swaps 347432 226332 17724 – 591488 9263 (7304) Futures 1043 81 – – 1124 – – Options 143650 98094 8951 – 250695 1598 (3817) Other derivatives 91064 520 640 34 92258 867 (856) Equity options purchased 42889 57 – 34 42980 554 – Equity options written 42909 57 – – 42966 – (472) Commodity trading swaps 5266 406 – – 5672 313 (330) Credit default swaps – – 640 – 640 – (54) Fair value hedge derivatives Currency derivatives – 1316 781 – 2097 28 (153) Foreign exchange swaps – 1316 781 – 2097 28 (153) Cash flow hedge derivatives Interest rate derivatives 2393 100 1804 709 5006 182 – Interest rate swaps 2373 100 1804 709 4986 182 – Interest rate options 20 – – – 20 – – Derivatives managed in conjunction with financial instruments designated at FVTPL Interest rate derivatives – 3085 717 – 3802 – (47) Interest rate swaps – 3085 717 – 3802 – (47) Currency derivatives – – 728 – 728 – (69) Foreign exchange swaps – – 728 – 728 – (69) Total 667038 1068990 767036 6661 2509725 18671 (18636) There was no ineffective portion of cash flow hedges during the years ended 31 December 2023 and 2022.– F-298 –284 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (f) Use of derivatives (continued) The credit risk weighted amounts in respect of these derivatives are as follows: 20232022 Default risk weighted assets of counterparties 2586 1500 Interest rate derivatives 88 137 Currency derivatives 2375 1242 Other derivatives 123 121 Credit valuation adjustment risk weighted assets 2410 2187 Total 4996 3687 The Group has calculated the exposure of derivatives according to the Notice of the Measures on Default Risk Weighted Assets of Counterparties in Respect of Derivatives and the related requirements issued by the former CBIRC. These amounts have taken the effects of bilateral netting arrangements into account. The risk weighted amounts in respect of derivatives are calculated in accordance with the Administrative Measures on Capital of Commercial Banks (Provisional). The amounts within the scope approved by the former CBIRC in April 2014 are calculated using the Internal Ratings-Based Approach and the Weighted Approach is adopted to calculate those amounts that are not eligible for the Internal Ratings-Based approach.(g) Fair value information (i) Methods of determining fair value of financial instruments Several of the Group’s accounting policies and disclosure requirements stipulate the measurement of fair values for both financial and non-financial assets and liabilities.The Group has established a control framework to govern the measurement of fair values. This includes a valuation team that takes the responsibility for overseeing all significant fair value measurements including the three levels of fair values.The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information such as broker quotes or pricing services is used to determine fair value then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuation meets the requirements of IFRSs including the classification of levels in the fair value hierarchy.When measuring the fair value of an asset or a liability the Group uses observable market data as far as possible.Fair values are categorised into different levels in the fair value hierarchy based on the inputs used in the valuation techniques.The level in which fair value measurement is categorised is determined by the level of the fair value hierarchy of the lowest level of input that is significant to the entire fair value measurement. The levels are defined as follows: * Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; * Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly; * Level 3 inputs are unobservable inputs for the asset or liability.The Group recognises transfers among levels of the fair value hierarchy at the end of the reporting period during which the transfer takes place.The Group’s assets and liabilities measured at fair value are measured on a recurring basis. The Group does not have assets nor liabilities measured at fair value on a non-recurring basis.– F-299 –China Merchants Bank Chapter VIII Financial Statements 285 Annual Report 2023 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis The following tables present the fair value information and the fair value hierarchy at the end of the reporting period of the Group’s assets and liabilities which are measured at fair value on a recurring basis at each reporting date: 2023 Level 1 Level 2 Level 3 Total Assets Financial investments measured at FVTPL 18311 490795 4160 513266 – Debt securities 14923 246526 359 261808 – Long position in precious metal contracts 1604 – – 1604 – Equity investments 1752 341 2392 4485 – Fund investments 32 241091 1181 242304 – Wealth management products – 2729 – 2729 – Other – 108 228 336 Financial investments designated at FVTPL 756 12123 – 12879 – Debt securities 756 12123 – 12879 Derivative financial assets – 18733 – 18733 Loans and advances to customers at FVTPL – 66701 3729 70430 Debt investments at FVTOCI 140869 758233 – 899102 Loans and advances to customers at FVTOCI – 404417 120762 525179 Equity investments designated at FVTOCI 10006 2305 7338 19649 Total 169942 1753307 135989 2059238 Liabilities Financial liabilities held for trading 15748 380 – 16128 – Financial liabilities related to precious metal 15748 – – 15748 – Short position on bonds – 380 – 380 Financial liabilities designated at FVTPL 5179 20826 1825 27830 – Certificates of deposit issued – 212 – 212 – Debt securities issued 5179 – – 5179 – Other – 20614 1825 22439 Derivative financial liabilities – 17443 – 17443 Total 20927 38649 1825 61401 – F-300 –286 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) The following tables present the fair value information and the fair value hierarchy at the end of the reporting period of the Group’s assets and liabilities which are measured at fair value on a recurring basis at each reporting date: (continued) 2022 Level 1 Level 2 Level 3 Total Assets Financial investments measured at FVTPL 16175 390702 4714 411591 – Debt securities 15497 187349 359 203205 – Long position in precious metal contracts 108 – – 108 – Equity investments 494 392 3493 4379 – Fund investments 76 199665 798 200539 – Wealth management products – 2543 – 2543 – Other – 753 64 817 Financial investments designated at FVTPL 948 10928 – 11876 – Debt securities 948 10928 – 11876 Derivative financial assets – 18671 – 18671 Loans and advances to customers at FVTPL – 3 4991 4994 Debt investments at FVTOCI 136831 643518 – 780349 Loans and advances to customers at FVTOCI – 514051 100430 614481 Equity investments designated at FVTOCI 3164 2862 7390 13416 Total 157118 1580735 117525 1855378 Liabilities Financial liabilities held for trading 17917 330 – 18247 – Financial liabilities related to precious metal 17634 – – 17634 – Short position on bonds 283 330 – 613 Financial liabilities designated at FVTPL 7709 20541 2647 30897 – Certificates of deposit issued – 383 – 383 – Debt securities issued 7709 – – 7709 – Other – 20158 2647 22805 Derivative financial liabilities – 18636 – 18636 Total 25626 39507 2647 67780 During the years ended 31 December 2023 and 2022 there were no significant transfers of financial instruments between Level 1 and Level 2 of the fair value hierarchy.– F-301 –China Merchants Bank Chapter VIII Financial Statements 287 Annual Report 2023 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (1) Basis of determining the market prices for recurring fair value measurements categorised as Level 1 Bloomberg etc. are used for financial instruments with quoted prices in an active market. (2) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurement categorised as Level 2 Fair value of RMB denominated bonds whose value is available on China Bond website on the valuation date is measured using the latest available valuation results.Fair value of foreign currency bonds without quoted prices in an active market is measured by using the comprehensive valuations provided by Bloomberg etc.Fair value of foreign exchange forwards contracts in derivative financial instruments is measured by discounting the differences between the contract prices and market future prices of the foreign exchange forwards contracts. The discount rates used are the applicable RMB denominated swap yield curve as at the end of the reporting period.Fair value of option contracts such as foreign exchange options commodity options and equity options are measured by using the Black-Scholes model based on market data such as risk-free interest rate underlying market prices and price volatility of foreign exchange commodities and equity contract. The above market data used are quoted price in an active market provided by Bloomberg Refinitiv Wind and other market information providers.Fair value of interest rate swaps foreign exchange swaps and non-option commodity contracts in derivative financial instruments is measured by discounting the expected receivable or payable amounts under the assumption that these swaps had been terminated at the end of the reporting period. The discount rates used are the related currency denominated swap yield curve as at the end of reporting period.Observable quoted price in market is used as the basis of determining the value of equity investments measured at FVTPL investment funds and wealth management products.The fair value of discounted bills at FVTOCI and at FVTPL in the Chinese mainland is measured based on the rate of rediscounted bills announced by the Shanghai Commercial Paper Exchange Corporation Ltd.The Group uses 10-day average discount rate as the basis for calculating the value of discounted bills; or is measured by discounted cash flow approach. The discount rates used are determined by factors such as credit rating of the loan customer provided by S&P Moody’s or Fitch customer industry term to maturity of the loan loan currency and the issuer credit spread.The fair value of equity investments designated at FVTOCI is measured by using the comprehensive valuations on Bloomberg or discounted cash flow approach using the relevant yield curve of China Bond at the end of the reporting period.The fair value of certificates of deposit issued is measured by using the comprehensive valuations on Bloomberg.The fair value of “Other” under financial investments measured at FVTPL is measured based on the net asset values.The fair value of other financial liabilities designated at FVTPL is measured based on the net asset values of the funds determined with reference to observable (quoted) prices of underlying investment portfolio and adjustments of related expenses.