(A joint stock company incorporated in the People's Republic of China with limited liability) Stock Code: 1288

JOINT DEDICATION

TO BUILD

A BEAUTIFUL CHINA

2020Interim Report

Contents

Definitions

2

Basic Corporate Information and Major Financial Indicators

4

Discussion and Analysis

10

Environment and Prospects

10

Pandemic Prevention and Control

12

  Progress of Digital Transformation

13

Financial Statement Analysis

14

Business Review

32

County Area Banking Business

58

Risk Management and Internal Control

64

Capital Management

80

Changes in Share Capital and Shareholdings of Substantial Shareholders

81

Details of Preference Shares

87

Directors, Supervisors and Senior Management

90

Significant Events

91

Appendix I

Capital Adequacy Ratio Information

96

Appendix II

Liquidity Coverage Ratio Information

117

Appendix III

Net Stable Funding Ratio Information

119

Appendix IV

Leverage Ratio Information

124

Appendix V

Interim Financial Information (Unaudited)

125

Appendix VI

Unreviewed Supplementary Financial Information

258

Interim Report 2020 1

Definitions

In this report, unless the context otherwise requires, the following terms shall have the meanings set out below:

1.

A Share(s)

Ordinary shares listed domestically which are subscribed and traded in

Renminbi

2.

ABC/Agricultural Bank of

Agricultural Bank of China Limited, or Agricultural Bank of China Limited and

China/the Bank/

its subsidiaries

the Group/We

3.

CASs/PRC GAAP

The Accounting Standards for Enterprises promulgated on 15 February 2006

by the Ministry of Finance of the People's Republic of China and other related

rules and regulations subsequently issued

4.

CBIRC

China Banking and Insurance Regulatory Commission, or its predecessors,

the former China Banking Regulatory Commission and/or the former China

Insurance Regulatory Commission, where the context requires

5.

County Area(s)

The county-level regions (excluding the district-level areas in the cities) in the

People's Republic of China and the areas under their administration, including

counties and county-level cities

6.

County Area Banking Business

We provide customers in the County Areas with a broad range of financial

services through our branch outlets located in counties and county-level cities

in the People's Republic of China. We refer to such banking business as the

County Area Banking Business or Sannong Banking Business

7.

County Area Banking Division

An internal division with management mechanism adopted by us for

specialized operation of financial services provided to Sannong and the

County Areas, as required under our restructuring into a joint stock limited

liability company, which focuses on the County Area Banking Business with

independence in aspects such as governance mechanism, operational decision

making, financial accounting as well as incentive and constraint mechanism

to a certain extent

8.

CSRC

China Securities Regulatory Commission

9.

Global Systemically Important

Banks recognized as key players in the financial market with global features

Banks

as announced by the Financial Stability Board

10.

H Share(s)

Shares listed on The Stock Exchange of Hong Kong Limited and subscribed

and traded in Hong Kong Dollars, the nominal value of which are

denominated in Renminbi

2

Definitions

11.

Hong Kong Listing Rules

The Rules Governing the Listing of Securities on The Stock Exchange of Hong

Kong Limited

12.

Hong Kong Stock Exchange

The Stock Exchange of Hong Kong Limited

13.

Huijin

Central Huijin Investment Ltd.

14.

MOF

Ministry of Finance of the People's Republic of China

15.

PBOC

The People's Bank of China

16.

Sannong

Agriculture, rural areas and rural people

17.

SSF

National Council for Social Security Fund of the People's Republic of China

Interim Report 2020 3

Basic Corporate Information and Major Financial Indicators

Basic Corporate Information

Legal name in Chinese

中國農業銀行股份有限公司

Abbreviation

中國農業銀行

Legal name in English

AGRICULTURAL BANK OF CHINA LIMITED

Abbreviation

AGRICULTURAL BANK OF CHINA (ABC)

Legal representative

ZHOU Mubing

Authorized representative

ZHANG Qingsong

Contact details of Secretary

Address: No. 69, Jianguomen Nei Avenue,

to the Board of Directors

Dongcheng District, Beijing, PRC

Tel: 86-10-85109619 (Investors Relations)

Fax: 86-10-85126571

E-mail: ir@abchina.com

Selected media for information

China Securities Journal, Shanghai Securities News,

disclosure

Securities Times and Securities Daily

Website of Shanghai Stock Exchange

www.sse.com.cn

publishing the interim report

(A Shares)

Website of Hong Kong Stock Exchange

www.hkexnews.hk

publishing the interim report

(H Shares)

Location where copies of

Office of the Board of Directors of the Bank

the interim report are kept

Listing exchange of A Shares

Shanghai Stock Exchange

Stock name

農業銀行

Stock code

601288

Share registrar

China Securities Depository and Clearing Corporation Limited,

Shanghai Branch (Address: 3/F, China Insurance Building, No. 166

Lujiazui East Road, New Pudong District, Shanghai, PRC)

Listing exchange of H Shares

The Stock Exchange of Hong Kong Limited

Stock name

ABC

Stock code

1288

Share registrar

Computershare Hong Kong Investor Services Limited (Address:

Shops 1712-1716, 17th Floor, Hopewell Center, 183 Queen's Road

East, Wanchai, Hong Kong, PRC)

4

Basic Corporate Information and Major Financial Indicators

Trading exchange and platform of

The Integrated Business Platform of Shanghai Stock Exchange

  preference shares

Stock name (stock code)

農行優1 (360001) 農行優2 (360009)

Share registrar

China Securities Depository and Clearing Corporation Limited,

Shanghai Branch (Address: 3/F, China Insurance Building, No. 166

Lujiazui East Road, New Pudong District, Shanghai, PRC)

Legal advisor as to laws of

King & Wood Mallesons

  Mainland China

Address

17-18/F, East Tower, World Financial Centre, No. 1 Dongsanhuan

Zhong Road, Chaoyang District, Beijing, PRC

Legal advisor as to laws of

Fangda Partners

  Hong Kong

Address

26/F, One Exchange Square, 8 Connaught Place, Central, Hong

Kong, PRC

Domestic auditor

PricewaterhouseCoopers Zhong Tian LLP

Address

11/F, PricewaterhouseCoopers Center, Link Square 2, 202 Hu Bin

Road, Huangpu District, Shanghai, PRC

Name of the undersigned

HAN Dan, ZHANG Honglei

  accountants

International auditor

PricewaterhouseCoopers

Address

22/F, Prince's Building, Central, Hong Kong, PRC

Interim Report 2020 5

Basic Corporate Information and Major Financial Indicators

Financial Highlights

(Financial data and indicators recorded in this report are prepared in accordance with the International Financial Reporting Standards (the "IFRSs") and denominated in RMB, unless otherwise stated)

Total assets

(in millions of RMB)

Total loans and advances to customers

(in millions of RMB)

28,000,000

26,472,127

16,000,000

24,878,288

22,609,471

21,000,000

14,000,000

7,000,000

0

31 December

31 December

30 June

2018

2019

2020

Deposits from customers

14,548,269

13,360,188

11,940,685

12,000,000

8,000,000

4,000,000

0

31 December

31 December

30 June

2018

2019

2020

Net profit

(in millions of RMB)

24,000,000

17,602,056

20,363,098

18,849,155

(in millions of RMB)

160,000

122,372

18,000,000

12,000,000

6,000,000

120,000 115,976

80,000

40,000

109,190

0

31 December

31 December

30 June

2018

2019

2020

Net interest margin

(%)

2.40 2.35

2.16

2.14

1.80

1.20

0.60

0.00

Six months

Six months

Six months

ended

ended

ended

30 June 2018

30 June 2019

30 June 2020

Non-performing loan ratio

(%)

2.00

1.59

1.50

1.40

1.43

1.00

0.50

0.00

31 December

31 December

30 June

2018

2019

2020

0

Six months

Six months

Six months

ended

ended

ended

30 June 2018

30 June 2019

30 June 2020

Cost-to-income ratio

(%)

30

26.67 25.75

24.64

20

10

0

Six months

Six months

Six months

ended

ended

ended

30 June 2018

30 June 2019

30 June 2020

Allowance to non-performing loans

(%)

320

288.75

284.97

252.18

240

160

80

0

31 December

31 December

30 June

2018

2019

2020

6

Basic Corporate Information and Major Financial Indicators

Major Financial Data

30 June

31 December

31 December

2020

2019

2018

At the end of the reporting period

  (in millions of RMB)

Total assets

26,472,127

24,878,288

22,609,471

Total loans and advances to customers

14,548,269

13,360,188

11,940,685

Including: Corporate loans

7,857,841

7,095,770

6,514,383

Discounted bills

361,447

421,390

343,961

Retail loans

5,830,371

5,392,473

4,665,871

Overseas and others

461,138

419,913

389,410

Allowance for impairment losses on loans

592,005

540,578

479,143

Loans and advances to customers, net

13,956,264

12,819,610

11,461,542

Financial investments

7,847,830

7,422,930

6,885,075

Cash and balances with central banks

2,372,116

2,699,895

2,805,107

Deposits and placements with and

  loans to banks and other financial institutions

974,168

758,925

661,741

Financial assets held under resale agreements

650,799

708,551

371,001

Total liabilities

24,379,118

22,918,526

20,934,684

Deposits from customers

20,363,098

18,849,155

17,602,056

Including: Corporate deposits

7,656,859

7,196,002

6,807,956

Retail deposits

11,899,686

10,904,731

10,076,833

Overseas and others

577,119

517,440

514,244

Deposits and placements from banks and

  other financial institutions

1,629,675

1,829,272

1,449,863

Financial assets sold under repurchase agreements

31,020

53,197

157,101

Debt securities issued

1,137,927

1,108,212

780,673

Equity attributable to equity holders of the Bank

2,082,127

1,948,355

1,670,294

Net capital1

2,703,355

2,498,311

2,073,343

  Common Equity Tier 1 (CET1) capital, net1

1,788,932

1,740,584

1,583,927

  Additional Tier 1 capital, net1

284,887

199,894

79,906

  Tier 2 capital, net1

629,536

557,833

409,510

Risk-weighted assets1

16,459,381

15,485,352

13,712,894

Six months

Six months

Six months

ended 30

ended 30

ended 30

June 2020

June 2019

June 2018

Interim operating results (in millions of RMB)

Operating income

339,774

324,467

307,950

Net interest income

258,897

237,632

233,833

Net fee and commission income

52,350

50,899

43,637

Operating expenses

108,043

105,153

99,961

Credit impairment losses

99,123

73,475

66,417

Total profit before tax

132,555

145,862

141,552

Net profit

109,190

122,372

115,976

Net profit attributable to equity holders of the Bank

108,834

121,445

115,789

Net cash flows generated from operating activities

(323,946)

