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BANK OF CHINA ANNOUNCES 2007 ANNUAL RESULTS

Bank of China Limited ("BOC" or the "Bank", HKEx stock code: 3988, SSE stock code: 601988) announced its 2007 annual results on 25 March. In 2007, leveraging on its international and diversified business platform, BOC captured opportunities arising from market changes to achieve strong growth in various business lines. Managed under the principles of stability and sustainability, the Bank successfully improved its operational efficiency and strengthened its core competitive advantages.

In accordance with International Financial Reporting Standards (IFRS), BOC made RMB 56.248 billion in net profit attributable to shareholders in 2007, a year-on-year increase of 31.33%.  Earnings per share were RMB 0.22.  Return on average assets record high at 1.10%, a growth of 0.14% compared with 2006. The Board of BOC recommended payment of a dividend of RMB 0.10 per share for the year, a year-on-year increase of 25%.

During the reporting period, BOC, through various innovative reforms, continued to transform itself to a provider of comprehensive and fully integrated financial products and services with diversified income streams. It also devoted enormous effort to developing quality credit business. As at the end of 2007, its total customer loans grew by 17.21% to RMB 2,850.561 billion, and corporate and personal lending therein increased by 14.53% and 25.71% respectively. The Bank remained the dominant leader of the domestic foreign currency loan market and No. 1 in the domestic syndicated loan market. It also led its peers in the market share of domestic new consumer lending. Through continuous optimization of its asset structure , the Bank's average yield of customer loans grew year-on-year by 46 basis points to 5.94% and the average yield of domestic RMB loans also surged, by 63 basis points, to 6.06%.

To mitigate the impact on savings deposits arising from developments in the capital market, BOC intensified its effort in proactive management of its liability and the development of third party deposits in 2007.  As a result, customer deposits saw a year-on-year growth of 7.55% and RMB deposits of financial institutions increased a marked 88.23%, representing a 2.66% growth in market share.  Deposit structure continued to improve with demand deposit and security and margin deposits together up 13.92%, representing 49.09% of the balance of customer deposits and 2.74% more than that at the end of the previous year.  Overall funding cost was effectively controlled and liquidity was maintained at a reasonable level.

In 2007, the People's Bank of China raised the benchmark rates of RMB-denominated loans and deposits for six times, which posed challenges to the banking sector in interest margin management. In response, BOC strived to optimize its asset and liability structure and capture market opportunities, achieving a net interest income of RMB 152.745 billion, a 25.85% growth year-on-year.  Average yield on interest-earning assets increased 40 basis points to 4.74%, while average cost of interest-bearing liabilities only increased 9 basis points to 2.15%.  Its net interest spread and net interest margin both widened 31 basis points to 2.59% and 2.76% respectively.

Driven by the fast growing fee-based business and a strengthened financial services platform, BOC's non-interest income business continued to expand during the reporting period, increasing 10.96% year-on-year to RMB 29.967 billion.  Its net fee and commission income achieved a remarkable increase of 91.92% year-on-year.

In 2007, BOC significantly upgraded its wealth management capability and actively developed its agency business.  It refined its three-tier wealth management service system, i.e. personal banking, wealth management and private banking, and operated a total of 366 standardized wealth management centres and more than 1,000 wealth management outlets, as supported by a professional team of over 2,700 financial and investment consultants as well as wealth management experts.  During the year, the number of wealth management customers increased by 18.12% and the launch of 331 choices of RMB and foreign currency structural wealth management products totalled a sales revenue of RMB 300 billion.  In addition, the Bank successfully introduced the country's first-ever QDII product, the "BOC Stable Growth ®” fund whose accumulated net value reached RMB 1.278 per unit.  The excellent performance evidenced BOC's competitive advantage in foreign currency wealth management.  Its agency business also advanced in leaps and bounds, with the number of funds distributed and total sales volume surging 130% and 322% respectively year-on-year.  The net value of assets under custody also increased by 150% against that at the  end of 2006.

Banking cards operation also saw rapid growth with the launch of different co-branded cards and the Olympic-themed card series. In 2007, BOC issued 2.34 million new credit cards which brought the total number of credit cards and quasi-credit cards up to over 11 million. Its RMB cards consumption volume increased by 52% and credit cards advances increased by 84.5%, thus driving up the Bank's fee income from card business by 26.69%.

Stimulated by China's thriving international trade, BOC's international settlement volume exceeded one trillion US dollars for the first time, resulting in a year-on-year growth of 26.01% in income from settlement and clearing fees. The Bank had been named the "Best Trade Finance Bank in China" for several consecutive years by renowned financial media such as The Asset and Trade Finance.  It is the only commercial bank in China who was granted such honour.