– F-302 –288 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (3) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurements categorised as Level 3: Fair value as at 31 December 2023 Valuation techniques Unobservable inputs Equity investments designated at 2742 Market approach Liquidity discount FVTOCI Equity investments designated at 71 Discounted cash flow Risk-adjusted discount FVTOCI approach rate cash flow Equity investments designated at 4525 Net asset value approach Net assets liquidity FVTOCI discount Loans and advances to customers 3729 Discounted cash flow Risk-adjusted discount at FVTPL approach rate Loans and advances to customers 120762 Discounted cash flow Risk-adjusted discount at FVTOCI approach rate Financial investments measured at FVTPL – Equity investments 1520 Market approach Liquidity discount – Equity investments 642 Discounted cash flow Risk-adjusted discount approach rate cash flow – Equity investments 230 Net asset value approach Net assets liquidity discount – Debt securities 359 Discounted cash flow Risk-adjusted discount approach rate – Fund investments 1180 Net fund value approach Net assets – Fund investments 1 Market approach Liquidity discount – Other 184 Discounted cash flow Risk-adjusted discount approach rate cash flow – Other 44 Net fund value approach Net assets Financial liabilities designated at 1825 Net fund value approach Net assets liquidity FVTPL discount – F-303 –China Merchants Bank Chapter VIII Financial Statements 289 Annual Report 2023 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (3) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurements categorised as Level 3: (continued) Fair value as at 31 December 2022 Valuation techniques Unobservable inputs Equity investments designated at 2725 Market approach Liquidity discount FVTOCI Equity investments designated at 101 Discounted cash flow Risk-adjusted discount FVTOCI approach rate cash flow Equity investments designated at 4564 Net asset value approach Net assets liquidity FVTOCI discount Loans and advances to customers 4991 Discounted cash flow Risk-adjusted discount at FVTPL approach rate Loans and advances to customers 100430 Discounted cash flow Risk-adjusted discount at FVTOCI approach rate Financial investments measured at FVTPL – Equity investments 2950 Market approach Liquidity discount – Equity investments 528 Discounted cash flow Risk-adjusted discount approach rate cash flow – Equity investments 15 Net asset value approach Net assets liquidity discount – Debt securities 359 Discounted cash flow Risk-adjusted discount approach rate – Fund investments 797 Net fund value approach Net assets – Fund investments 1 Market approach Liquidity discount – Other 64 Net fund value approach Net assets Financial liabilities designated at 2647 Net fund value approach Net assets liquidity FVTPL discount – F-304 –290 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (3) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurements categorised as Level 3: (continued) Valuation of financial instruments with significant unobservable inputs The following tables show the movements from the beginning balances to the ending balances for Level 3 financial instruments: Loans and Loans and Equity Financial advances to advances to investments investments customers customers designated Assets at FVTPL at FVTPL at FVTOCI at FVTOCI Total At 1 January 2023 4714 4991 100430 7390 117525 Profit or loss – In profit or loss (14) 117 (103) – – – In other comprehensive income – – (145) (131) (276) Addition for the year 553 70 325509 77 326209 Disposals or settlement on maturity (596) (1451) (304929) (1) (306977) Transfer out of level 3 (560) – – – (560) Exchange difference 63 2 – 3 68 At 31 December 2023 4160 3729 120762 7338 135989 Total unrealised gains and losses included in the consolidated statement of profit or loss for assets held at the end of the reporting period (98) 14 – – (84) Loans and Loans and Equity Financial advances to advances to investments investments customers customers designated Assets at FVTPL at FVTPL at FVTOCI at FVTOCI Total At 1 January 2022 4879 7281 56713 4726 73599 Profit or loss – In profit or loss (14) (366) 744 – 364 – In other comprehensive income – – (107) 51 (56) Addition for the year 1041 85 196298 2527 199951 Disposals or settlement on maturity (1147) (2036) (153218) (129) (156530) Transfer out of level 3 (145) – – – (145) Exchange difference 100 27 – 215 342 At 31 December 2022 4714 4991 100430 7390 117525 Total unrealised gains and losses included in the consolidated statement of profit or loss for assets held at the end of the reporting period (49) (191) – – (240) – F-305 –China Merchants Bank Chapter VIII Financial Statements 291 Annual Report 2023 (H share) 60. Risk management (continued) (g) Fair value information (continued) (ii) Assets and liabilities held at the end of reporting period that are measured at fair value on a recurring basis (continued) (3) Valuation techniques used and the qualitative information of key parameters for recurring fair value measurements categorised as Level 3: (continued) Valuation of financial instruments with significant unobservable inputs (continued) Financial liabilities at fair value through profit or loss 2023 2022 Balance as at 1 January 2647 8147 In loss (122) (142) Addition for the year – 96 Disposals and settlement on maturity (739) (5695) Exchange difference 39 241 Balance as at 31 December 1825 2647 Total unrealised gains and losses included in the consolidated statement of profit or loss for liabilities held at the end of the reporting period (122) 148 During the years ended 31 December 2023 and 2022 there were no significant transfers among different levels for financial instruments which are measured at fair value on a recurring basis.During the years ended 31 December 2023 and 2022 the Group did not change the valuation techniques for the financial assets and liabilities disclosed above which are measured at fair value on a recurring basis.– F-306 –292 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 60. Risk management (continued) (g) Fair value information (continued) (iii) Financial assets and financial liabilities that are not measured at fair value (1) Financial Assets The Group’s financial assets that are not measured at fair value mainly include balances with central banks balances and placements with banks and other financial institutions amounts held under resale agreements loans and advances to customers at amortised cost and investments at amortised cost.Except for loans and advances measured at amortised cost and debt instrument investments measured at amortised cost most of the financial assets not measured at fair value mature within 1 year and their carrying values approximate their fair values.Loans and advances are stated at amortised costs less allowances for impairment loss (Note 22). Loans and advances at amortised cost are mostly priced at floating rates with reference to Loan Prime Rates (LPRs) and repriced at least annually and impairment allowances are made to reduce the carrying amounts of impaired loans to estimated recoverable amounts. Accordingly the carrying value of loans and advances is close to their fair value.Debt investments measured at amortised cost are carried at amortised cost less allowances for impairment losses. The fair value of the listed bonds is disclosed in Note 23(b).The carrying value fair value and fair value hierarchy of debt investments at amortised cost not measured at fair value are listed as below: The Level 1 fair value measurement is based on unadjusted quoted prices in active markets using Bloomberg etc. For Level 2 the latest valuation results released by China Bond website are used to measure fair value of bonds denominated in RMB. The Level 2 category also includes foreign currency bonds without active quoted price which are measured using the published comprehensive valuation by Bloomberg. The Level 3 fair value is measured using discounted cash flow valuation technique. 20232022 Carrying Carrying amount Fair value Level 1 Level 2 Level 3 amount Fair value Level 1 Level 2 Level 3 Debt investments at amortised cost 1728620 1791963 61918 1659705 70340 1536397 1569775 41700 1434070 94005 Note: The above financial assets do not include interest receivable. (2) Financial Liabilities Financial liabilities that are not measured at fair value mainly include deposits from customers amounts due to banks and other financial institutions amounts sold under repurchase agreements and debts securities issued by the Group. The carrying value of financial liabilities approximate their fair value at the end of the reporting period except for the financial liabilities set out below: 20232022 Carrying Carrying amount Fair value Level 1 Level 2 Level 3 amount Fair value Level 1 Level 2 Level 3 Subordinated bonds issued – – – – – 19994 20292 – 20292 – Debt securities issued 119193 118924 – 118924 – 120971 118416 – 118416 – Total 119193 118924 – 118924 – 140965 138708 – 138708 – Note: The above financial liabilities do not include interest payable.– F-307 –China Merchants Bank Chapter VIII Financial Statements 293 Annual Report 2023 (H share) 61. Material related party transactions (a) Material connected person information Details of the Bank’s major shareholders and their parent companies are as follows: Proportion Proportion Issued No. of shares of of the of the and fully the Bank Bank held Company Registered paid held by the by the held by Relationship Legal Company name location capital Company Company the Bank Business with the Bank Legal form representative China Merchants Group Beijing RMB16900 7559427375 29.97% – Transportation shipping The largest Limited Miao Jianmin (CMG) million (note (i)(vii)) agency warehousing shareholder’s liability and storage leasing parent company manufacturing building and facility repair and contracting sales operating management service etc.– China Merchants Steam Beijing RMB17000 3289470337 13.04% – Transportation building The largest Limited Miao Jianmin Navigation Co. Ltd. million (note (ii)) and repair procurement shareholder liability (CMSN) supply chain management and distribution shipping agency services etc.– Shenzhen Yan Qing Shenzhen RMB600 1258542349 4.99% – Invest and set up industries Shareholder Limited Sun Xian Investment and million domestic commerce liability Development Co. Ltd. materials supply and marketing business etc.– Shenzhen Chu Yuan Shenzhen RMB600 944013171 3.74% – Invest and set up industries Shareholder Limited Sun Xian Investment and million domestic commerce liability Development Co. Ltd. materials supply and marketing business etc.