(10,512)

(221,452)

Interim Report 2020 7

Basic Corporate Information and Major Financial Indicators

Financial Indicators

Six months

Six months

Six months

ended 30

ended 30

ended 30

June 2020

June 2019

June 2018

Profitability (%)

Return on average total assets2

0.85*

1.05*

1.08*

Return on weighted average net assets3

11.94*

14.57*

16.72*

Net interest margin4

2.14*

2.16*

2.35*

Net interest spread5

1.98*

2.02*

2.24*

Return on risk-weighted assets1, 6

1.33*

1.66*

1.75*

Net fee and commission income to operating income

15.41

15.69

14.17

Cost-to-income ratio7

24.64

25.75

26.67

Data per share (RMB Yuan)

Basic earnings per share3

0.30

0.34

0.35

Diluted earnings per share3

0.30

0.34

0.35

Net cash flows per share generated from operating activities

(0.93)

(0.03)

(0.63)

30 June

31 December

31 December

2020

2019

2018

Asset Quality (%)

Non-performing loan ratio8

1.43

1.40

1.59

Allowance to non-performing loans9

284.97

288.75

252.18

Allowance to loan ratio10

4.08

4.06

4.02

Capital adequacy (%)

Common Equity Tier 1 (CET1) capital adequacy ratio1

10.87

11.24

11.55

Tier 1 capital adequacy ratio1

12.60

12.53

12.13

Capital adequacy ratio1

16.42

16.13

15.12

Risk-weighted assets to total assets ratio1

62.18

62.24

60.65

Total equity to total assets ratio

7.91

7.88

7.41

Data per share (RMB Yuan)

Net assets per ordinary share11

5.14

5.00

4.54

8

Basic Corporate Information and Major Financial Indicators

Notes: 1. Figures were calculated in accordance with the Capital Rules for Commercial Banks (Provisional) and other relevant regulations.

  1. Calculated by dividing net profit by the average balances of total assets at the beginning and the end of the period.
  2. Calculated in accordance with the Rules for the Compilation and Submission of Information Disclosure by Companies that Offer Securities to the Public No. 9 - Computation and Disclosure of Return on Net Assets and Earnings per Share (2010 Revision) issued by the CSRC and International Accounting Standard 33 - Earnings per share.
  3. Calculated by dividing net interest income by the average balances of interest-earning assets.
  4. Calculated as the difference between the average yield on interest-earning assets and the average cost of interest- bearing liabilities.
  5. Calculated by dividing net profit by risk-weighted assets at the end of the period. The risk-weighted assets are calculated in accordance with the relevant regulations of the CBIRC.
  6. Calculated by dividing operating and administrative expenses by operating income in accordance with CASs, which is consistent with the corresponding figures as stated in the financial report of the Bank prepared in accordance with CASs.
  7. Calculated by dividing the balance of non-performing loans (excluding accrued interest) by the balance of total loans and advances to customers (excluding accrued interest).
  8. Calculated by dividing the balance of allowance for impairment losses on loans (excluding accrued interest) by the balance of non-performing loans (excluding accrued interest), among which, the balance of allowance for impairment losses on loans (excluding accrued interest) does not include the balance of allowance for impairment losses on loans at fair value through other comprehensive income.
  9. Calculated by dividing the balance of allowance for impairment losses on loans (excluding accrued interest) by the balance of total loans and advances to customers (excluding accrued interest), among which, the balance of allowance for impairment losses on loans (excluding accrued interest) does not include the balance of allowance for impairment losses on loans at fair value through other comprehensive income.
  10. Calculated by dividing equity attributable to ordinary equity holders of the Bank (excluding other equity instruments) at the end of the reporting period by the total number of ordinary shares at the end of reporting period.
  • Annualized figures.

Other Financial Indicators

Regulatory

30 June

31 December

31 December

Standard

2020

2019

2018

Liquidity ratio1 (%)

RMB

25

55.53

57.74

55.17

Foreign Currency

25

151.98

112.07

101.77

Percentage of loans to the

  largest single customer2 (%)

10

4.14

4.68

5.53

Percentage of loans to the

  top ten customers3 (%)

12.57

13.83

15.25

Loan migration ratio4 (%)

Normal

1.18

1.54

1.72

Special mention

17.22

15.90

16.93

Substandard

22.08

47.10

61.48

Doubtful

6.56

8.82

8.91

Notes: 1. Calculated by dividing current assets by current liabilities in accordance with the relevant regulations of the CBIRC.

  1. Calculated by dividing total loans to the largest single customer (excluding accrued interest) by net capital.
  2. Calculated by dividing total loans to the top ten customers (excluding accrued interest) by net capital.
  3. Calculated in accordance with the relevant regulations of the CBIRC, reflecting domestic data only.

Interim Report 2020 9

Discussion and Analysis

Environment and Prospects

Coronavirus disease (2019) ("COVID-19") has been spreading around the world since the beginning of 2020, with over 10 million cumulative confirmed cases at the end of this June. Countries have taken prevention and control measures such as suspension of work and production and social distancing, which have seriously impacted economic performance, leaving the global economy in the most severe recession since the Second World War. Developed economies witnessed across-the-board economic declines and surging unemployment rates, while the public health and economic risks facing emerging economies were intertwined, heightening their economic fragility. To address the impact of the pandemic, major economies initiated a new round of easing monetary policies and the balance sheets of their central banks expanded significantly, with the developed economies collectively re-entering into the era of zero real-interest-rate.

COVID-19 was an unprecedented shock to China's economic and social development, but China's economy showed great resilience on its way to a steady recovery. At the beginning of this year, the COVID-19 outbreak brought the obvious decrease in total market supply and demand, as a result of which first quarter GDP decreased by 6.8% year- on-year. However, with resumption of work and production, the economic indicators clearly improved in the second quarter. As the industrial added value and the growth of fixed-asset investment turned from negative to positive, the decline in the total retail sales of consumer goods narrowed and exports grew for three consecutive months, second quarter GDP grew by 3.2% year-on-year. New industries, business forms and models emerged during this pandemic, while growth poles such as digital economy, intelligent manufacturing, and life health came into being. In addition, the rise in CPI dropped and the downward trend of PPI continued.

In the first half of 2020, the PRC government adopted more counter-cyclical adjustment policies to regulate and control the macro economy. It aimed at targeted regulation and control, focusing on ensuring stability on the six fronts (namely, employment, financial sector, foreign trade, foreign and domestic investments, and market expectations) and security in the six areas (namely, employment, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of primary-level governments), with emphasis on the synergy among policies. The fiscal policies were more proactive and effective, including increased specific debt offering size by local government, issue of Special Government Bonds for COVID-19 control, and additional cuts in taxes and fees as well as increased transfer payments. The prudent monetary policies were more flexible and moderate, involving a combination of multiple tools such as cutting the reserve requirement ratio and interest rates as well as relending, guiding interest rates downward in the loan market, and maintaining reasonable and sufficient market liquidity. In the financial sector, promotion of the reform and opening-up continued, as the revised Securities Law came into effect, the loan prime rate (LPR) was widely promoted and bond markets in the inter- bank market were interconnected with that in the stock exchanges.

10

Discussion and Analysis

Looking forward to the second half of 2020, affected by the continued spreading pandemic, the global economy will be more unstable and face more uncertain factors. According to the forecast by the International Monetary Fund in this June, the global economy is expected to shrink by 4.9% in 2020 and China is the sole large economy that is expected to record positive growth. Under regular pandemic prevention and control, China is expected to return gradually to its business-as-usual economic performance and social operation, during which the effectiveness of its macro policies will be continuously demonstrated, production and demand will constantly improve, service industries will recover, and new infrastructure investment will obviously increase. As the fiscal policies will be more proactive, the deficit will far exceed that of the corresponding period of the previous year. The monetary policies will remain flexible and moderate, being more targeted and pertinent. On the other hand, the complex and severe global pandemic and economic situation will pose more risks and challenges to China's economic development. It is expected that the hysteresis and uncertainties of the pandemic will further spill over to the banking industry. Given more benefits to the real economy and higher pressure on asset quality, the operating performance of banking industry may witness more downturn pursuance.

In the second half of 2020, we will spare no effort to provide financial services to ensure stability on the six fronts and security in the six areas, while coordinating our work to serve the real economy, manage financial risks and promote business transformation under regular pandemic prevention and control. Specifically, we will (1) surrender our share of profit from our corporate customers and relieve them of difficulties to secure the market participants. We will take multiple measures to benefit the real economy and offer more low-cost credit facilities to priority groups including Sannong customers and small and micro enterprises. We will take the initiative to tackle difficulties of our corporate customers by implementing the policy to extend the time for repayment of principal and interest, in order to secure the stability of the industrial chain and supply chain; (2) enhance financial services for the real economy with priorities. We will implement a series of policies to serve national strategies in support of new infrastructure, new urbanization and major transportation and water conservancy project construction; (3) tightly hold our risk limitation. We will control our asset quality well through strict classification, prompt reporting, and quick disposal. We will proactively make more provisions to improve our risk resistance capacities. We will further promote our "Sharp Arrow Plan" for case prevention and control and enhance anti-money laundering and sanction compliance management; and

  1. strengthen our advantages and bolster points of weaknesses. We will further develop financial services for rural vitalization to consolidate our strengths in County Area Banking Business; we will push forward digital transformation of retail banking business by financial technology and product innovation and enhance our advantages in retail banking business. We will deepen reform of branches in provincial capitals to enhance our market competitiveness in the urban areas.

Interim Report 2020 11

Discussion and Analysis

Pandemic Prevention and Control

In the first half of 2020, in the face of the COVID-19 emergency, we resolutely executed the national decisions and plans on pandemic prevention and control, balanced the pandemic prevention and control and our business operation, and assumed social responsibilities as a major bank to support the resumption of work and production as well as spring farming and preparation. All our financial businesses attained stable development.

We regarded the safety and health of our employees and customers as top priority. The pandemic prevention and control requirements were stringently complied with in our business premises and office spaces by routine disinfecting, ventilation and cleaning. Our employees should report their health conditions every day and customers and employees were required to show their health codes for verification when entering business premises. In the first half of 2020, 23 thousand branch outlets recorded zero case of cluster infections.

We introduced on a timely basis a portfolio of policies in response to the pandemic, such as specific credit policies, 31 measures to support resumption of work and production, 16 measures to sustain small and micro enterprises, 12 measures to fund spring farming and preparation as well as stable production and supply, and the guidance on helping stabilize foreign trade. A total of RMB33.6 billion of loans were granted to 1,082 key enterprises providing critical goods and services for prevention and control of the pandemic. Loans to key enterprises safeguarding stable production and supply of agricultural products increased by 40% as compared to the end of the previous year, and loans related to hog production nearly doubled as compared to the end of the previous year.