As for the foreign exchange business, while continuing to strengthen and improve its market leadership in the traditional products and services,  the Bank also aggressively expanded into new segments. In 2007, BOC realized the highest RMB bond trading volumes among its domestic peers and sustained its leadership in foreign exchange, precious metals trading, RMB swap and debt value-preservation businesses.  The persistently strong growth in foreign exchange trading business generated spread income of RMB7.647 billion for domestic operation of the Bank in 2007, a rise of 28.78% year-on-year.  With effective measures to manage foreign exchange exposure in action, the Bank's net foreign exchange position dropped substantially to US$4.1 billion at the end of the year.  This means BOC had largely resolved its foreign exchange exposure issue which had drawn wide concern in the market.

BOC's diversified financial services platform continued to report notable improvement  Its adoption of 'merchant banking' development strategy had forged all businesses onto new levels.  BOC topped all Chinese investment banks in the amount of IPO underwriting in Hong Kong, and maintained the biggest share in the treasury bonds underwriting market in Chinese mainland.  The Bank was also regarded as one of "the top 10 most reliable investment banks" in the heart of CEOs in China. Its profit from life insurance business in Hong Kong reached record high while domestic general insurance income surged sharply by 313%.  Its business network covered most of the regions in the country and 12 new subsidiaries were established during the year.  As for BOCG Investment, profit after tax increased by 191.88% year-on-year as a result of its successful expansion of equity investment business in both scope and scale. Its subsidiary BOC Aviation also reported a year-on-year growth of 67% in profit after tax. All business lines reported good progress and the synergies resulted had boosted the growth of other business lines. In 2007, BOC Investment Management became a direct subsidiary of BOC and assets under its management and its operating income soared by 303% and 252% respectively.  BOC also saw steady expansion of its overseas market network with the opening of the British subsidiary, the Rotterdam Branch and the Syndicated Loan Centres established in three regions, i.e. Europe/Africa, Asia Pacific and America.  It, therefore, enjoyed enhanced cross-border operation synergies and customer referrals.

In 2007, through strengthening budget management and cost control, BOC continuously boosted its operational efficiency by improving its per capita operating profit up significantly to 30.22% while its per capita business expense only increased by 21.23%. Its cost to income ratio (excluding business and other taxes) dropped from 41.97% to 41.76%.

Regarding the IT blueprint, BOC made substantial progress in implementation during the year. It completed Phase One Core Banking System customization and the first stage of the system integration test, realizing for the first time centralized information and report management. Overseas IT system was also centralized and the data centres in Beijing and Shanghai had begun operational.  Selected pilot branches had rolled out the on-line banking platform which not only offers integrated personal and corporate on-line banking services but also supports uniform domestic and overseas on-line banking systems, with a much advanced security level.

In 2007, BOC continued to gear up efforts in proactive risk management by implementing reforms to enhance centralization and professionalism.  For domestic operations, it applied the PD model-based corporate customer credit rating system and closely monitored the short-listed high risk or major accounts and those industries with excessive or potentially excessive capacities or restricted by government austerity measures.  As a result, the Bank's credit quality improved as reflected in the decrease in both impaired loan balance and impaired loan ratio. At the end of 2007, the balance of impaired loans dropped 12.51% to RMB 90.317 billion and impaired loan ratio was down by 1.07% to 3.17%, as compared with the end of 2006.  Impaired loan coverage ratio broke the 100% mark for the first time and reached 106.37%, while credit cost dropped to 0.31%.

As at the end of 2007, BOC's total assets grew by 12.46% to RMB 5,991.217 billion, and total liabilities increased by 12.73% as compared to that of 2006 to RMB 5,540.560 billion.  Total equity recorded a 9.13% growth to RMB 450.657 billion.  Core capital adequacy ratio and capital adequacy ratio were 10.67% and 13.34% respectively.  The Bank's market capitalisation at the end of 2007 was US$197.8 billion, making it the fourth largest listed bank in the world.

As at the end of 2007, the investment securities of BOC totalled RMB1.71 trillion, down 9.49% from the end of last year.  The Bank closely monitored the developments in the US subprime mortgage market and disposed some of the higher risk US Subprime ABS and all of the US Subprime CDOs at an opportune time in the fourth quarter of 2007. By the end of 2007, the investment in US Subprime ABS reduced to US$4.990 billion, accounting for 2.13% of total investment securities.  Of which, 71.23% had AAA rating, 25.93% had AA rating and 1.10% had A rating.