– China Merchants Shenzhen RMB7778 1147377415 4.55% – Invest and set up industries Shareholder Limited Miao Jianmin Financial Holdings million domestic commerce liability Co. Ltd. materials supply and marketing business etc.– Best Winner Investment British Virgin USD 1 386924063 1.53% – – Shareholder Joint stock – Ltd. Islands limited company – China Merchants Union British Virgin USD0.06 477903500 1.89% – – Shareholder Limited – (BVI) Limited Islands million liability – China Merchants Shenzhen USD10 55196540 0.22% – Invest and set up industries Shareholder Limited Wang Xiaoding Industry Development million enterprise management liability (Shenzhen) Ltd. consulting and investment consulting etc.– F-308 –294 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 61. Material related party transactions (continued) (a) Material connected person information (continued) Details of the Bank’s major shareholders and their parent companies are as follows: (continued) Proportion Proportion Issued No. of shares of of the of the and fully the Bank Bank held Company Registered paid held by the by the held by Relationship Legal Company name location capital Company Company the Bank Business with the Bank Legal form representative China COSCO Shipping Shanghai RMB11000 2515193034 9.97% – International shipping Shareholder’s Limited Wan Min Corporation Limited. million (note(iii)) business supporting parent company liability services to international shipping imports and exports of goods and technology international freight forwarding agent etc.– China Ocean Shipping Beijing RMB16191 1574729111 6.24% – Transportation business Shareholder Limited Wan Min Co. Ltd. million leasing business ship liability purchasing and marketing business warehousing business etc.– COSCO Shipping Guangzhou RMB3191 696450214 2.76% – Shipping business Shareholder Limited Shou Jian (Guangzhou) Co. Ltd. million liability – Guangzhou Haining Guangzhou RMB52 103552616 0.41% – Business services Shareholder Limited Chen Jianyao Maritime Technology million liability Consulting Co. Ltd.– COSCO Shipping Shanghai RMB1399 75617340 0.30% – Shipping business leasing Shareholder Limited Zhao Bangtao (Shanghai) Co. Ltd. million business ship repairing liability and building etc.– COSCO Shipping Hong Kong HKD500 54721930 0.22% – Leasing business financing Shareholder Limited Liu Chong Investment Holdings million business insurance liability Co. Ltd. business etc.– Guangzhou Tri-Dynas Guangzhou RMB299 10121823 0.04% – Ship purchasing and Shareholder Limited Lin Rui Oil & Shipping Co. million marketing business liability Ltd. shipping agency leasing business shipping business etc.China Insurance Security Beijing RMB100 776574735 3.08% – Investing and establishing Shareholder’s Limited Ji Yuhua Fund Co. Ltd million (note(iv)) insurance companies parent company liability supervising and managing various domestic and international businesses of holding investment enterprises and investment business permitted by national laws and regulations etc.– Dajia Life Insurance Co. Beijing RMB30790 776574735 3.08% – Life insurance health Shareholder Joint stock He Xiaofeng Ltd million (note(iv)) insurance accident limited insurance and other company personal insurance services etc.– F-309 –China Merchants Bank Chapter VIII Financial Statements 295 Annual Report 2023 (H share) 61. Material related party transactions (continued) (a) Material connected person information (continued) Details of the Bank’s major shareholders and their parent companies are as follows: (continued) Proportion Proportion Issued No. of shares of of the of the and fully the Bank Bank held Company Registered paid held by the by the held by Relationship Legal Company name location capital Company Company the Bank Business with the Bank Legal form representative China Communications Beijing RMB7274 422770418 1.68% – General contractor for Shareholder’s Limited Wang Tongzhou Construction Group million (note(v)) construction parent company liability Limited – China Communications Beijing RMB16166 201089738 0.80% – General contractor for Shareholder Joint stock Wang Tongzhou Construction million construction leasing limited Company Limited and repair technical company consulting service imports and exports investment and management business Shanghai Automotive Shanghai RMB21749 310125822 1.23% – Production and sale Shareholder’s Limited Chen Hong Industry Corporation million (note(vi)) of vehicles asset parent company liability (Group) management business domestic trade business consulting service – SAIC Motor Corporation Shanghai RMB11683 310125822 1.23% – Production and sale of Shareholder Joint stock Chen Hong Limited million vehicles consulting limited service imports and company exports CMB International Capital Hong Kong HKD4129 – – 100% Investment bank and Subsidiary Limited Wang Liang Holdings Corporation million investment managements liability Limited (CMBIC) CMB Financial Leasing Shanghai RMB12000 – – 100% Finance lease Subsidiary Limited Zhong Desheng Company Limited million liability (CMBFL) CMB Wing Lung Bank Hong Kong HKD1161 – – 100% Banking Subsidiary Limited Wang Liang Limited (CMB WLB) million liability China Merchants Fund Shenzhen RMB1310 – – 55% Fund Management Subsidiary Limited Wang Xiaoqing Management Co. million liability Ltd. (CMFM) CMB Wealth Management Shenzhen RMB5556 – – 90% Asset management Subsidiary Limited Chen Yisong Co. Ltd million liability China Merchants Europe Luxembourg EUR100 – – 100% Banking Subsidiary Limited Xue Fei S.A. (CMB Europe million liability S.A.) Cigna & CMB Asset Beijing RMB500 – – Note 24 Asset management Subsidiary Limited Wang Xiaoqing Management million (vii) liability Company Limited (CIGNA & CMAM) Notes: (i) CMG held 29.97% of the Bank indirectly (31 December 2022: 29.97%) through its subsidiaries as at 31 December 2023.(ii) As the largest direct shareholder CMSN a subsidiary of CMG holds 13.04% of the Bank as at 31 December 2023 (2022: 13.04%).(iii) China COSCO Shipping Corporation Ltd. holds 9.97% of the Bank (2022: 9.97%) through its subsidiaries.(iv) China Insurance Security Fund Co. Ltd (“China Insurance Security Fund”) holds 3.08% of the Bank (2022: 3.19%) through its 98.23% holding in Dajia Insurance Group Co. Ltd.(v) China Communications Construction Group Limited (“China Communications Construction Group”) holds 1.68% of the Bank through its subsidiaries (2022: 1.68%).(vi) Shanghai Automotive Industry Corporation (Group) (“Shanghai Automotive Industry Group”) holds 1.23% of the Bank through its subsidiaries (SAIC Motor Corporation Limited) (2022: 1.23%).(vii) The sum of the direct holding percentage of CMG’s shareholdings in the Bank and the sum of the above-mentioned relevant percentages may differ slightly due to rounding.– F-310 –296 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 61. Material related party transactions (continued) (a) Material connected person information (continued) The registered capital of the Group’s related parties as at 31 December 2023 and 2022 are as follows: Name of related party 2023 2022 CMG RMB 16900000000 RMB 16900000000 CMSN RMB 17000000000 RMB 17000000000 Shenzhen Yan Qing Investment and Development Co. Ltd. RMB 600000000 RMB 600000000 Shenzhen Chu Yuan Investment and Development Co. Ltd. RMB 600000000 RMB 600000000 China Merchants Financial Holdings Co. Ltd. RMB 7778000000 RMB 7778000000 Best Winner Investment Ltd. USD 1 USD 1 China Merchants Union (BVI) Limited USD 60000 USD 60000 China Merchants Industry Development (Shenzhen) Ltd. USD 10000000 USD 10000000 China Insurance Security Fund RMB 100000000 RMB 100000000 Dajia Life Insurance Co. Ltd RMB 30790000000 RMB 30790000000 China COSCO Shipping Corporation Limited RMB 11000000000 RMB 11000000000 China Ocean Shipping Co. Ltd. RMB 16191351300 RMB 16191351300 COSCO Shipping (Guangzhou) Co. Ltd. RMB 3191200000 RMB 3191200000 Guangzhou Haining Maritime Technology Consulting Co. Ltd. RMB 52000000 RMB 52000000 COSCO Shipping (Shanghai) Co. Ltd. RMB 1398941000 RMB 1398941000 COSCO Shipping Investment Holdings Co. Ltd. HKD 500000000 HKD 500000000 Guangzhou Tri-Dynas Oil & Shipping Co. Ltd. RMB 299020000 RMB 299020000 China Communications Construction Group Limited RMB 7274023830 RMB 7274023830 China Communications Construction Company Limited RMB 16165711425 RMB 16165711425 Shanghai Automotive Industry Corporation (Group) RMB 21749175737 RMB 21749175737 SAIC Motor Corporation Limited RMB 11683461365 RMB 11683461365 CMBIC HKD 4129000000 HKD 4129000000 CMBFL RMB 12000000000 RMB 12000000000 CMB WLB HKD 1160950575 HKD 1160950575 CMFM RMB 1310000000 RMB 1310000000 CMBWM RMB 5555555555 RMB 5555555555 CMB Europe S.A. EUR 100000000 EUR 50000000 CIGNA & CMAM RMB 500000000 RMB 500000000 The proportion of the Bank held by the largest shareholder and the portion of the subsidiaries held by the Bank The Bank held by the largest shareholder The subsidiaries held by the Bank CMSN CMBIC CMBFL CMB WLB CMFM CMBWM CMB Europe S.A. CIGNA & CMAM No. of shares % HKD % RMB % HKD % RMB % RMB % EUR % RMB % At 1 January 2023 3289470337 13.0 4 4129000000 100.0 0 12000000000 100.0 0 1160950575 100.0 0 1310000000 55.0 0 5555555555 90.0 0 5000000 0 100.0 0 500000000 not e At 31 December 2023 3289470337 13.04 4129000000 100.00 12000000000 100.00 1160950575 100.00 1310000000 55.00 5555555555 90.00 100000000 100.00 500000000 note The Bank held by the largest shareholder The subsidiaries held by the Bank CMSN CMBIC CMBFL CMB WLB CMFM CMBWM CMB Europe S.A. CIGNA & CMAM No. of shares % HKD % RMB % HKD % RMB % RMB % EU R % RMB % At 1 January 2022 3289470337 13.04 4129000000 100.00 12000000000 100.00 1160950575 100.00 1310000000 55.00 5000000000 100.00 50000000 100.00 500000000 note At 31 December 2022 3289470337 13.04 4129000000 100.00 12000000000 100.00 1160950575 100.00 1310000000 55.00 5555555555 90.00 50000000 100.00 500000000 note Note: This information is detailed in note 24.As of 31 December 2023 other than those disclosed above there were 92 companies that shared common directors supervisors and senior management including their close family members with the Bank and they can control or exercise significant influence over these companies (31 December 2022: 142).– F-311 –China Merchants Bank Chapter VIII Financial Statements 297 Annual Report 2023 (H share) 61. Material related party transactions (continued) (b) Terms and conditions for related-party transactions The Group enters into transactions with related parties in the ordinary course of its banking business including lending investing deposit taking securities trading providing agency and trust services and off-balance sheet transactions. In the opinion of the directors the Group enters into such material related-party transactions under normal commercial terms. Interest rates on loans and deposits are strictly set in accordance with the deposit and loan interest rate management regulations published by the PBOC and such banking transactions are priced based on the market prices at the time of transactions: 20232022 Short-term loans 3.55% to 3.65% 3.65% to 3.80% Medium to long-term loans 3.55% to 4.30% 3.65% to 4.65% Demand deposits 0.35% 0.35% Time deposits 1.10% to 2.75% 1.10% to 2.75% There were no loans and advances granted to related parties that were credit impaired during the year (2022: None).