We acted with humanity by enabling individual customers to access various online financial services through digital tools without having to leave home. Some exclusive wealth management products were offered to soldiers, medical professionals, and customers in Hubei province during the pandemic. For customers who temporarily lost their income due to the pandemic, we flexibly adjusted their repayment arrangements in respect to housing mortgages and credit cards and granted reasonable repayment relief.

We demonstrated our responsibility as a major bank. We and our staff donated RMB0.18 billion to Hubei province for its fight against the pandemic. Our domestic and overseas institutions lent a helping hand with 1.469 million pieces of virus containment materials that fell short during the outbreak. We donated exclusive insurance to 0.465 million personnel who were on the front-line for pandemic prevention and control.

In the second half of 2020, we will conscientiously implement the national decisions and plans not only on pandemic prevention and control but also on economic and social development. We will continue to prevent importation of the pandemic and its rebounding in domestic areas to consolidate the performance of pandemic prevention and control. To adapt to normalization of the pandemic prevention and control, we will create less-contact or zero-contact financial services and ensure uninterrupted business operations and no declined service quality in case of repeated outbreaks. We will spare no effort to provide financial services to ensure stability on the six fronts and security in the six areas and intensify support for the real economy.

12

Discussion and Analysis

Progress of Digital Transformation

We comprehensively implemented our strategy of digital transformation according to the principles of "Internet- based, data-based, intelligent and open". We supported the fight against the pandemic and resumption of production and work as well as ensuring stability on the six fronts and security in the six areas by leveraging digital facilities. Our digital transformation has shown significant success in serving the real economy, improving efficiency of operation and management, and ensuring delivery of basic financial services without interruption.

Remarkable progress was made in expanding our customer base and increasing loans for online credit business. We launched innovative online financing products such as Yihu E-loan, Huinong E-loan • Xiangyi Loan, Fugong Loan and Xujie E-loan under the brand of ABC E-loan, to meet financing demand arising from the fight against the pandemic and resumption of production and work. At the end of June 2020, the balance of ABC E-loan was RMB999.3 billion, representing an increase of RMB410.0 billion as compared to the end of the previous year. In particular, the balances of Small and Micro E-loan and Industrial E-loan both doubled.

Our online operation capability was enhanced. We cleared the breakpoints in our operation process, through which enabled us to realize integrated operation of all online and offline channels and whole-process service coordination, providing customers with 7×24 and zero-contact financial services. We comprehensively launched the mobile banking development project and released version 5.0 of our mobile banking. At the end of June 2020, we served 78.45 million monthly active customers through mobile banking, representing an increase of 6.07 million as compared to the end of the previous year.

Our scene-based financial service capability was further strengthened. At the end of June 2020, our poverty alleviation mall covered over 98.9% of 832 key counties of national poverty alleviation and attracted 261 central and local poverty alleviation entities to join. We accelerated the expansion of financial scenes related to smart hospital, smart government affairs and smart education, and released "i Xiangyang", our first APP for smart government affairs. In the first half of 2020, we added 26.8 thousand scenes, reaching 26.05 million customers.

Our targeted digital marketing achieved notable results. We adopted the digital marketing tools including a digital customer relationship management system, "digital human" managing customers and financial shops, which contributed more than RMB3.8 trillion in accumulated sales in the first half of 2020. We also explored Internet broadcast for public welfare, short video and other new online marketing tools, and carried out 2,103 marketing activities based on Internet marketing platforms, attracting 137 million participants.

Our digital risk management and control system continued to be improved. Our intelligent anti-fraud platform was put into operation and our intelligent anti-money laundering platform was optimized and upgraded, while the building of credit limit management centre and credit risk monitoring centre were steadily promoted. Our risk management and control system covering the online and offline channels and the whole process has been gradually coalescing and improving.

Our data and technology foundations were continuously consolidated. We accelerated the development of six major middle-end platforms to facilitate data sharing. We further improved the data analysis and mining platform and service contents of data assets and continued to optimize and upgrade the digital cloud platform and the distributed core projects.

In the second half of 2020, adhering to the customer-centered and value creation-oriented philosophy, we will continue to improve ABC E-loan product system, accelerate the building of a zero-contact and open financial service system, enhance the integration of online and offline operation, and further develop the supporting and leading capabilities of data and technology, so as to offer digital financial services under regular pandemic prevention and control.

Interim Report 2020 13

Discussion and Analysis

Financial Statement Analysis

Income Statement Analysis

In the first half of 2020, we achieved a net profit of RMB109,190 million, representing a decrease of RMB13,182 million or 10.8%, as compared to the first half of the previous year.

Changes of Significant Income Statement Items

In millions of RMB, except for percentages

Six months

Six months

ended

ended

Increase/

Growth rate

Item

30 June 2020

30 June 2019

(decrease)

(%)

Net interest income

258,897

237,632

21,265

8.9

Net fee and commission income

52,350

50,899

1,451

2.9

Other non-interest income

28,527

35,936

(7,409)

-20.6

Operating income

339,774

324,467

15,307

4.7

Less: Operating expenses

108,043

105,153

2,890

2.7

Credit impairment losses

99,123

73,475

25,648

34.9

Impairment losses on other assets

51

(48)

99

-

Operating profit

132,557

145,887

(13,330)

-9.1

Share of result of associates and joint ventures

(2)

(25)

23

-

Profit before tax

132,555

145,862

(13,307)

-9.1

Less: Income tax expense

23,365

23,490

(125)

-0.5

Net profit

109,190

122,372

(13,182)

-10.8

Attributable to: Equity holders of the Bank

108,834

121,445

(12,611)

-10.4

Non-controlling interests

356

927

(571)

-61.6

Net Interest Income

Net interest income was the largest component of our operating income, accounting for 76.2% of the operating income in the first half of 2020. Our net interest income was RMB258,897 million in the first half of 2020, representing an increase of RMB21,265 million as compared to the first half of the previous year, among which, changes in volume and interest rates resulted in an increase of RMB22,709 million and a decrease of RMB1,444 million in net interest income, respectively.

In the first half of 2020, our net interest margin and net interest spread were 2.14% and 1.98%, representing decreases of two basis points and four basis points, respectively, as compared to the first half of the previous year. The year-on-year decreases in net interest margin and net interest spread were primarily due to: (1) a decrease in yields of investment and financing business affected by the downward market interest rate; and (2) a decrease in average yields of loans and advances to customers as compared to the first half of the previous year as a result of the downward LPR and the implementation of national policies on benefiting the real economy.

14

Discussion and Analysis

The table below presents the average balance, interest income/expense, and average yield/cost of interest-earning assets and interest-bearing liabilities.

In millions of RMB, except for percentages

Six months ended 30 June 2020

Six months ended 30 June 2019

Interest

Average

Interest

Average

Average

income/

yield/cost7

Average

income/

yield/cost7

Item

balance

expense

(%)

balance

expense

(%)

Assets

Loans and advances to customers

14,000,939

302,123

4.34

12,544,276

274,879

4.42

Debt securities investments1

6,572,750

116,197

3.56

6,251,227

114,046

3.68

Non-restructuring-related debt securities

6,188,559

110,711

3.60

5,867,036

108,178

3.72

Restructuring-related debt securities2

384,191

5,486

2.87

384,191

5,868

3.08

Balances with central banks

2,255,912

16,970

1.51

2,315,933

17,637

1.54

Amounts due from banks and

other financial institutions3

1,537,433

15,029

1.97

1,084,349

15,008

2.79

Total interest-earning assets

24,367,034

450,319

3.72

22,195,785

421,570

3.83

Allowance for impairment losses4

(602,895)

(510,056)

Non-interest-earning assets4

1,322,668

1,367,342

Total assets

25,086,807

23,053,071

Liabilities

Deposits from customers

18,207,059

137,981

1.52

17,535,288

138,874

1.60

Amounts due to banks and

other financial institutions5

2,172,041

25,173

2.33

1,740,555

22,844

2.65

Other interest-bearing liabilities6

1,794,228

28,268

3.17

1,267,858

22,220

3.53

Total interest-bearing liabilities

22,173,328

191,422

1.74

20,543,701

183,938

1.81

Non-interest-bearing liabilities4

1,315,108

1,024,168

Total liabilities

23,488,436

21,567,869

Net interest income

258,897

237,632

Net interest spread

1.98

2.02

Net interest margin

2.14

2.16

Notes: 1. Debt securities investments include debt securities investments at fair value through other comprehensive income and debt securities investments at amortized cost.

  1. Restructuring-relateddebt securities include the receivable from the MOF and the special government bond.
  2. Amounts due from banks and other financial institutions primarily include deposits with banks and other financial institutions, placements with and loans to banks and other financial institutions and financial assets held under resale agreements.
  3. The average balances of non-interest-earning assets, non-interest-bearing liabilities and allowance for impairment losses are the average of their respective balances at the beginning and the end of the period.
  4. Amounts due to banks and other financial institutions primarily include deposits from banks and other financial institutions, placements from banks and other financial institutions as well as financial assets sold under repurchase agreements.
  5. Other interest-bearing liabilities primarily include debt securities issued and borrowings from central banks.
  6. Annualized figures.

Interim Report 2020 15

Discussion and Analysis

The table below presents the changes in net interest income due to changes in volume and interest rate.

In millions of RMB

Increase/(decrease) due to

Net increase/

Volume

Interest rate

(decrease)

Assets

Loans and advances to customers

31,433

(4,189)

27,244

Debt securities investments

5,684

(3,533)

2,151

Balances with central banks

(452)

(215)

(667)

Amounts due from banks and other financial institutions

4,429

(4,408)

21

Changes in interest income

41,094

(12,345)

28,749

Liabilities

Deposits from customers

5,091

(5,984)

(893)

Amounts due to banks and other financial institutions

5,001

(2,672)

2,329

Other interest-bearing liabilities

8,293

(2,245)

6,048

Changes in interest expense

18,385

(10,901)

7,484

Changes in net interest income

22,709

(1,444)

21,265

Note: Changes caused by both volume and interest rate have been allocated to changes in volume.

Interest Income

We achieved interest income of RMB450,319 million in the first half of 2020, representing an increase of RMB28,749 million as compared to the first half of the previous year, which was primarily due to an increase of RMB2,171,249 million in the average balance of interest-earning assets.

Interest Income from Loans and Advances to Customers

Interest income from loans and advances to customers increased by RMB27,244 million, or 9.9%, as compared to the first half of the previous year to RMB302,123 million, which was primarily due to an increase of RMB1,456,663 million in the average balance.