Bank of China closely monitored the impact of American credit market changes on its US Dollor investment portfolio, conducted prudent impairment analysis, and charged an impairment allowance of US$1.295 billion for its US Subprime ABS. In addition, to reflect the decrease in the fair value of the US Subprime ABS position, the Group charged USD 282 million reserve under the shareholders' equity by the end of 2007.

The US credit markets have further deteriorated since early 2008. BOC will keep on closely monitoring market developments, and prudently manage its investment portfolio to effectively control risk.

Mr. Xiao Gang, Chairman of BOC, said, "The country's GDP is expected to continue to grow quickly in 2008.  However, with uncertainty looming in the global economy and impacts of government austerity measures becoming more apparent, economic growth may stabilize on high and even see a moderate slow down.  The Government is expected to step up and fine-tune its economic control measures, implement stable fiscal policies and tighten monetary policy.  To make the best of both opportunities and challenges, BOC will insist on the customer-centric approach and speed up strategic transformation and overseas business expansion.  It will actively explore appropriate merger and acquisition opportunities and enhance its diverse financial services platform.  Such efforts will help boost our core competitiveness for delivering better returns to shareholders in the long run.  As the sole banking partner of the 2008 Beijing Olympics, we will abide by the principle of 'serving the Olympics' by helping to promote the Olympic Spirit and, at the same time, capitalize on the opportunities arising from the Olympics to put forward our growth strategies."

Mr. Li Lihui, Vice Chairman and President of BOC, said, "With the aim to become a first-class international bank, in the past few years, BOC has taken an aggressive yet practical approach in growing its business and laying a strong foundation for rapid development in the future. In the coming year, we will continue to consolidate our business structure and optimize allocation of credit and financial resources. We will continue to insist on quality services and innovative products, strengthen asset and liabilities management, expedite the high-yield domestic foreign currency loan business, as well as broaden non-interest income sources and increase profit derived from overseas business and our diverse financial services platform. We will also strengthen risk management and internal control, push forward human resources reforms and nurture corporate culture, as well as step up construction of infrastructure and critical IT systems and transform our network. BOC is set to pursue excellence and sustainable growth as it marches in strides to become a leading international bank."

Note: Prepared based on IFRS

About Bank of China Limited

Bank of China Limited ("BOC") is one of the four largest commercial banks in China. Headquartered in Beijing, it has over 10,000 domestic branches and sub-branches. With 689 overseas business outlets covering 28 countries and regions, and correspondent banking relationships with over 1,500 foreign banks. BOC also has the most extensive international network among commercial banks in the country. According to the Banker magazine, it ranked 9th among the "Top 1,000 World's Banks" in terms of tier 1 capital.

BOC primarily engages in commercial banking. It also provides investment banking, insurance, equity investment and fund management services through its subsidiaries, BOC International, BOCG Insurance, BOCG Investment and BOC Investment Management, thereby creating a universal financial platform that offers comprehensive integrated services to its customers. Bank of China (Hong Kong) Limited, wholly owned by BOC Hong Kong (Holdings) Limited (HKEx: 2388), BOC's subsidiary, and the Macau branch of BOC, are one of the banknote issuing banks in their respective regions. The former is the second largest commercial bank in Hong Kong, whereas the latter is the largest commercial bank in Macau.

BOC was listed on the Hong Kong Stock Exchange on 1 June 2006 (HKEx stock code: 3988) and shortly after, on the Shanghai Stock Exchange (SSE stock code: 601988) on 5 July 2006, thus making it the first commercial bank in China listed in the international and domestic capital markets. The listing in Hong Kong and China has further enhanced BOC's strengths and influence in the international and domestic markets, giving this century-old brand an added splendor.

Bank of China has received wide recognition from its peers, customers and authoritative media for the credit and performance it achieved in past years. It has been awarded "Best Bank in China" and "Best Domestic Bank in China" by Euromoney for eight times. It has been included in the Fortune Global 500 for 18 consecutive years. In addition, it was awarded "Best Domestic Bank in China" by The Asset, "Best Trade Finance Bank in China" and "Best Foreign Exchange Bank in China" by Global Finance, the "Best Trade Finance Bank in China" by TradeFinance; and the "Best Local Cash Management Bank", "Best Domestic Provider for Structured Currency Products" and "Best Domestic Provider for Structured Interest-Rate Products" by Asiamoney. It was an "Asia's Best Company — Best Management, Best Corporate Governance and Best Dividend Policy" and "Best Foreign Exchange Bank in China" according to FinanceAsia, and was on the list of the "25 Most Admired Chinese Companies" complied by the renowned U.S. financial magazine Fortune and the world famous management consultancy Hay Group.

For more details, please visit BOC's website: www.boc.cn

 
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