(c) Shareholders and their related companies The Bank’s largest shareholder CMG and its related companies held 29.97% (2022: 29.97%) of the Bank’s shares as at 31 December 2023 (among them 13.04 % of the shares were directly held by CMSN (2022: 13.04%)).The Group’s transactions and balances with CMSN and its related companies are disclosed as follows: 20232022 On-balance sheet: – Placements with banks and other financial institutions – 2000 – Amounts held under resale agreements 2942 2589 – Loans and advances to customers 46466 40772 – Financial investments 12159 7626 – Deposits from banks and other financial institutions 26119 29726 – Deposits from customers 59227 45342 – Lease liabilities 170 210 Off-balance sheet: – Irrevocable guarantees 3510 5087 – Irrevocable letters of credit 971 318 – Bills of acceptances 289 285 Interest income 2364 1848 Interest expense (1475) (1376) Net fee and commission income 1282 1027 Operating expenses (211) (177) Other net expenses – (10) – F-312 –298 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 61. Material related party transactions (continued) (d) Companies that share common directors supervisors or senior management with the Bank (other than those disclosed in Note 61(c)) and they can control or exercise significant influence over the companies 20232022 On-balance sheet: – Placements with banks and other financial institutions – 2277 – Amounts held under resale agreements – 3770 – Loans and advances to customers 9360 28103 – Financial investments 2116 770 – Deposits from banks and other financial institutions 1683 4346 – Placements from banks and other financial institutions 300 6047 – Deposits from customers 12304 13447 – Lease liabilities – 65 Off-balance sheet: – Irrevocable guarantees 310 580 – Irrevocable letters of credit – 6 Interest income 601 1035 Interest expense (460) (475) Net fee and commission income 9 133 Operating expenses (283) (274) Other net expenses – (129) (e) Associates and joint ventures other than those disclosed in Note 61(c) 20232022 On-balance sheet: – Placements with banks and other financial institutions 17500 14675 – Loans and advances to customers 5771 6848 – Deposits from banks and other financial institutions 894 896 – Deposits from customers 731 331 Interest income 432 306 Interest expense (26) (19) Net fee and commission income 2307 2498 Operating expenses (1) (8) – F-313 –China Merchants Bank Chapter VIII Financial Statements 299 Annual Report 2023 (H share) 61. Material related party transactions (continued) (f) Other major shareholders holding more than 5% shares of the Bank and exercising significant influence over the Bank 20232022 On-balance sheet: – Placements with banks and other financial institutions 600 – – Loans and advances to customers 38949 27070 – Financial investments 995 4302 – Deposits from banks and other financial institutions 3908 2929 – Deposits from customers 20537 14872 – Lease liabilities 27 40 Off-balance sheet: – Irrevocable guarantees 12146 8511 – Irrevocable letters of credit 3530 1835 – Bills of acceptances 6325 5125 Interest income 1616 913 Interest expense (510) (633) Net fee and commission income 114 2242 Operating expenses (291) (138) Other net expense – (1) (g) Subsidiaries 20232022 On-balance sheet – Balances with banks and other financial institutions 2204 958 – Placements with banks and other financial institutions 26404 32438 – Loans and advances to customers 12442 1396 – Financial investments 3711 3415 – Deposits from banks and other financial institutions 3578 4630 – Deposits from customers 6056 5206 Off-balance sheet – Irrevocable guarantees – 38 – Irrevocable letters of credit 1289 4599 – Bills of acceptances 1009 222 Interest income 1360 943 Interest expense (115) (129) Net fee and commission income/(expenses) 254 (93) Operating expenses (1455) (1797) Other net income 232 150 All significant balances and transactions between the Bank and its subsidiaries have been eliminated in the consolidated financial statements.– F-314 –300 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 61. Material related party transactions (continued) (h) Key management personnel Key management personnel are those persons having authority and responsibility for planning directing and controlling the activities of the Group directly or indirectly including directors supervisors and executive officers. 20232022 RMB’000 RMB’000 Salaries and other emoluments 37228 38249 Discretionary bonuses – 18583 Share-based payment (18121) (41066) Contributions to defined contribution retirement schemes – 2100 Total 19107 17866 The above share-based payments represent the estimated fair value of the share appreciation rights granted (Note 39(a)(iii)) to senior management under the Bank’s H share Appreciation Rights Scheme. The fair value is measured by using the Black-Scholes model and according to the accounting policy set out in Note 4(16); and the amounts are charged to the consolidated statement of profit or loss and other comprehensive income. As the share options may expire without being exercised the directors consider the amounts disclosed are not representative of actual cash flows received or to be received by senior management.(i) Annuity scheme Apart from the obligation for defined contributions to the annuity scheme and normal banking transactions no other transactions were conducted between the Group and the annuity scheme for the years ended 31 December 2023 and 2022. 62. Non-controlling interests Non-controlling interests represent the interests that the Group does not hold in the subsidiaries the Group does not have any subsidiary with significant non-controlling interests during the reporting period.(a) Perpetual debt capital CMB WLB the Group’s subsidiary issued perpetual debt of US$400 million on 24 January 2019. Movements of these perpetual debt capital are as follows: Principal Distributions/Paid Total At 1 January 2023 2787 – 2787 Distributions in 2023 – 182 182 Paid in 2023 – (182) (182) Exchange difference 51 – 51 At 31 December 2023 2838 – 2838 Principal Distributions/Paid Total At 1 January 2022 3636 – 3636 Redemption in 2022 (1104) – (1104) Distributions in 2022 – 202 202 Paid in 2022 – (202) (202) Exchange difference 255 – 255 At 31 December 2022 2787 – 2787 There is no maturity for the instruments and the payments of distribution can be cancelled at the discretion of the issuer. Cancelled interest is non-cumulative. There is no contractual obligation to deliver cash to other parties.During the years ended 31 December 2023 and 2022 CMB WLB did not cancel the payment of distribution and the corresponding amounts were paid to the perpetual debt holders accordingly.– F-315 –China Merchants Bank Chapter VIII Financial Statements 301 Annual Report 2023 (H share) 63. Transfers of financial assets The Group enters into transactions in the normal course of business by which it transfers recognised financial assets to third parties or to special purpose vehicles. In some cases such transfers may give rise to full or partial derecognition of the financial assets concerned and in other cases the transfers may not qualify for derecognition as the Group retains substantially all the risks and rewards of these transferred assets. As a result the Group continues to recognise these transferred assets.Securitisation of credit assets The Group enters into securitisation transactions in the normal course of business by which it transfers credit assets to special purpose trusts which in turn issue asset-backed securities to investors. The Group may acquire certain investments at the subordinated tranche level and accordingly may retain parts of the risks and rewards of the transferred credit assets. The Group would determine whether or not to derecognise the associated credit assets by evaluating the extent to which it retains the risks and rewards of the assets.With respect to the credit assets that are securitised and qualified for derecognition based on the criteria set out in Note 4(5) the Group derecognises the transferred credit assets in their entirety. During the year of 2023 the Group transferred loans amounting to RMB22589 million (2022: RMB17362 million) in securitisation arrangements as well as substantially all the risks and rewards associated with the loans. The full amount of such securitised loans were then derecognised.In the cases that the Group has neither transferred nor retained substantially all the risks and rewards of the transferred credit assets and for which the Group retains control the Group recognises an asset in the consolidated statement of financial position to the extent of the Group’s continuing involvement in the transferred assets the remaining portion is derecognised. The extent of the Group’s continuing involvement is the extent of the risks and rewards exposed by the Group to the value changes of the transferred assets. For the year ended 31 December 2023 there were no new securitised credit assets in which the Group retained the continuing involvement (2022: None). The carrying amount of the continuing involvement asset and the corresponding continuing involvement liability are recognised in other assets and other liabilities in the consolidated statement of financial position amounting to RMB5274 million as at 31 December 2023 (31 December 2022: RMB5274 million).Transfers of credit assets to third parties During the year of 2023 in addition to securitisation transactions the Group transferred credit assets amounting to RMB1107 million (2022: RMB995 million) to independent third parties directly. The Group determined that these transferred assets qualified for full derecognition based on the criteria set out in Note 4(5) since the Group has transferred substantially all the risks and rewards of the transferred assets to the counterparties.Repurchase transactions and securities lending transactions Transferred financial assets that do not qualify for derecognition mainly include debt securities discounted bills held by counterparties as collateral under repurchase agreements and securities lent to counterparties under securities lending agreements. The counterparties are allowed to sell or repledge those securities sold under agreements to repurchase in the absence of default by the Group but has an obligation to return the securities at the maturity of the contract. The Group determines that it retains substantially all the risks and rewards of these securities and therefore does not derecognise them. Instead it recognises a financial liability for cash received as collateral.