Interest income from corporate loans increased by RMB11,035 million, or 7.2%, to RMB164,582 million as compared to the first half of the previous year, which was primarily due to an increase of RMB687,820 million in the average balance, partially offset by a decrease of 12 basis points in the average yield. The decrease in the average yield was primarily due to the facts that: (1) lower interest rates have been applied to new loans because of the downward LPR since the second half of 2019; (2) most existing loans completed the LPR-based pricing conversion, and interest rates of loans declined after the conversion; and (3) we implemented the national policies on benefiting the real economy by providing more favorable interest rates to customers such as small and micro enterprises.

16

Discussion and Analysis

Interest income from retail loans increased by RMB17,943 million, or 16.5%, to RMB126,852 million as compared to the first half of the previous year, which was primarily due to an increase of RMB691,575 million in the average balance and an increase of eight basis points in the average yield. The increase in the average yield was primarily due to an increase in the proportion of relatively high yield residential mortgage loans to total residential mortgage loans.

Interest income from discounted bills decreased by RMB760 million, or 13.2%, to RMB5,004 million as compared to the first half of the previous year, which was primarily due to a decrease of 74 basis points in the average yield. The decrease in the average yield was primarily due to a decrease in the interest rate in the bills discount market.

Interest income from overseas and other loans decreased by RMB974 million, or 14.6%, to RMB5,685 million as compared to the first half of the previous year, which was primarily due to a decrease of 69 basis points in the average yield.

The table below presents the average balances, interest income and average yields of loans and advances to customers by business type.

In millions of RMB, except for percentages

Six months ended 30 June 2020

Six months ended 30 June 2019

Average

Interest

Average

Average

Interest

Average

Item

balance

income

yield1 (%)

balance

income

yield1 (%)

Corporate loans

7,581,322

164,582

4.37

6,893,502

153,547

4.49

Short-term corporate loans

2,424,110

48,330

4.01

2,257,555

47,813

4.27

Medium- and long-term

  corporate loans

5,157,212

116,252

4.53

4,635,947

105,734

4.60

Discounted bills

393,644

5,004

2.56

351,971

5,764

3.30

Retail loans

5,570,644

126,852

4.58

4,879,069

108,909

4.50

Overseas and others

455,329

5,685

2.51

419,734

6,659

3.20

Total loans and advances to customers

14,000,939

302,123

4.34

12,544,276

274,879

4.42

Note: 1. Annualized figures.

Interest Income from Debt Securities Investments

Interest income from debt securities investments was the second largest component of interest income. In the first half of 2020, interest income from debt securities investments increased by RMB2,151 million to RMB116,197 million as compared to the first half of the previous year, which was primarily due to an increase of RMB321,523 million in the average balance, partially offset by a decrease of 12 basis points in the average yield. The decrease in the average yield was mainly due to the lower interest rate of the debt securities market as compared to the first half of the previous year.

Interest Income from Balances with Central Banks

Interest income from balances with central banks decreased by RMB667 million to RMB16,970 million as compared to the first half of the previous year, which was primarily due to decreases of RMB60,021 million in the average balance and three basis points in the average yield. The decrease in the average yield was primarily because the PBOC lowered the interest rate on excess reserves.

Interim Report 2020 17

Discussion and Analysis

Interest Income from Amounts Due from Banks and Other Financial Institutions

Interest income from amounts due from banks and other financial institutions increased by RMB21 million to RMB15,029 million as compared to the first half of the previous year, which was primarily due to an increase of RMB453,084 million in the average balance, partially offset by a decrease of 82 basis points in the average yield. The decrease in the average yield was primarily due to the lower interest rate in the monetary market as compared to the first half of the previous year.

Interest Expense

Interest expense increased by RMB7,484 million to RMB191,422 million as compared to the first half of the previous year, which was mainly due to an increase of RMB1,629,627 million in the average balance.

Interest Expense on Deposits from Customers

Interest expense on deposits from customers decreased by RMB893 million to RMB137,981 million as compared to the first half of the previous year, which was primarily due to a decrease of eight basis points in the average cost. The decrease in the average cost was primarily because we enhanced the pricing management of deposits and proactively reduced high-cost deposits, resulting in our interest expenses decreased effectively.

Analysis of Average Cost of Deposits by Product Type

In millions of RMB, except for percentages

Six months ended 30 June 2020

Six months ended 30 June 2019

Average

Interest

Average

Average

Interest

Average

Item

balance

expense

cost1 (%)

balance

expense

cost1 (%)

Corporate deposits

Time

2,393,103

30,618

2.57

2,391,220

32,357

2.73

Demand

4,791,153

19,853

0.83

4,653,145

18,218

0.79

Sub-Total

7,184,256

50,471

1.41

7,044,365

50,575

1.45

Retail deposits

Time

5,427,532

74,503

2.76

4,930,161

65,411

2.68

Demand

5,595,271

13,007

0.47

5,560,762

22,888

0.83

Sub-Total

11,022,803

87,510

1.60

10,490,923

88,299

1.70

Total deposits from customers

18,207,059

137,981

1.52

17,535,288

138,874

1.60

Note: 1. Annualized figures.

Interest Expense on Amounts Due to Banks and Other Financial Institutions

Interest expense on amounts due to banks and other financial institutions increased by RMB2,329 million to RMB25,173 million as compared to the first half of the previous year, which was primarily due to an increase of RMB431,486 million in the average balance, partially offset by a decrease of 32 basis points in the average cost. The decrease in the average cost was primarily due to the downward interest rate in the monetary market and an increase in proportion of the settlement deposits from banks and other financial institutions with lower cost.

18

Discussion and Analysis

Interest Expense on Other Interest-bearing Liabilities

Interest expense on other interest-bearing liabilities increased by RMB6,048 million to RMB28,268 million as compared to the first half of the previous year, which was primarily due to an increase of RMB526,370 million in the average balance, partially offset by a decrease of 36 basis points in the average cost. The increase in the average balance was mainly due to the issues of interbank certificates of deposit and conducting lending facilities with the PBOC. The decrease in the average cost was mainly due to the lower average cost of interbank certificates of deposit as compared to the first half of the previous year.

Net Fee and Commission Income

In the first half of 2020, we generated net fee and commission income of RMB52,350 million, representing an increase of RMB1,451 million, or 2.9%, as compared to the first half of the previous year. In particular, bank card fees increased by 9.5%, which was primarily due to the increase in income from installment business of credit card; consultancy and advisory fees increased by 6.9%, which was primarily due to the growth in syndicated loans business and bond underwriting; custodian and other fiduciary service fees increased by 35.2%, which was primarily due to the steady growth in custodian services by strengthening key projects marketing and synergy marketing.

Composition of Net Fee and Commission Income

In millions of RMB, except for percentages

Six months

Six months

ended

ended

Increase/

Growth

Item

30 June 2020

30 June 2019

(decrease)

rate (%)

Agency commissions

12,314

12,384

(70)

-0.6

Settlement and clearing fees

6,933

6,721

212

3.2

Bank card fees

15,643

14,289

1,354

9.5

Consultancy and advisory fees

7,966

7,453

513

6.9

Electronic banking service fees

12,498

12,870

(372)

-2.9

Custodian and other fiduciary service fees

3,043

2,250

793

35.2

Credit commitment fees

1,062

1,112

(50)

-4.5

Others

337

217

120

55.3

Fee and commission income

59,796

57,296

2,500

4.4

Less: Fee and commission expenses

7,446

6,397

1,049

16.4

Net fee and commission income

52,350

50,899

1,451

2.9

Other Non-interest Income

In the first half of 2020, other non-interest income amounted to RMB28,527 million, representing a decrease of RMB7,409 million, as compared to the first half of the previous year. In particular, net trading gain decreased by RMB4,843 million, primarily due to a decrease in net trading gain on derivative financial instruments. Net (loss)/gain on financial investments decreased by RMB4,871 million, primarily due to a decrease in gains on financial instruments at fair value through profit or loss. Other operating income increased by RMB2,305 million, which was primarily due to an increase in insurance premium income of our subsidiary.

Interim Report 2020 19

Discussion and Analysis

Composition of Other Non-interest Income

In millions of RMB

Six months

Six months

ended

ended

Item

30 June 2020

30 June 2019

Net trading gain

7,388

12,231

Net (loss)/gain on financial investments

(3,791)

1,080

Other operating income

24,930

22,625

Total

28,527

35,936

Operating Expenses

In the first half of 2020, operating expenses increased by RMB2,890 million to RMB108,043 million as compared to the first half of the previous year; cost-to-income ratio decreased by 1.11 percentage points to 24.64% as compared to the first half of the previous year.

Composition of operating expenses

In millions of RMB, except for percentages

Six months

Six months

ended 30

ended 30

Increase/

Growth

Item

June 2020

June 2019

(decrease)

rate (%)

Staff costs

57,413

58,397

(984)

-1.7

Insurance benefits and claims

20,538

18,059

2,479

13.7

General operating and

  administrative expenses

16,686

15,628

1,058

6.8

Depreciation and amortization

9,457

9,188

269

2.9

Tax and surcharges

2,695

2,753

(58)

-2.1

Others

1,254

1,128

126

11.2

Total

108,043

105,153

2,890

2.7

Credit Impairment Losses

In the first half of 2020, our credit impairment losses were RMB99,123 million. In particular, impairment losses on loans increased by RMB10,364 million to RMB81,782 million as compared to the first half of the previous year, primarily because we made the allowance for impairment losses on loans with a prudent approach after full consideration of the uncertainties in the macro environment.

20

Discussion and Analysis

Income Tax Expense

In the first half of 2020, our income tax expense decreased by RMB125 million, or 0.5%, to RMB23,365 million as compared to the first half of the previous year. The effective tax rate was 17.63%, which was lower than the statutory tax rate. This was primarily because the interest income from the PRC treasury bonds and local government bonds held by the Bank was exempted from enterprise income tax by the relevant tax laws.

Segment Information

We assessed our performance and determined the allocation of resources based on the segment reports. Segment information had been presented in the same manner with that of internal management and reporting. At present, we manage our segments from the aspects of business lines, geographical regions and the County Area Banking Business.

The table below presents our operating income by business segment during the periods indicated.

In millions of RMB, except for percentages

Six months ended

Six months ended

30 June 2020

30 June 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Corporate banking business

135,821

40.0

143,045

44.1

Retail banking business

137,536

40.5

114,608

35.3

Treasury operations

38,355

11.3

40,583

12.5

Other business

28,062

8.2

26,231

8.1

Total operating income

339,774

100.0

324,467

100.0

The table below presents our operating income by geographic segment during the periods indicated.