– F-316 –302 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) 64. Interests in unconsolidated structured entities The scope of the Group’s consolidated financial statements is determined on a control basis. Control means that the investor has the power over the investee enjoys variable returns by participating in the relevant activities of the investee and has the ability to use the power to affect the amount of its return.The Group has the power over structured entities and the other investors have no substantive rights. In the meantime the Group is entitled to variable returns and will consolidate entities in which the Group has the right to affect the amount of its return.In addition to the above-mentioned structured entities that have been included in the Group’s consolidated financial statements the Group’s interests in structured entities which is not covered by the consolidated financial statements is as follows: (a) Interests in the structured entities sponsored by third parties institutions The Group holds interests in some structured entities sponsored by third parties through investments in the units issued by these structured entities. Such interests include investments in wealth management products asset management schemes trust beneficiary rights assets-backed securities and fund investments and the Group does not consolidate these structured entities. The purpose of the Group holding these structured entities is to obtain investment income capital appreciation or both.The following tables set out an analysis of the balance of interests held by the Group in the structured entities sponsored by third parties and an analysis of the line items in the consolidated statement of financial positions as at 31 December 2023 and 31 December 2022: 2023 Balance Debt Financial investments Debt investments at amortised investments Maximum at FVTPL cost at FVTOCI Total exposure Asset management schemes – 35275 – 35275 35275 Trust beneficiary rights 184 25020 – 25204 25204 Asset-backed securities 320 1073 17983 19376 19376 Fund investments 227477 – – 227477 227477 Wealth management products 580 – – 580 580 Total 228561 61368 17983 307912 307912 2022 Balance Debt Financial investments Debt investments at amortised investments Maximum at FVTPL cost at FVTOCI Total exposure Asset management schemes – 48362 – 48362 48362 Trust beneficiary rights – 37954 – 37954 37954 Asset-backed securities 835 1031 170 2036 2036 Fund investments 186311 – – 186311 186311 Wealth management products 110 – – 110 110 Total 187256 87347 170 274773 274773 The maximum exposures of investments in funds trust beneficiary rights asset management schemes wealth management products and asset-backed securities are the balance of these assets.– F-317 –China Merchants Bank Chapter VIII Financial Statements 303 Annual Report 2023 (H share) 64. Interests in unconsolidated structured entities (Continued) (b) Interests in the unconsolidated structured entities sponsored by the Group The unconsolidated structured entities sponsored by the Group include non-principal-guaranteed wealth management products funds and assets management schemes. The nature and purpose of these structured entities are to generate fees from managing assets on behalf of investors. These structured entities are financed through the issuance of investment products to investors. Interest of the Group in these unconsolidated structured entities is limited to fees and commissions charged for management services provided.As at 31 December 2023 the amount of unconsolidated non-principal-guaranteed wealth management products sponsored by the Group was RMB2548929 million (31 December 2022: RMB2667663 million).As at 31 December 2023 the amount of unconsolidated funds sponsored by the Group was RMB1237828 million (31 December 2022: RMB1147030 million). As at 31 December 2023 the amount of unconsolidated asset management schemes sponsored by the Group was RMB289215 million (31 December 2022: RMB262095 million).As at 31 December 2023 amounts held under resale agreements transacted between the Group and the non- principal-guaranteed wealth management products sponsored by the Group were RMB25701 million (31 December 2022: RMB17252 million). The above transactions were conducted in accordance with normal business terms and conditions.As at 31 December 2023 the amount of unconsolidated non-principal-guaranteed wealth management products held by the Group was RMB2149 million (31 December 2022: RMB2433 million).As at 31 December 2023 the amount of unconsolidated funds held by the Group was RMB14827 million (31 December 2022: RMB14228 million).During the year ended 31 December 2023 the amount of unconsolidated non-principal-guaranteed wealth management products sponsored by the Group transferred to investments measured at amortised cost of the Group was Nil (2022: RMB11143 million).During the year ended 31 December 2023 the amount of fee and commission income the Group received from such non-principal-guaranteed wealth management products was RMB10394 million (2022: RMB17037 million).During the year ended 31 December 2023 the amount of fee and commission income the Group received from such unconsolidated funds was RMB5041 million (2022: RMB5470 million).During the year ended 31 December 2023 the amount of fee and commission income the Group received from such unconsolidated asset management schemes was RMB653 million (2022: RMB683 million).The total amount of non-principal-guaranteed wealth management products sponsored by the Group after 1 January 2023 with a maturity date before 31 December 2023 was RMB502145 million (2022: RMB620318 million). 65. Comparative figures Certain comparative figures in the notes have been re-presented to conform to presentation in current year.– F-318 –304 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) Unaudited Supplementary Financial Information (Expressed in millions of Renminbi unless otherwise stated) (A) Capital adequacy ratio The Group’s capital adequacy ratio was prepared solely in accordance with the former CBIRC’s Administrative Measures on the Capital of Commercial Banks (Provisional) issued in 2012 and effective on 1 January 2013. The bases used herein may differ from those adopted in Hong Kong or other countries and regions.In accordance with the Advanced Measurement Approach approved by the former CBIRC in April 2014 the Group calculates core tier-1 capital adequacy ratio tier-1 capital adequacy ratio and capital adequacy ratio as follows: 20232022 Core tier-1 capital adequacy ratio 13.73% 13.68% Tier-1 capital adequacy ratio 16.01% 15.75% Capital adequacy ratio 17.88% 17.77% Components of capital base Core tier-1 capital: Qualifying portion of share capital 25220 25220 Qualifying portion of capital reserve 65547 65397 Surplus reserve 108700 94948 General reserve 141184 132451 Retained earnings 563114 488970 Qualifying portion of non-controlling interests – – Other (note (i)) 16994 14480 Total core tier-1 capital 920759 821466 Regulatory deductions from core tier-1 capital 13451 22114 Net core tier-1 capital 907308 799352 Additional tier-1 capital (note (ii)) 150446 120446 Net tier-1 capital 1057754 919798 Tier-2 capital: Qualifying portion of tier-2 capital instruments and their premium – 20000 Surplus provision for loans impairment 122175 96579 Qualifying portion of non-controlling interests 1558 1565 Total tier-2 capital 123733 118144 Regulatory deductions from core tier-2 capital – – Net tier-2 capital 123733 118144 Net capital 1181487 1037942 Total risk-weighted assets (taking into consideration the floor requirements during the parallel run period) 6608021 5841685 Notes: (i) : Under former CBIRC’s Administrative Measures on the Capital of Commercial Banks (Provisional) other includes investment revaluation reserve exchange reserve hedging reserve in the consolidated financial statements etc.(ii) : The Group’s additional tier-1 capital includes preference shares perpetual bonds etc.In 2023 in accordance with the Advanced Measurement Approach approved by former CBIRC in April 2014 the Bank’s core tier-1 capital adequacy ratio is 13.32% tier-1 capital adequacy ratio is 15.70% capital adequacy ratio is 17.62% net capital is RMB1059697 million and total risk-weighted assets is RMB6015774 million. In 2023 by the method of calculating credit risk using the weighted approach market risk using the standardised approach and operational risk using the basic indicator approach the Group’s core tier-1 capital adequacy ratio is 11.86% tier-1 capital adequacy ratio is 13.82% capital adequacy ratio is 14.96% net capital is RMB1144901 million and total risk-weighted assets is RMB7652723 million.In 2023 by the method of calculating credit risk using the weighted approach market risk using the standardised approach and operational risk using the basic indicator approach the Bank’s core tier-1 capital adequacy ratio is 11.38% tier-1 capital adequacy ratio is 13.40% capital adequacy ratio is 14.52% net capital is RMB1023111 million and total risk-weighted assets is RMB7046274 million.