In millions of RMB, except for percentages

Six months ended

Six months ended

30 June 2020

30 June 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Head Office

18,819

5.5

29,479

9.1

Yangtze River Delta

63,934

18.8

59,151

18.2

Pearl River Delta

49,802

14.7

45,935

14.2

Bohai Rim

46,880

13.8

43,284

13.3

Central China

50,317

14.8

44,329

13.7

Western China

70,575

20.8

63,960

19.7

Northeastern China

11,582

3.4

10,681

3.3

Overseas and others

27,865

8.2

27,648

8.5

Total operating income

339,774

100.0

324,467

100.0

Interim Report 2020 21

Discussion and Analysis

The table below presents our operating income from the County Area Banking Business and Urban Area Banking Business during the periods indicated.

In millions of RMB, except for percentages

Six months ended

Six months ended

30 June 2020

30 June 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

County Area Banking Business

129,042

38.0

117,120

36.1

Urban Area Banking Business

210,732

62.0

207,347

63.9

Total operating income

339,774

100.0

324,467

100.0

Balance Sheet Analysis

Assets

At 30 June 2020, our total assets amounted to RMB26,472,127 million, representing an increase of RMB1,593,839 million, or 6.4%, as compared to the end of the previous year. In particular, net loans and advances to customers increased by RMB1,136,654 million, or 8.9%; financial investments increased by RMB424,900 million, or 5.7%; cash and balances with central banks decreased by RMB327,779 million, or 12.1%, which was primarily due to a decrease in excess reserves with central banks; deposits and placements with and loans to banks and other financial institutions increased by RMB215,243 million, or 28.4%, which was primarily due to an increase in cooperative deposits with banks and other financial institutions; financial assets held under resale agreements decreased by RMB57,752 million, or 8.2%, which was primarily due to a decrease in debt securities held under resale agreements.

Key Items of Assets

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Total loans and advances to customers

14,548,269

-

13,360,188

-

Less: Allowance for impairment losses on loans

592,005

-

540,578

-

Loans and advances to customers, net

13,956,264

52.7

12,819,610

51.5

Financial investments

7,847,830

29.6

7,422,930

29.8

Cash and balances with central banks

2,372,116

9.0

2,699,895

10.9

Deposits and placements with and loans to

  banks and other financial institutions

974,168

3.7

758,925

3.1

Financial assets held under resale agreements

650,799

2.5

708,551

2.8

Others

670,950

2.5

468,377

1.9

Total assets

26,472,127

100.0

24,878,288

100.0

22

Discussion and Analysis

Loans and Advances to Customers

At 30 June 2020, our total loans and advances to customers amounted to RMB14,548,269 million, representing an increase of RMB1,188,081 million, or 8.9%, as compared to the end of the previous year.

Distribution of Loans and Advances to Customers by Business Type

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Loans granted by domestic branches

14,049,659

96.8

12,909,633

96.8

Corporate loans

7,857,841

54.1

7,095,770

53.2

Discounted bills

361,447

2.5

421,390

3.2

Retail loans

5,830,371

40.2

5,392,473

40.4

Overseas and others

461,138

3.2

419,913

3.2

Sub-Total

14,510,797

100.0

13,329,546

100.0

Accrued interest

37,472

-

30,642

-

Total

14,548,269

-

13,360,188

-

Distribution of Loans and Advances to Customers by Geographic Region

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Head Office

274,739

1.9

319,025

2.4

Yangtze River Delta

3,317,924

22.9

2,996,889

22.4

Pearl River Delta

2,356,087

16.2

2,136,948

16.0

Bohai Rim

2,146,109

14.8

2,000,981

15.0

Central China

2,180,999

15.0

1,982,054

14.9

Northeastern China

537,776

3.7

503,266

3.8

Western China

3,236,025

22.3

2,970,470

22.3

Overseas and others

461,138

3.2

419,913

3.2

Sub-Total

14,510,797

100.0

13,329,546

100.0

Accrued interest

37,472

-

30,642

-

Total

14,548,269

-

13,360,188

-

Interim Report 2020 23

Discussion and Analysis

Distribution of Corporate Loans by Product Maturity

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Short-term corporate loans

2,578,620

32.8

2,203,081

31.0

Medium- and long-term corporate loans

5,279,221

67.2

4,892,689

69.0

Total

7,857,841

100.0

7,095,770

100.0

Distribution of Corporate Loans by Industry

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Manufacturing

1,325,011

16.8

1,196,978

16.9

Production and supply of power, heat, gas and water

878,486

11.2

852,697

12.0

Real estate1

756,135

9.6

693,376

9.8

Transportation, logistics and postal services

1,749,270

22.3

1,642,017

23.1

Wholesale and retail

385,538

4.9

310,828

4.4

Water, environment and public utilities management

578,970

7.4

511,348

7.2

Construction

258,724

3.3

225,010

3.2

Mining

202,380

2.6

201,044

2.8

Leasing and commercial services

1,168,924

14.9

1,037,898

14.6

Finance

267,468

3.4

191,141

2.7

Information transmission, software and IT services

35,315

0.4

27,612

0.4

Others2

251,620

3.2

205,821

2.9

Total

7,857,841

100.0

7,095,770

100.0

Notes: 1. Classification of the loans in the above table is based on the industries in which the borrowers operate. Real estate loans include real estate development loans granted to enterprises mainly engaged in the real estate industry, mortgage loans for operating properties and other non-real estate loans granted to enterprises in the real estate industry. At the end of June 2020, the balance of real estate loans to corporate customers amounted to RMB362,491 million, representing an increase of RMB15,563 million as compared to the end of the previous year.

2. Others mainly include agriculture, forestry, animal husbandry, fishery, public health, and social work.

In the first half of 2020, we formulated or revised the credit policies for 11 industries including urban underground comprehensive pipeline corridors, metal mining and dressing, photovoltaic and polysilicon. We increased credit support in areas related to upgrading old infrastructure and constructing new infrastructure, high-quality development of manufacturing industry, and people's livelihood and wellbeing. We also strengthened management on traditional industries especially those with excess production capacity, and regularly monitored the new credit granted to steel and coal industries.

24

Discussion and Analysis

At 30 June 2020, the top five major industries for our corporate loans including: (1) transportation, logistics and postal services, (2) manufacturing, (3) leasing and commercial services, (4) production and supply of power, heat, gas and water, and (5) real estate. Aggregate loan balance of the top five major industries accounted for 74.8% of our total corporate loans, representing a decrease of 1.6 percentage points as compared to the end of the previous year. In proportion to the total corporate loans, our loans to finance industry experienced the highest increase, while loans to transportation, logistics and postal services industry and production and supply of power, heat, gas and water industry experienced the largest decreases.

Distribution of Retail Loans by Product Type

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Residential mortgage loans

4,421,731

75.9

4,162,431

77.2

Personal consumption loans

180,865

3.1

168,036

3.1

Loans to private business

328,781

5.6

264,305

4.9

Credit card balances

485,416

8.3

475,001

8.8

Loans to rural households

412,953

7.1

321,968

6.0

Others

625

-

732

-

Total

5,830,371

100.0

5,392,473

100.0

At 30 June 2020, the retail loans increased by RMB437,898 million, or 8.1%, as compared to the end of the previous year. Residential mortgage loans increased by 6.2% as compared to the end of the previous year, primarily because we implemented the differentiated housing credit policies and actively supported customers to purchase their residential properties for non-investment purpose; personal consumption loans increased by 7.6% as compared to the end of the previous year, primarily due to our focus on acquiring customers through online channels and vigorous efforts to promote the project of "expansion of customers" for personal consumption loans; loans to private business increased by 24.4% as compared to the end of the previous year, primarily due to the increase in inclusive loans to support private enterprises and small and micro enterprises to resume work and production; credit card balances increased by 2.2% as compared to the end of the previous year, primarily due to the rapid increase in specific spending installment of credit card business; loans to rural households increased by 28.3% as compared to the end of the previous year, primarily due to the sustained rapid increase in Huinong E-loan.

Financial investments

At 30 June 2020, our financial investments amounted to RMB7,847,830 million, representing an increase of RMB424,900 million, or 5.7%, as compared to the end of the previous year. In particular, investments in non- restructuring-related debt securities increased by RMB380,015 million, as compared to the end of the previous year, which was primarily due to an increase in investment in local government bonds.

Interim Report 2020 25

Discussion and Analysis

Distribution of Financial Investments by Product Type

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Non-restructuring-related debt securities

6,977,394

90.2

6,597,379

90.3

Restructuring-related debt securities

384,245

5.0

384,243

5.3

Equity instruments

104,403

1.4

100,619

1.4

Others1

265,857

3.4

227,369

3.0

Sub-Total

7,731,899

100.0

7,309,610

100.0

Accrued interest

115,931

-

113,320

-

Total

7,847,830

-

7,422,930

-

Note: 1. Primarily including assets generated by investment of proceeds from issuance of wealth management products as agreed by the Bank.

Distribution of Non-restructuring-related Debt Securities Investments by Issuer

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Government bonds

3,824,529

54.8

3,531,300

53.5

Bonds issued by policy banks

1,360,786

19.5

1,388,164

21.0

Bonds issued by other banks and financial institutions

1,143,893

16.4

1,100,892

16.7

Bonds issued by entities in public sectors

246,631

3.5

216,576

3.3

Corporate bonds

401,555

5.8

360,447

5.5

Total

6,977,394

100.0

6,597,379

100.0

Distribution of Non-restructuring-related Debt Securities Investments by Remaining Maturity

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Remaining Maturity

Amount

Percentage (%)

Amount

Percentage (%)

Overdue

-

-

-

-

Less than 3 months

454,247

6.5

434,169

6.6

3-12 months

1,128,802

16.2

1,066,476

16.2

1-5 years

3,124,615

44.8

3,134,611

47.5

More than 5 years

2,269,730

32.5

1,962,123

29.7

Total

6,977,394

100.0

6,597,379

100.0

26

Discussion and Analysis

Distribution of Non-restructuring-related Debt Securities Investments by Currency

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

RMB

6,647,846

95.3

6,267,575

95.0

USD

277,237

4.0

272,831

4.1

Other foreign currencies

52,311

0.7

56,973

0.9

Total

6,977,394

100.0

6,597,379

100.0

Distribution of Financial Investments by Business Models and Characteristics of Contractual Cash Flows

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Financial assets at fair value through

  profit or loss

865,079

11.2

801,361

10.9

Debt investments at amortized cost

5,074,794

65.6

4,851,608

66.4

Other debts and other equity instruments

  investments at fair value through other

  comprehensive income

1,792,026

23.2

1,656,641

22.7

Sub-Total

7,731,899

100.0

7,309,610

100.0

Accrued interest

115,931

-

113,320

-

Total

7,847,830

-

7,422,930

-

Investment in Financial Bonds

Financial bonds refer to securities issued by policy banks, other banks and financial institutions, the principals and interests of which are to be repaid pursuant to a pre-determined schedule. At 30 June 2020, the balance of financial bonds held by the Bank was RMB2,504,679 million, including bonds of RMB1,360,786 million issued by policy banks and bonds of RMB1,143,893 million issued by other banks and financial institutions.