– F-319 –China Merchants Bank Chapter VIII Financial Statements 305 Annual Report 2023 (H share) (B) Leverage ratio In accordance with the former CBIRC’s Administrative Measures on Leverage Ratio of Commercial Banks (Revision) issued in 2015 and effective on 1 April 2015 the Group’s leverage ratio is as follows. The basis used herein may differ from those adopted in Hong Kong or other countries and regions.The difference between regulatory items and accounting items: 20232022 Total consolidated assets as per published financial statements 11028483 10138912 Adjustments for investments in banking financial insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation (55771) (47666) Adjustments for fiduciary assets – – Adjustments for derivative financial instruments (1913) (7911) Adjustment for securities financing transactions 106847 12444 Adjustment for off-balance sheet items 1742065 1496177 Other adjustments (13451) (22114) Balance of adjusted on-balance sheet and off-balance sheet assets 12806260 11569842 Leverage ratio net tier-1 capital adjusted on-balance sheet and off-balance sheet exposures and other information: 31 December 2023 31 December 2022 1. Net tier-1 capital 1057754 919798 2. Balance of adjusted on-balance sheet assets (excluding derivatives and SFTs) 10769181 9773998 On-balance sheet items (excluding derivatives and securities financing transactions (SFT)) 10782632 9796112 Less: A sset amounts deducted in determining Basel III Tier 1 capital (13451) (22114) 3. Total derivative exposures 16819 10726 Replacement cost associated with all derivatives transactions (net of eligible cash variation margin) 4639 5551 Add-on amounts for potential future exposure associated with all derivatives transactions 12180 5175 Gross-up for derivatives collateral provided where deducted from the balance sheet assets – – Less: Deductions of receivables assets for cash variation margin provided in derivatives transactions – – Less: E xempted central counterparty leg of client-cleared trade exposures – – Effective notional amount of written credit derivatives – – Less: Adjusted effective notional deductions for written credit derivatives – – 4. Total securities financing transaction exposures 278195 288941 Gross SFT assets (with no recognition of netting) after adjusting for sale accounting transactions 171348 276497 Less: Netted amounts of cash payables and cash receivables of gross SFT assets – – Counterparty credit risk exposure for SFT assets 106847 12444 Agent transaction exposures – – 5. Balance of adjusted off-balance sheet assets 1742065 1496177 Off-balance sheet exposure at gross notional amount 3524325 3093836 Less: Adjustments for conversion to credit equivalent amounts (1782260) (1597659) 6. Balance of adjusted on-balance sheet and off-balance sheet assets 12806260 11569842 7. Leverage ratio 8.26% 7.95% – F-320 –306 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) (C) Liquidity coverage ratioThe Group prepared and disclosed information on liquidity coverage ratio in accordance with the “Measures for theDisclosure of Information on Liquidity Coverage Ratio by Commercial Banks”. The basis used herein may differ from those adopted in Hong Kong or other countries and regions. The average of liquidity coverage ratio of the Group was 159.82% in the fourth quarter of 2023 an increase of 0.17 percentage points from the previous quarter which was maintained basically stable. The liquidity coverage ratio of the Group at the end of the fourth quarter of 2023 was 173.36% which met the regulatory requirements in 2023. The breakdown of the Group’s average value of each item of liquidity coverage ratio in the fourth quarter of 2023 is set out below: (Expressed in millions of Renminbi except percentage) Unweighted Weighted amount amount Serial No. (average value) (average value) Stock of high quality liquid assets 1 Total stock of high quality liquid assets 2017296 Cash outflows 2 Retail and small business customers deposits of which: 3698130 328336 3 Stable deposits 829526 41476 4 Less stable deposits 2868604 286860 5 Unsecured wholesale funding of which: 4379860 1458116 6 Operational deposits (excluding correspondent banks) 2650733 655476 7 Non-operational deposits (including all counterparties) 1703035 776548 8 Unsecured debt issuance 26092 26092 9 Secured funding 13664 10 Additional requirements of which: 1973700 385580 11 Cash outflows arising from derivative contract and other 276651 276651 transactions arising from related collateral requirements 12 Cash outflows arising from secured debt instruments funding – – 13 Undrawn committed credit and liquidity facilities 1697049 108929 14 Other contractual obligations to extend funds 103364 103364 15 Other contingent funding obligations 3643112 109469 16 Total cash outflows 2398529 Cash inflows 17 Secured lending (including reverse repo and securities borrowing) 180353 179816 18 Contractual inflows from fully performing loans 1072229 682265 19 Other cash inflows 274843 274223 20 Total cash inflows 1527425 1136304 Adjusted value 21 Total stock of high quality liquid assets 2017296 22 Net cash outflows 1262225 23 Liquidity coverage ratio (%) 159.82% Notes: (i) The domestic data in the above table is a simple arithmetic average of the 92-day value for the latest quarter and the month-end average for the data of subsidiaries.(ii) The high quality liquid assets in the above table are prepared based on cash and the central bank reserve available under pressure conditionsas well as the bond in line with definition of Tier 1 and Tier 2 assets set by former CBIRC on the “Measures for the Liquidity Risk Managementof Commercial Banks”.– F-321 –China Merchants Bank Chapter VIII Financial Statements 307 Annual Report 2023 (H share) (D) Net stable funding ratioThe Group prepared and disclosed information on Net Stable Funding Ratio in accordance with the “Measures forthe Disclosure of Information on Net Stable Funding Ratio by Commercial Banks”. The Group’s Net Stable Funding Ratio at the end of the fourth quarter of 2023 was 130.72% representing an increase of 0.58 percentage points as compared with the previous quarter which was maintained basically stable. The breakdown of the Group’s Net Stable Fund Ratio in the last two quarters is set out below: 31 December 2023 (Expressed in millions of Renminbi except percentage) Weighted Unweighted amount amount 6 months to Serial No. No maturity < 6 months 12 months ≥ 12 months Available stable funding (ASF) item 1 Capital 1071254 – – – 1071254 2 Regulatory capital 1071254 – – – 1071254 3 Other capital instruments – – – – – 4 Retail deposits and deposits from Small business customer 2282575 1617013 57445 5038 3610469 5 Stable deposits 875774 5726 525 1121 839045 6 Less stable deposits 1406801 1611287 56920 3917 2771424 7 Wholesale funding 2644103 2423633 251230 289042 2601237 8 Operational deposits 2602120 – – – 1301060 9 Other wholesale funding 41983 2423633 251230 289042 1300177 10 Liabilities with matching interdependent assets – – – – – 11 Other liabilities 2657 169456 64195 118015 126648 12 NSFR derivative liabilities 23464 13 All other liabilities and equity not included in the above categories 2657 169456 64195 94551 126648 14 Total ASF 7409608 Required stable funding (RSF) item 15 Total NSFR high-quality liquid assets (HQLA) 399307 16 Deposits held at other financial institutions for operational purposes 44614 7289 – – 26166 17 Performing loans and securities 122075 2398056 1197720 3851064 4820184 18 Performing loans to financial institutions secured by Level 1 HQLA – 148674 – – 22301 19 Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions – 659621 91109 29240 173769 20 Performing loans to non-financial corporate clients loans to retail and small business customers and loans to sovereigns central banks and PSEs of which: – 1383699 1026194 2303658 3130694 21 With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk – 189595 124083 161811 262016 22 Performing residential mortgages of which: – 25840 26102 1328961 1154132 23 With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk – – – – – 24 Securities that are not in default and do not qualify as HQLA including exchange-traded equities 122075 180222 54315 189205 339288 25 Assets with matching interdependent liabilities – – – – – – F-322 –308 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) (D) Net stable funding ratio (continued) 31 December 2023 (continued) Weighted Unweighted amount amount 6 months to Serial No. No maturity < 6 months 12 months ≥ 12 months Required stable funding (RSF) item (continued) 26 Other assets 10761 73396 34039 101462 200668 27 Physical traded commodities including gold 2321 1973 28 Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs 333 283 29 NSFR derivative assets 25650 2186 30 NSFR derivative liabilities before deduction of variation margin posted 4889 4889 31 All other assets not included in the above categories 8440 73396 34039 75479 191337 32 Off-balance sheet items 5947508 221955 33 Total RSF 5668280 34 Net Stable Funding Ratio (%) 130.72% 30 September 2023 (Expressed in millions of Renminbi except percentage) Weighted Unweighted amount amount 6 months to Serial No. No maturity < 6 months 12 months ≥ 12 months Available stable funding (ASF) item 1 Capital 1026779 – – – 1026779 2 Regulatory capital 1026779 – – – 1026779 3 Other capital instruments – – – – – 4 Retail deposits and deposits from Small business customer 2222423 1472506 86263 6152 3451677 5 Stable deposits 842850 5750 464 1198 807808 6 Less stable deposits 1379573 1466756 85799 4954 2643869 7 Wholesale funding 2603626 2377268 170233 294570 2554246 8 Operational deposits 2581665 – – – 1290833 9 Other wholesale funding 21961 2377268 170233 294570 1263413 10 Liabilities with matching interdependent assets – – – – – 11 Other liabilities 7430 151468 76397 134792 140838 12 NSFR derivative liabilities 32152 13 All other liabilities and equity not included in the above categories 7430 151468 76397 102640 140838 14 Total ASF 7173540 Required stable funding (RSF) item 15 Total NSFR high-quality liquid assets (HQLA) 344456 16 Deposits held at other financial institutions for operational purposes 44005 7691 – 4699 30547 17 Performing loans and securities 101255 2352104 1092143 3838101 4708965 18 Performing loans to financial institutions secured by Level 1 HQLA – 58340 – – 8751 19 Performing loans to financial institutions secured by non-Level 1 HQLA and unsecured performing loans to financial institutions – 750105 71249 27211 175363 20 Performing loans to non-financial corporate clients loans to retail and small business customers and loans to sovereigns central banks and PSEs of which: – 1340029 940280 2295491 3045537 21 With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk – 225553 135598 228926 329378 – F-323 –China Merchants Bank Chapter VIII Financial Statements 309 Annual Report 2023 (H share) (D) Net stable funding ratio (continued) 30 September 2023 (continued) Weighted Unweighted amount amount 6 months to Serial No. No maturity < 6 months 12 months ≥ 12 months Required stable funding (RSF) item (continued) 22 Performing residential mortgages of which: – 25454 25505 1313046 1140044 23 With a risk weight of less than or equal to 35% under the Basel II standardized approach for credit risk – – – – – 24 Securities that are not in default and do not qualify as HQLA including exchange-traded equities 101255 178176 55109 202353 339270 25 Assets with matching interdependent liabilities – – – – – 26 Other assets 6936 80370 38577 108846 208457 27 Physical traded commodities including gold 2792 2373 28 Assets posted as initial margin for derivative contracts and contributions to default funds of CCPs 277 235 29 NSFR derivative assets 33071 919 30 NSFR derivative liabilities before deduction of variation margin posted 6692 6692 31 All other assets not included in the above categories 4144 80370 38577 75498 198238 32 Off-balance sheet items 5803725 219747 33 Total RSF 5512172 34 Net Stable Funding Ratio (%) 130.14% Notes: (i) The Group calculates Net Stable Funding Ratio in accordance with the “Measures for the Liquidity Risk Management of Commercial Banks” and relevant statistical regulations.