Interim Report 2020 27

Discussion and Analysis

The table below presents the top ten financial bonds held by the Bank in terms of face value as at 30 June 2020.

In millions of RMB, except for percentages

Annual

Bond

Face value

interest rate

Maturity date

Allowance1

2017 policy bank bond

32,375

3.85%

2027/1/6

-

2017 policy bank bond

26,880

4.39%

2027/9/8

-

2019 policy bank bond

26,314

3.28%

2024/2/11

-

2017 policy bank bond

26,182

3.83%

2024/1/6

-

2017 policy bank bond

23,524

4.11%

2027/3/20

-

2019 policy bank bond

20,015

3.74%

2029/7/12

-

2019 policy bank bond

19,895

3.86%

2029/5/20

-

2017 policy bank bond

19,308

4.13%

2022/4/21

-

2019 policy bank bond

18,757

3.75%

2029/1/25

-

2017 policy bank bond

18,258

4.30%

2024/8/21

-

Note: 1. Allowance in this table refers to allowance for impairment losses in stage II and stage III, not including allowance for impairment losses in stage I.

Liabilities

At 30 June 2020, total liabilities increased by RMB1,460,592 million, or 6.4%, as compared to the end of the previous year to RMB24,379,118 million. In particular, deposits from customers increased by RMB1,513,943 million, or 8.0%; deposits and placements from banks and other financial institutions decreased by RMB199,597 million, or 10.9%, which was primarily due to a decrease in deposits from banks and other financial institutions; financial assets sold under repurchase agreements decreased by RMB22,177 million, or 41.7%, which was primarily due to a decrease in our demand for financial assets sold under repurchase agreements; debt securities issued increased by RMB29,715 million, or 2.7%, which was primarily due to the issue of RMB40 billion of tier-2 capital bonds in the first half of 2020.

Key Items of Liabilities

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Deposits from customers

20,363,098

83.5

18,849,155

82.2

Deposits and placements from banks and

other financial institutions

1,629,675

6.7

1,829,272

8.0

Financial assets sold under

repurchase agreements

31,020

0.1

53,197

0.2

Debt securities issued

1,137,927

4.7

1,108,212

4.9

Other liabilities

1,217,398

5.0

1,078,690

4.7

Total liabilities

24,379,118

100.0

22,918,526

100.0

28

Discussion and Analysis

Deposits from Customers

At 30 June 2020, the balance of deposits from customers of the Bank increased by RMB1,513,943 million, or 8.0%, as compared to the end of the previous year to RMB20,363,098 million. In terms of customer structure, the proportion of retail deposits increased by 0.5 percentage point to 59.1% as compared to the end of the previous year. In terms of maturity structure, the proportion of demand deposits decreased by 2.5 percentage points to 54.8% as compared to the end of the previous year.

Distribution of Deposits from Customers by Business Type

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Domestic deposits

20,037,480

99.5

18,522,430

99.5

Corporate deposits

7,656,859

38.0

7,196,002

38.7

Time

2,481,401

12.3

2,231,297

12.0

Demand

5,175,458

25.7

4,964,705

26.7

Retail deposits

11,899,686

59.1

10,904,731

58.6

Time

6,037,411

30.0

5,216,113

28.0

Demand

5,862,275

29.1

5,688,618

30.6

Other deposits1

480,935

2.4

421,697

2.2

Overseas and others

96,184

0.5

95,743

0.5

Sub-Total

20,133,664

100.0

18,618,173

100.0

Accrued interest

229,434

-

230,982

-

Total

20,363,098

-

18,849,155

-

Note: 1.

Including margin deposits, remittance payables and outward remittance.

Distribution of Deposits from Customers by Remaining Maturity

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Demand

11,843,243

58.8

11,248,552

60.4

Less than 3 months

1,581,195

7.9

1,955,120

10.5

3-12 months

3,328,961

16.5

2,596,781

13.9

1-5 years

3,380,264

16.8

2,805,116

15.1

More than 5 years

1

-

12,604

0.1

Sub-Total

20,133,664

100.0

18,618,173

100.0

Accrued interest

229,434

-

230,982

-

Total

20,363,098

-

18,849,155

-

Interim Report 2020 29

Discussion and Analysis

Distribution of Deposits from Customers by Geographic Region

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Head Office

327,576

1.6

366,670

2.0

Yangtze River Delta

4,740,402

23.5

4,237,795

22.7

Pearl River Delta

2,813,710

14.0

2,590,965

13.9

Bohai Rim

3,439,679

17.1

3,193,377

17.2

Central China

3,371,000

16.7

3,122,629

16.8

Northeastern China

962,915

4.8

893,920

4.8

Western China

4,382,198

21.8

4,117,074

22.1

Overseas and others

96,184

0.5

95,743

0.5

Sub-Total

20,133,664

100.0

18,618,173

100.0

Accrued interest

229,434

-

230,982

-

Total

20,363,098

-

18,849,155

-

Shareholders' Equity

At 30 June 2020, the shareholders' equity amounted to RMB2,093,009 million, comprising ordinary shares of RMB349,983 million, other equity instruments of RMB284,878 million, capital reserve of RMB173,556 million, investment revaluation reserve of RMB34,926 million, surplus reserve of RMB175,016 million, general reserve of RMB311,825 million and retained earnings of RMB749,158 million. Net assets per ordinary share was RMB5.14, representing an increase of RMB0.14 as compared to the end of the previous year.

Composition of Shareholders' Equity

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Ordinary shares

349,983

16.7

349,983

17.9

Other equity instruments

284,878

13.6

199,886

10.2

Capital reserve

173,556

8.3

173,556

8.9

Investment revaluation reserve

34,926

1.7

29,684

1.5

Surplus reserve

175,016

8.4

174,910

8.9

General reserve

311,825

14.9

277,016

14.1

Retained earnings

749,158

35.8

741,101

37.8

Foreign currency translation reserve

2,785

0.1

2,219

0.1

Non-controlling interests

10,882

0.5

11,407

0.6

Total

2,093,009

100.0

1,959,762

100.0

30

Discussion and Analysis

Off-balance Sheet Items

The off-balance sheet items primarily include derivative financial instruments, contingent liabilities and commitments. The Bank enters into derivative transactions related to exchange rates, interest rates and precious metals for the purposes of trading, assets and liabilities management and business on behalf of customers. The Bank's contingent liabilities and commitments include credit commitments, capital expenditure commitments, operating and finance lease commitments, bond underwriting and redemption commitments, mortgaged and pledged assets, legal proceedings and other contingencies. Credit commitments are the major components of the off-balance sheet items and comprise loan commitments, bank acceptances, guarantees and letters of guarantee, letters of credit and credit card commitments.

Composition of Credit Commitments

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Loan commitments

1,188,499

42.9

1,056,796

43.8

Bank acceptances

505,320

18.2

339,829

14.1

Guarantees and letters of guarantee

225,092

8.1

216,229

9.0

Letters of credit

171,533

6.2

151,040

6.3

Credit card commitments

682,896

24.6

646,134

26.8

Total

2,773,340

100.0

2,410,028

100.0

Other Financial Information

Changes in Accounting Policies

There were no significant changes in accounting policies during the reporting period.

Differences between the Consolidated Financial Statements prepared under IFRSs and those prepared under CASs

There were no differences between the net profit or shareholders' equity in the Consolidated Interim Financial Statements of the Bank prepared under IFRSs and the corresponding figures prepared in accordance with CASs.

Interim Report 2020 31

Discussion and Analysis

Business Review

Corporate Banking

During the reporting period, we actively provided services to support major national strategies and key areas of the real economy, fostered new growth drivers through promoting digital transformation, established a new integrated service model, tackled tough projects, improved new and targeted safeguard mechanisms, and enhanced comprehensive risk management capabilities, so as to promote the high-quality development of our corporate banking business. At the end of June 2020, the balance of domestic corporate deposits amounted to RMB7,656,859 million, representing an increase of RMB460,857 million as compared to the end of the previous year. The balance of domestic corporate loans and discounted bills amounted to RMB8,219,288 million in total, representing an increase of RMB702,128 million as compared to the end of the previous year. 14,743 projects were included in our major marketing projects pool, up by 897 projects as compared to the end of the previous year, and the loans extended amounted to RMB282,919 million. At the end of June 2020, we had 6.3781 million corporate banking customers, representing an increase of 380.3 thousand customers as compared to the end of the previous year, of which

305.6 thousand customers had outstanding loan balances, representing an increase of 92.6 thousand customers as compared to the end of the previous year.

We provided services to support major national strategies, such as the Belt and Road Initiative, the Coordinated Development of Beijing-Tianjin-Hebei Region, the development of the Yangtze River Economic Belt, the construction of the Guangdong-HongKong-Macao Greater Bay Area, the development of Yangtze River Delta Integration and the ecological protection and high-quality development of the Yellow River Basin, with an increase of RMB672.2 billion in loans in the first half of the year. We continued to provide financial services to support the new horizons of reform and opening-up by formulating dedicated service plans for Xiongan New Area, Shenzhen pilot demonstration area and Shanghai free trade zone.

We provided services to support key areas of the real economy. We made full use of the specific relending provided by the PBOC. A total of RMB33,564 million was extended to 1,082 customers on the national list of key enterprises for pandemic prevention and control in the first half of the year. The number of customers with outstanding loan balances and the balance of loans in manufacturing industry (based on the use of loans) increased by 47.7 thousand and RMB143,620 million as compared to the end of the previous year, respectively. We strengthened financial services for unicorns and science and technology startups to support the new economy and the new drivers for economic growth. The balance of loans for strategic emerging industries and growing modern service industries amounted to RMB1,182,597 million, representing an increase of RMB107,861 million as compared to the end of the previous year.

We supported the development of private enterprises. We supported the pandemic prevention and control and resumption of work and production of private enterprises by introducing supportive policies, increasing credit and innovating financial services. At the end of June 2020, private enterprises with outstanding loan balances reached 284.4 thousand, representing an increase of 89.3 thousand customers as compared to the end of the previous year. The balance of loans was RMB1,935,312 million, representing an increase of RMB308,760 million as compared to the end of the previous year.

32

Discussion and Analysis

We promoted digital transformation. We accelerated to promote a middle-end marketing platform for corporate banking (CMM system), conducted targeted marketing by applying Big Data, obtained customers and improved activeness of customers through multi-channels and enhanced sophisticated management of customers. We innovated zero-contact and open online financial service model to increase online scene-based financial marketing. In the first half of the year, our number of active customers for corporate Internet banking and corporate mobile banking increased by 441.7 thousand and 435.4 thousand, respectively. We increased 149 new online supply chains, facilitating transactions with 2,167 financing customers in the upstream and downstream of supply chains.

Institutional Banking

In the first half of the year, we focused on marketing for institutional customers and institutional accounts and accelerated digital transformation of institutional banking business. At the end of June 2020, we had 479.5 thousand institutional customers and 656.1 thousand institutional accounts, respectively, representing an increase of 7.3% and 6.5%, respectively, as compared to the end of the previous year.

In terms of financial services to the government, we continued to build the brand of "smart government affairs". At the end of June 2020, we cooperated with 30 provincial-level service platforms for government affairs, with a coverage rate of 94%. We worked with the Xiangyang Municipal Government of Hubei Province to create an "i Xiangyang" APP.

In terms of financial services with respect to people's livelihood, we continued to build the brand of banking hospital and banking campus. We had 378 university customers and 31 thousand basic education (K12) customers launching our smart campus, and 932 medical institution customers launching our smart hospital.

In terms of services to financial institutions, at the end of June 2020, the contracted customers for third-party depository services amounted to 46.1568 million, representing an increase of 2.6877 million as compared to the end of the previous year.

Transaction Banking

In the first half of the year, we continued to promote digital transformation of transaction banking business, and optimized comprehensive service solutions featuring "Internet + Transaction + Financing" to promote the high-quality development of our transaction banking business.

We continued to increase number of corporate accounts and raising their quality and broadened the channels for opening "digital accounts" for corporate customers. The number of our corporate accounts grew steadily, with our corporate RMB-denominated settlement accounts reaching 8.07 million at the end of June 2020.

We accelerated digital transformation of our transaction banking business. We started the construction of a "Smart Payment+" platform. We fully guaranteed the resumption of work and production of enterprises, the stable employment of migrant rural workers and the online supervision requirements of the governments through integrating smart fund supervision and the "Gongxin Bao" product. We helped platform customers to conduct fund transactions smoothly with products such as online account opening, guaranteed payment and online financing. At the end of June 2020, we had 2.95 million active customers in our transaction banking business.

Interim Report 2020 33

Discussion and Analysis

Investment Banking

Actively implementing the national requirements of ensuring stability on the six fronts and security in the six areas, we supported the pandemic prevention and control and served the development of the real economy, and continued to improve the service solutions featuring "financing + talents". In the first half of the year, we achieved an income of RMB6,999 million from our investment banking business, representing an increase of 11.3% as compared to the first half of the previous year.

We increased support for direct financing. In the first half of the year, we underwrote non-financial corporate debt financing instruments at an amount of RMB271,280 million, up by 47.0% as compared to the first half of the previous year. We actively expanded the securitization of assets in the fields of auto loans and accounts receivable. The underwriting of asset securitization business amounted to over RMB30.0 billion, ensuring smooth financing channels for market entities.

We continued to promote business innovation. As a lead underwriter of the first asset-backed commercial paper (ABCP) in the inter-bank market, we developed a new model of short-term financing for enterprises. We underwrote the first debt for pandemic prevention and control under private company debt financing instrument and the first agricultural trade and wholesale market debt for pandemic prevention and control. More than RMB30.0 billion was raised by debts and debt financing plans for pandemic prevention and control. We were the first bank to be approved to carry out the business of trustee for non-financial corporate debt financing instruments.

Our market influence continued to expand. We were awarded "Innovation Demonstration Award" by Beijing Financial Assets Exchange and "Excellent ABS Originator" by China Central Depository & Clearing Co., Ltd.

Retail Banking

In the first half of the year, aiming at providing safe, convenient and efficient customer service, we promoted digital transformation of our retail banking business driven by FinTech and business innovation, to accelerate development of the Bank into a preferred smart retail bank for customers. At the end of June 2020, the total number of our retail customers amounted to 847 million, representing an increase of 9.28 million as compared to the end of the previous year. The balance of domestic retail deposits and retail loans reached RMB11,899,686 million and RMB5,830,371 million, respectively, representing an increase of RMB994,955 million and RMB437,898 million as compared to the end of the previous year, respectively.

We comprehensively promoted digital transformation of our retail banking business. We deepened the philosophy of digital operation, upgraded digital tools, innovated digital marketing models and extended the application of digital scenes, to comprehensively improve customer experience. With "smart brain of retail business", we served 0.62 billion customers through direct marketing by "digital human", with the sales amounting to RMB2.17 trillion. The total sales through the digital customer relationship management system amounted to RMB1.64 trillion, with the average daily sales 2.96 times of that of the previous year.

We carried out "Heart Warming Initiative" to provide zero-distance service. We promoted a warm employment platform to support the resumption of work and production, with 1,049 enrolled enterprises, and over 13 thousand registered job seekers. We launched exclusive wealth management products for fighting the pandemic to be provided to military personnel, medical personnel and customers in Hubei Province.

34

Discussion and Analysis

We enhanced the synergy between our corporate and retail businesses. We developed source businesses such as social security insurance, public finance, housing fund and public utility payment, and launched exclusive financial shops for corporate customers, whereby we promoted our retail banking businesses related to enterprises and governmental departments. We strengthened specific marketing in social security and medical insurance, obtaining our leading position in the number of electronic social security cards issued.

We improved the cross-border financial services. We built a financial service center for studying abroad and continuously enriched foreign currency products and services. We launched featured products such as ABC QuickTransfer, Yinliduo, and Cross-border Wealth Management Connect.

We continued to construct the open banking and expand financial scenes. To timely address our customers' needs during the pandemic, we rolled out some scene-based services on our mobile banking and WeChat banking, such as online medical visits, community management, agricultural products sales, online shopping, and viewing houses. Among these services, "Warm Community", a WeChat mini-program, was on the list of IT products (services) for communities' COVID-19 prevention and control recommended by the Ministry of Civil Affairs. In addition, we launched retail products through third-party channels, such as accounts, payments, deposits, wealth management, credit facilities and consumption loan instalments, to integrate our financial services with more financial scenes.

Retail Loans

We actively implemented national control policies for the real estate industry to support the rational demand of residents to buy their houses for non-investment purpose. Our retail residential mortgage business achieved steady growth. At the end of June 2020, the balance of the residential mortgage loans amounted to RMB4,421,731 million, representing an increase of RMB259,300 million as compared to the end of the previous year.

We adhered to digital transformation, accelerated innovation in procedure and product, and actively carried out specific marketing for quality employees of group customers, maintaining our leading position in the personal consumption loan market.

We actively implemented the national requirements of ensuring stability on the six fronts and security in the six areas, supported individual industrial and commercial households and small and micro enterprises to resume work and production, vigorously promoted unsecured and medium- and long-term loans, and continued to reduce financing cost of individual and private as well as small and micro enterprises. Loans to private business increased by RMB64,476 million as compared to the end of the previous year.

Interim Report 2020 35

Discussion and Analysis

Bank Card Business

We enhanced transaction activeness and brand influence of the Jinsui debit card. We issued 3,655 thousand rural vitalization theme cards to agricultural economic entities in County Areas including rural people, large- scale professional operators, and heads of agricultural cooperatives. We also actively promoted the debit card businesses, such as mobile payment, and small payment not requiring password. At the end of June 2020, we cumulatively issued 1,077 million debit cards, representing an increase of 18 million as compared to the end of the previous year; the transaction volume was RMB11,620.308 billion in the first half of 2020.

We accelerated digital transformation of credit card business. We promoted convenient self-services of credit card, such as online repayment, online instalments, bill inquiry, online shopping, and online card application. We launched co-branded cards such as Fan Deng Reading Card and NetEase Cloud Music Card. By upgrading the model of issuing card which combined virtual card and physical card, we created a new experience of using digital cards. We promoted the targeted marketing and automated approval of "Lefenyi" online credit product, and promoted the instalment business for home decoration through carrying out online themed activity of "ABC Home Decoration". At the end of June 2020, we cumulatively issued 125 million credit cards, with the transaction volume of RMB894.323 billion in the first half of the year.

Private Banking Business

At the end of June 2020, the number of our private banking customers reached 136 thousand and the balance of assets under management amounted to RMB1,629.6 billion, representing an increase of 13 thousand and RMB225.6 billion as compared to the end of the previous year, respectively.

By building an integrated service platform of wealth and wisdom for private banking customers, we enhanced the synergy between corporate and retail businesses and improved our capability for asset allocation services.

We continued to enrich our private banking products and services. The existing scale of products exclusive for private banking customers amounted to RMB381.94 billion, representing an increase of RMB61.41 billion as compared to the end of the previous year. We innovated service and operation model of family trust business, actively promoted the business related to release of shares subject to restrictions on sales, and strengthened value-added services related to health, travel, and legal and taxation consulting. We introduced 10 service measures for fighting the pandemic to promptly respond to the differentiated needs of private banking customers and provide them with warm-hearted services.

36

Discussion and Analysis

Treasury Operations

The treasury operations of the Bank include money market activities and investment portfolio management. We adhered to the development directions of serving the real economy and the transformation of the economy, and flexibly adjusted investment strategies on the basis of ensuring the security of bank-wide liquidity. Our investment return on assets remained at a relatively high level among the peers.

Money Market Activities

We reinforced research on monetary policies and forecast of market liquidity, used various financial instruments and reasonably allocated maturity funds to improve efficiency of fund utilization on the basis of ensuring the security of our liquidity.

In the first half of the year, our RMB-denominated financing transactions amounted to RMB46,203,888 million, including RMB45,684,969 million in lending and RMB518,919 million in borrowing.

Investment Portfolio Management

At 30 June 2020, our financial investment amounted to RMB7,847,830 million, representing an increase of RMB424,900 million or 5.7% as compared to the end of the previous year.

Trading Book Activities

We maintained leading positions among the peers in respect of both the bond market-making business and the bond trading business in the inter-bank market.

In the first half of the year, as the yield of the domestic bond market fluctuated significantly, we carried out dynamic adjustment on the positions of portfolio in the trading book following the market trend and increased the liquidity of credit bond trading market.

Banking Book Activities

We strengthened market research and forecast, reasonably seized the investment opportunities and dynamically adjusted the structures of portfolios considering the bond supply. As a result, we achieved higher portfolio returns.

We actively invested in Special Government Bonds for COVID-19 control. We also increased investment in bonds related to transportation, energy, power and other fields to support national key areas and the construction of major projects.