(ii) Items to be reported in the “no maturity” time include but are not limited to items such as capital with perpetual maturity non-maturity deposits short positions open maturity positions non-HQLA equities and physical traded commodities.(iii) The item 26 “Other assets” unweighted amount in the above table does not include the item 30 “NSFR derivative liabilities before deductionof variation margin posted”.– F-324 –310 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) (E) Currency concentrations other than RMB 2023 USD HKD Other Total (in millions of RMB) Non-structural position Spot assets 601745 31474 47462 680681 Spot liabilities 553972 18032 90942 662946 Forward purchased 417752 6195 76916 500863 Forward written 476337 7311 38999 522647 Net option position 12236 (79) 3562 15719 Net long position 1424 12247 (2001) 11670 Net structural position 8481 41314 1552 51347 2022 USD HKD Other Total (in millions of RMB) Non-structural position Spot assets 547489 41714 53176 642379 Spot liabilities 530903 16460 91232 638595 Forward purchased 276555 2258 56399 335212 Forward written 305169 17447 18938 341554 Net option position 15700 (1122) (695) 13883 Net long position 3672 8943 (1290) 11325 Net structural position 9974 40691 1136 51801 The net option position is calculated using the delta equivalent approach required by the Hong Kong Monetary Authority (the “HKMA”). The net structural position of the Group includes the structural positions of the Bank’s branches substantially involved in foreign exchange. Structural assets and liabilities include: – Investment properties property and equipment net of depreciation charges; – Capital and statutory reserves of overseas branches; and – Investments in overseas subsidiaries.– F-325 –China Merchants Bank Chapter VIII Financial Statements 311 Annual Report 2023 (H share) (F) International claims The Group is principally engaged in business operations within the Chinese mainland and regards all claims on third parties outside the Chinese mainland and claims in foreign currencies on third parties within the Chinese mainland as international claims.International claims include loans and advances balances and placements with banks and other financial institutions holdings of trade bills certificates of deposit and securities investment.International claims have been disclosed by different countries or geographical areas. A country or geographical area is reported where it constitutes 10% or more of the aggregate amount of international claims after taking into account any risk transfers. Risk is transferred only when the claims are guaranteed by a party in country which is different from that of the counterparty or if the claims are on an overseas branch of a bank whose head office is located in another country. 2023 Banks and other Public financial sector institutions entities Other Total Foreign currencies transactions in the Chinese mainland 105171 2079 132845 240095 Asia Pacific excluding the Chinese mainland 49161 19653 199166 267980 – of which attributed to Hong Kong 24986 17202 181581 223769 Europe 19866 1598 21029 42493 North and South America 68925 119692 17584 206201 Total 243123 143022 370624 756769 2022 Banks and other Public financial sector institutions entities Other Total Foreign currencies transactions in the Chinese mainland 89883 4419 156029 250331 Asia Pacific excluding the Chinese mainland 62407 22043 162273 246723 – of which attributed to Hong Kong 39726 19891 146107 205724 Europe 12472 1732 20479 34683 North and South America 44948 81981 19809 146738 Total 209710 110175 358590 678475 – F-326 –312 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) (G) Further analysis on loans and advances to customers analysed by industry sector Operation in the Chinese mainland 20232022 % of gross % of gross loans and loans and advances advances covered by covered by collateral or collateral or Amount other security Amount other security Manufacturing 557691 28 445218 32 Transportation storage and postal services 477016 40 461434 37 Property development 303707 52 349682 48 Production and supply of electric power heating power gas and water 259864 32 203870 38 Wholesale and retail 187737 35 171786 32 Leasing and commercial services 186463 17 158320 14 Construction 110577 22 103998 24 Telecommunications software and IT services 95394 49 78950 48 Finance 88296 17 75593 23 Water environment and public utilities management 42813 45 64886 30 Mining 42326 34 34421 33 Others 76400 31 67677 30 Corporate loans and advances subtotal 2428284 34 2215835 35 Discounted bills 471127 100 514054 100 Residential mortgage 1376815 100 1379825 100 Credit cards 935777 – 884395 – Micro-finance loans 750019 78 629857 79 Consumer loans 301538 2 202225 3 Others 7806 90 11374 93 Retail loans and advances subtotal 3371955 59 3107676 61 Gross amount of loans and advances to customers 6271366 52 5837565 54 – F-327 –China Merchants Bank Chapter VIII Financial Statements 313 Annual Report 2023 (H share) (G) Further analysis on loans and advances to customers analysed by industry sector (continued) Operation outside the Chinese mainland 20232022 % of gross % of gross loans and loans and advances advances covered by covered by collateral or collateral or Amount other security Amount other security Finance 45368 37 36521 23 Transportation storage and postal services 36248 21 30814 19 Property development 22960 44 26298 37 Manufacturing 19335 56 20494 39 Production and supply of electric power heating power gas and water 12359 8 9023 33 Wholesale and retail 10002 29 8923 28 Telecommunications software and IT services 8323 29 10908 30 Leasing and commercial services 6207 36 3430 30 Mining 4945 63 6074 46 Construction 623 80 1772 99 Water environment and public utilities management 419 100 110 40 Others 4782 75 5414 72 Corporate loans and advances subtotal 171571 36 159781 32 Residential mortgage 8671 100 9383 100 Credit cards 133 – 124 – Micro-finance loans 1278 100 1181 100 Others 55846 95 43425 93 Retail loans and advances subtotal 65928 96 54113 94 Gross amount of loans and advances to customers 237499 53 213894 47 – F-328 –314 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) (G) Further analysis on loans and advances to customers analysed by industry sector (continued) When the amount of loans and advances to customers for an industry/category accounts for 10% or above of the total amount of loans and advances to customers the amount of overdue loans impaired loans and credit impairment allowances in each expected credit loss stage are disclosed as follows: 2023 – Stage 2 (Lifetime ECL – Stage 3 Overdue loans Impaired loans – Stage 1 – not credit- (Lifetime ECL and advances and advances (12-month ECL) impaired) – credit impaired) Residential mortgage 8165 5122 7021 2739 4388 Credit card 29910 16383 26666 19179 15562 Micro-business loan 5269 4592 9130 1649 3793 2022 – Stage 2 (Lifetime ECL – Stage 3 Overdue loans Impaired loans – Stage 1 – not credit- (Lifetime ECL and advances and advances (12-month ECL) impaired) – credit impaired) Residential mortgage 7342 4904 8604 2441 3821 Credit card 31413 15650 26255 19383 14665 Micro-business loan 4582 4031 11180 1839 3640 As at 31 December 2023 for corporate loans and advances measured at amortised cost the fair value of collateral held against impaired loans and advances is RMB3810 million (31 December 2022: RMB3206 million).– F-329 –China Merchants Bank Chapter VIII Financial Statements 315 Annual Report 2023 (H share) (H) Loans and advances to customers overdue for more than 90 days (i) By geographical segments 20232022 Headquarters 13308 11980 Yangtze River Delta region 7613 7716 Bohai Rim region 4863 4051 Pearl River Delta and West Coast region 5342 4619 Northeast region 1433 967 Central region 5307 5239 Western region 4538 3653 Outside the Chinese mainland 638 395 Subsidiaries 2780 2458 Total 45822 41078 (ii) By overdue period 20232022 Gross amount of loans and advances to customers which have been overdue with respect to either principal or interest for periods of: – between 3 and 6 months (inclusive) 11476 15379 – between 6 and 12 months (inclusive) 11598 11290 – over 12 months 22748 14409 Total 45822 41078 As a percentage of total gross amount of loans and advances to customers: – between 3 and 6 months (inclusive) 0.17% 0.25% – between 6 and 12 months (inclusive) 0.18% 0.19% – over 12 months 0.35% 0.24% Total 0.70% 0.68% – F-330 –316 China Merchants Bank Chapter VIII Financial Statements Annual Report 2023 (H share) (H) Loans and advances to customers overdue for more than 90 days (continued) (iii) Collateral information 20232022 Secured portion of overdue loans and advances 17141 16404 Unsecured portion of overdue loans and advances 28681 24674 Fair value of collateral held against overdue loans and advances 47613 42302 The amount of the Group’s overdue loans and advances to financial institutions for more than 90 days as at 31 December 2023 was RMB1 million (31 December 2022: RMB1 million).Note: The above analysis represents loans and advances overdue for more than 90 days as required and defined by the HKMA.Loans and advances with a specific repayment date are classified as overdue when the principal or interest is overdue.For loans and advances repayable by regular installments if part of the installments is overdue the whole amount of these loans would be classified as overdue.Loans and advances repayable on demand are classified as overdue when a demand for repayment has been served on the borrower but repayment has not been made in accordance with the instructions. If the loans and advances repayable on demand are outside the approved limit that was advised to the borrower they were also considered as overdue.The collateral of the Group included cash deposit shares land use right property motor vehicles and other equipment etc. The fair value of collateral was estimated by management based on the latest available external valuations adjusted by taking into account the current realisation experience as well as market situation. Where collateral values are greater than gross advances only the amount of collateral up to the gross advance had been included in the “secured portion of overdue loans and advances” as set out in the above tables.(I) Renegotiated loans and advances to customers 20232022 % of total % of total loans and loans and Amount advances Amount advances Renegotiated loans and advances to customers (Note) 13007 0.20% 12076 0.20% Less: – Renegotiated loans and advances to customers overdue more than 90 days 6673 0.10% 5207 0.09% – Renegotiated loans and advances to customers overdue less than 90 days 6334 0.10% 6869 0.11% Note: Represents the restructured non-performing loans.The amount of the Group’s renegotiated loans and advances to financial institutions as at 31 December 2023 was nil (31 December 2022: nil).(J) Non-bank the Chinese mainland exposures The Bank is a commercial bank incorporated in the Chinese mainland with its banking business primarily conducted in the Chinese mainland. As of 31 December 2023 and 31 December 2022 most of the Bank’s exposures arose from businesses with the Chinese mainland non-bank institutions or individuals. Analyses of various types of exposure by counterparty have been disclosed in the notes to the financial report.– F-331 –China Merchants Bank 22 First Quarterly Report of 2024 (H Share) 5 Financial Statements UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS (Expressed in millions of RMB unless otherwise stated) January to January to March 2024 March 2023 Interest income 94135 93344 Interest expense (42135) (37935) Net interest income 52000 55409 Fee and commission income 22296 27317 Fee and commission expense (2092) (2238) Net fee and commission income 20204 25079 Other net income 13470 9344 Operating income 85674 89832 Operating expenses (26965) (27323) Operating profit before impairment losses 58709 62509 Expected credit losses (14267) (16421) Share of profits of joint ventures 371 529 Share of profits of associates 375 264 Profit before taxation 45188 46881 Income tax (6746) (7655) Profit for the period 38442 39226 Attributable to: Equity holders of the Bank 38077 38839 Non-controlling interests 365 387 Earnings per share Basic and diluted (RMB Yuan) 1.51 1.54 – F-332 –China Merchants Bank 23 First Quarterly Report of 2024 (H Share) UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS (CONTINUED) (Expressed in millions of RMB unless otherwise stated) January to January to March 2024 March 2023 Profit for the period 38442 39226 Other comprehensive income after tax Items that may be reclassified subsequently to profit or loss: Net fair value gain/(loss) on financial assets measured at fair value through other comprehensive income 2867 (1473) Net changes in expected credit losses of financial assets measured at fair value through other comprehensive income (403) (1626) Net movement in cash flow hedge reserve (12) (36) Share of other comprehensive income/(expense) from equity-accounted investees 636 466 Exchange difference on translation of financial statements of foreign operations 822 (935) Items that will not be reclassified subsequently to profit or loss: Net fair value gain on equity instruments designated at fair value through other comprehensive income 650 277 Other comprehensive income for the period net of tax 4560 (3327) Attributable to: Equity holders of the Bank 4518 (3255) Non-controlling interests 42 (72) Total comprehensive income for the period 43002 35899 Attributable to: Equity holders of the Bank 42595 35584 Non-controlling interests 407 315 This financial statement was approved by the Board of Directors on 29 April 2024.– F-333 –China Merchants Bank 24 First Quarterly Report of 2024 (H Share) UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Expressed in millions of RMB unless otherwise stated) Item 31 March 2024 31 December 2023 Assets Cash 16129 14931 Precious metals 2209 2321 Balances with central bank 797211 667871 Balances with banks and other financial institutions 92427 100769 Placements with banks and other financial institutions 294182 287694 Amounts held under resale agreements 224494 172246 Loans and advances to customers 6555072 6252755 Financial investments at fair value through profit or loss 524686 526145 Derivative financial assets 19463 18733 Debt investments at amortised cost 1739594 1749024 Debt investments at fair value through other comprehensive income 916465 899102 Equity investments designated at fair value through other comprehensive income 20117 19649 Interests in joint ventures 16649 15707 Interests in associates 11574 10883 Investment properties 1139 1160 Property and equipment 119210 115348 Right-of-use assets 17215 17041 Intangible assets 2535 2709 Goodwill 9954 9954 Deferred tax assets 89978 90557 Other assets 49923 53884 Total assets 11520226 11028483 – F-334 –China Merchants Bank 25 First Quarterly Report of 2024 (H Share) UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED) (Expressed in millions of RMB unless otherwise stated) Item 31 March 2024 31 December 2023 Liabilities Borrowing from central bank 254270 378621 Deposits from banks and other financial institutions 561995 508378 Placements from banks and other financial institutions 277693 247299 Financial liabilities at fair value through profit or loss 48765 43958 Derivative financial liabilities 17413 17443 Amounts sold under repurchase agreements 162679 135078 Deposits from customers 8533902 8240498 Salaries and welfare payable 28346 28679 Tax payable 16308 13597 Contract liabilities 5251 5486 Lease liabilities 12907 12675 Provisions 21142 19662 Debt securities issued 311560 176578 Deferred tax liabilities 1638 1607 Other liabilities 140866 113195 Total liabilities 10394735 9942754 Equity Share capital 25220 25220 Other equity instruments 150446 150446 Including: Preference shares 27468 27468 Perpetual bonds 122978 122978 Capital reserve 65432 65432 Investment revaluation reserve 17370 13656 Hedging reserve 80 92 Surplus reserve 108737 108737 General reserve 141591 141481 Retained profits 556627 518638 Proposed profit appropriation 49734 49734 Exchange reserve 3728 2934 Total equity attributable to shareholders of the Bank 1118965 1076370 Non-controlling interests 6526 9359 Including: Non-controlling interest 6526 6521 Perpetual debt capital – 2838 Total equity 1125491 1085729 Total liabilities and equity 11520226 11028483 This financial statement was approved by the Board of Directors on 29 April 2024.– F-335 –China Merchants Bank 26 First Quarterly Report of 2024 (H Share) UNAUDITED CONSOLIDATED CASH FLOW STATEMENT (Expressed in millions of RMB unless otherwise stated) January to January to March 2024 March 2023 Operating activities Profit before taxation 45188 46881 Adjustments for: – Impairment losses on loans and advances 13271 16550 – Impairment losses on investments and others 996 (129) – Unwinding of discount on the allowances of loans and advances (58) (53) – Depreciation of property and equipment and investment properties 2606 2446 – Depreciation of right-of-use assets 1005 1026 – Amortisation of other assets 241 290 – Net gain on investments in debt securities and equity instruments (4239) (2460) – Interest income on investments (20894) (19529) – Interest expense on issued debt securities 1746 1853 – Share of profits of associates (375) (264) – Share of profits of joint ventures (371) (529) – Net gains on disposal of property and equipment and other assets (62) (82) – Interest expense on lease liabilities 121 131 Changes in: Balances with central bank 43295 11021 Loans and advances to customers (321655) (267788) Other assets (7890) (53704) Deposits from customers 284662 236136 Deposits and placements from banks and other financial institutions 111757 (13512) Balances and placements with banks and other financial institutions with original maturity over 3 months (55048) (26497) Borrowings from central bank (124203) 65216 Other liabilities 33384 (4735) Net cash generated from operating activities before income tax payment 3477 (7732) Income tax paid (4685) (4886) Net cash generated from operating activities (1208) (12618) – F-336 –China Merchants Bank 27 First Quarterly Report of 2024 (H Share) UNAUDITED CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) (Expressed in millions of RMB unless otherwise stated) January to January to March 2024 March 2023 Investing activities Payment for the purchase of investments (533044) (449172) Proceeds from the disposal of investments 512737 340191 Investment gains received from investments 27274 25584 Payment for the purchases of property and equipment and other assets (10971) (9313) Proceeds from the disposal of properties and equipment and other assets 5123 835 Net cash flows used in investing activities 1119 (91875) Financing activities Proceeds from the issue of negotiable interbank certificates of deposits 142353 49322 Proceeds from the issue of certificates of deposits and others 12471 9859 Proceeds from the issue of debt securities 18213 31127 Proceeds from other financing activities 2095 5350 Repayment of negotiable interbank certificates of deposits (4350) (22210) Repayment of certificates of deposit and others (9528) (8124) Repayment of debt securities (25431) (19189) Payment on lease liabilities (1117) (1127) Payment on redemption of perpetual debt capital (2863) – Distribution paid on perpetual debt capital (93) (90) Interest paid on financing activities (1796) (974) Net cash generated from financing activities 129954 43944 Increase/(decrease) in cash and cash equivalents 129865 (60549) Cash and cash equivalents as of 1 January 599019 567198 Effects of foreign exchange rate changes on cash and cash equivalents 195 (1709) Cash and cash equivalents as of 31 March 729079 504940 Cash flows from operating activities include: Interest received 72745 73496 Interest paid 31940 29794 This financial statement was approved by the Board of Directors on 29 April 2024.– F-337 –THE BANK China Merchants Bank Co. Ltd. 7088 Shennan Boulevard Futian District Shenzhen Guangdong Province China FISCAL AGENT REGISTRAR PRINCIPAL PAYING AGENT AND TRANSFER AGENT The Hongkong and Shanghai Banking Corporation Limited Level 26 HSBC Main Building 1 Queen’s Road Central Hong Kong CMU LODGING AND PAYING AGENT AND CMU REGISTRAR The Hongkong and Shanghai Banking Corporation Limited Level 26 HSBC Main Building 1 Queen’s Road Central Hong Kong LEGAL ADVISERS To the Issuer as to Hong Kong law To the Arrangers and the Dealers as to English law Clifford Chance Linklaters 27th Floor Jardine House 11th Floor Alexandra House One Connaught Place Chater Road Central Central Hong Kong Hong Kong To the Issuer as to PRC law To the Arrangers and the Dealers as to PRC law JunHe LLP King & Wood Mallesons 28/F Tower Three Kerry Plaza 28th Floor China Resources Tower No. 1-1 Zhongxinsi Road 2666 Keyuan South Road Nanshan District Futian District Shenzhen China Shenzhen China AUDITOR Deloitte Touche Tohmatsu 35/F One Pacific Place 88 Queensway Hong Kong