Interim Report 2020 37

Discussion and Analysis

Asset Management

Wealth Management

In the first half of 2020, pursuant to the new regulatory requirements for asset management, including the Guiding Opinions regarding Asset Management Business of Financial Institutions, we continued to improve our capabilities of investment as well as research and development, further optimized asset allocation, strengthened investor education, stabilized long-term capital, and innovated more net-worth products, so as to promote the stable transformation of our wealth management business.

At 30 June 2020, the balance of our outstanding wealth management products (excluding structured deposits) amounted to RMB1,795.739 billion, among which the net-worth ones, principal guaranteed ones with expected return, non-principal guaranteed ones with expected return were RMB681.952 billion, RMB276.974 billion and RMB836.813 billion, respectively, with their proportion of 37.98%, 15.42% and 46.60%, respectively.

Custody Service

In the first half of the year, we improved our capabilities of innovation and service, and seized market opportunities to promote the high-quality development of our custody service. We ranked first among the four large commercial banks in terms of increment and growth of income as well as the increase in market share. We won the "Best Sub-Custodian Bank in China" award granted by the Global Finance magazine of the United States for three consecutive years.

We refined the intelligent custody platform by promoting the construction of intelligent custody functions such as risk warning, performance evaluation, intelligent statement and data middle platform.

In the first half of the year, the first batch of funds investing in stocks listed on Science and Technology Innovation Board in the industry and the first batch of regular open fund investing in stocks listed on ChiNext Board in the industry of public offering funds were managed under our custody. We were the first to carry out multi-level custody of wealth management products among the four large commercial banks.

At the end of June 2020, our assets under custody amounted to RMB10,327,256 million, representing an increase of 4.5% as compared to the end of the previous year. The commission income from custody service and other fiduciary services amounted to RMB3,043 million, representing an increase of 35.2% as compared to the first half of the previous year.

38

Discussion and Analysis

Pension

We actively served the national strategy of coping with aging population and promoted development of our pension business. We achieved stable operation of our pension business and steady appreciation of pension assets under entrusted management through promoting online services and strengthening investment supervision and management.

At the end of June 2020, our pension funds under entrusted management1 amounted to RMB81,413 million, representing an increase of 23.8% as compared to the end of the previous year. The pension funds under custody amounted to RMB734.81 billion, representing an increase of 13.9% as compared to the end of the previous year. The number of personal accounts of enterprise annuity was 149.6 thousand, representing an increase of 17.4% as compared to the end of the previous year.

Precious Metals

In the first half of the year, we traded 2,613.25 tons of gold and 51,575.27 tons of silver for our own account as well as on behalf of customers, both maintaining the leading positions in the industry in terms of market share.

We optimized the functions of the system for account-based precious metal business and enhanced customer eligibility management to improve our service and risk prevention capabilities.

We steadily developed the precious metal leasing and lending business to support precious metal enterprises to resume work and production.

Treasury Transactions on Behalf of Customers

We optimized our customer structure to promote steady development of our foreign exchange transaction business on behalf of customers. In the first half of the year, the transaction volume of foreign exchange sales and settlements as well as foreign exchange trading on behalf of customers amounted to USD162,536 million.

In the first half of the year, our spot transaction volume via "Bond Connect" was over RMB250 billion, serving more than 300 customers. The market shares of Zhaishibao, one of the counter bond businesses, both in the primary market and in the secondary market were more than 50%, maintaining first in both of the markets.

We won 10 awards including the "Best Comprehensive Market Maker" and the "Best Spot Market Maker" granted by China Foreign Exchange Trade System for 2019, and the "Excellent Market Maker via Bond Connect" for 2020 granted by Bond Connect Company Limited.

1 Including occupational annuity, enterprise annuity and other pension assets under entrusted management.

Interim Report 2020 39

Discussion and Analysis

Agency Insurance Business

We accelerated the development of online agency insurance business, with online business accounting for more than 90%, of which the proportion of the business through mobile banking increased by 27.4 percentage points.

We achieved a significant increase in premiums of health insurance agency by actively seizing the development opportunities of health insurance due to the pandemic.

In the first half of the year, the commission income from the agency of insurance amounted to RMB5,104 million, maintaining the top among the four large commercial banks.

Agency Distribution of Fund Products

We strengthened the comprehensive cooperation with outstanding fund companies to accelerate the development of our agency distribution of fund business. At the end of June 2020, the number of funds distributed by the Bank accumulatively amounted to 1,851. In the first half of 2020, agency distribution of funds amounted to RMB148,545 million, and income from agency distribution of funds increased by 80% to RMB1,188 million as compared to the first half of the previous year.

We applied digital tools such as marketing APP and digital customer relationship management system (DCRM) to market the "Selective Fund". The investment return of the "Selective Fund" was excellent and its brand influence continued to increase.

Internet Finance

During the reporting period, with our sustained efforts on online business innovation, expanding financial scenes, marketing and promotion, we steadily accelerated digital transformation. Capitalising on our strength in online business, we established a channel to accept donation for Hubei Province to support the pandemic prevention and control. During the pandemic, over RMB700 million from all sectors of society was donated via online channel to the charitable organisations of Hubei Province.

Smart Mobile Banking

We released our mobile banking app (version 5.0) to optimize customer experience. Aiming to increase the activeness of mobile banking customers, we continued to bolster the mobile banking as the main channel of our online operations.

Services were launched to support the fight against the pandemic. Our online renewal of contract service relating to Internet Quick Loan and Business Supporting Loan was provided to help small and micro enterprises to renew their loans online and enabled online application for ABC Huinong E-loan. A module ABC Anti-pandemic Services was created to offer pandemic-related information, exclusive wealth management, anti-pandemic insurances and other products and services.

40

Discussion and Analysis

Customer experience was optimized. We renewed wealth management modules and launched specific online wealth management products. We introduced a special column for foreign exchange services, which integrated eight foreign exchange services and released foreign exchange information. Regarding transfer and payment services, we launched the scheduled transfer service, upgraded the transfer service via mobile phone number, and increased the medium-free transfer limit to RMB200,000 to improve customer experience. Regarding account services, we realized one-touch switch between account profiles and asset/liability profiles, which offered a data-centred presentation of the wealth management information of customers and enabled customers to download transaction details for recent five years.

For the number of personal mobile banking customers and the transaction volume, please refer to "Distribution Channels - Online Channels - Mobile Banking".

Online Corporate Service Platform

Targeting at providing one-stop and steward-type services, we built an integrated online corporate banking service platform to continuously consolidate the foundation for the development of our corporate banking service.

The construction of the corporate banking service platform was accelerated. We optimized the procedures for opening corporate account by introducing authentication for legal representative and video contracting. We launched the Internet banking for China (Guangdong) Pilot Free Trade Zone and the Cross-borderE-Remittance, a product for local and foreign currency remittance.

The synergy between the corporate and retail businesses was enhanced. We developed and promoted the Corporate Red Envelopes, the Inter-bank Electronic Payroll Account and other products, whereby we obtained retail customers and improved customers' activeness driven by our corporate customers.

For the numbers of customers of the corporate financial service platform and the corporate mobile banking as well as the transaction volumes, please refer to "Distribution Channels - Online Channels".

Open banking platform

We accelerated the construction and application of the open banking platform to enhance the capability of obtaining customers and improving their activeness.

We improved the services and management for our partners. We increased the functions of cancellation, suspension, and recovery of partnerships.

We enhanced our service output capabilities. We completed the standardized upgrade and release of APIs for various products, including Quick E Bao (monetary funds), digital wallet, appointment for private banking customer services, account opening appointment for enterprises and payment.

We refined our basic services and improved customer experience. We optimized user authentication, online account opening, information enquiry and other service processes.

Interim Report 2020 41

Discussion and Analysis

Online Credit

We coordinated the innovation and development of online credit business focusing on business lines of retail banking, small and micro enterprises, Sannong as well as the supply chain financing sectors.

We promoted the brand of ABC E-loan. During the pandemic, through third-party channels such as WeChat, we promoted the four major sub-brands under ABC E-loan, including ABC Personal E-loan, ABC Small and Micro Enterprise E-loan, ABC Huinong E-loan and ABC Industrial E-loan, so as to guide customers to handle loans online.

At the end of June 2020, the balance of our online credit reached RMB999.3 billion, representing an increase of RMB410.0 billion as compared to the end of the previous year.

Scene-based Finance

We created a smart city solution. Our solution is to build a smart city focusing on smart government affairs and smart industries. Regarding smart government affairs, we developed and launched the "i Xiangyang" APP in cooperation with the government of Xiangyang Municipality in Hubei Province. It is the first mobile application for smart government affairs in the industry, featuring convenience for citizens, benefits for enterprises and rural people, and streamlined government administration. In the first half of 2020, we collaborated with 30 provincial- level government platforms and realized cooperation with 80 prefecture-level governments in government affairs. Regarding smart industries, we continued to work out a series of industrial solutions for bills payment, smart campus, smart hospital, smart community, smart travel, smart Party Construction and smart canteen, shaping a business development landscape of government customers (or G end) driving corporate customers (or B end) and corporate customers (or B end) driving individual customers (or C end).

We accelerated to lay out the financial scenes related to Sannong. We improved customer experience for the poverty alleviation mall. We promoted the cooperative construction of the poverty alleviation mall to provide central and local entities for poverty alleviation with solutions, which covered five services as tailored zones for poverty alleviation, sales support, promotion of direct purchase, precise data analysis and professional operation services. Our poverty alleviation mall covered over 90% of the 832 key counties of national poverty alleviation, building a bridge between the poor areas and caring consumers from all sectors of the society to effectively promote poverty alleviation through consumption.

Inclusive Finance

During the reporting period, we actively promoted digital transformation of our inclusive finance business and adhered to a strict approach to risk limitation, so as to promote its steady development. At the end of June 2020, the balance of our inclusive loans to small and micro enterprises reached RMB866.142 billion, representing an increase of RMB273.835 billion, or 46.2%, as compared to the end of the previous year, which was 37.3 percentage points higher than the growth rate of the Bank. The number of customers with outstanding loan balance was 1,503.4 thousand, representing an increase of 394.3 thousand as compared to the end of the previous year. The balance of non-performing inclusive loans to small and micro enterprises was RMB7,210 million and the non-performing loan ratio was 0.83%, both recording a drop. The annualized average yield of cumulative loans granted was 4.26%, representing a decrease of 41 BP as compared to the same period of the previous year. We fulfilled the requirements

42

Discussion and Analysis

of the CBIRC for "two increases and two controls". The inclusive loans in compliance with the requirement of the PBOC for lowering depository reserve ratio increased by RMB375,541 million as compared to the end of the previous year, accounting for 37.43% of new loans in RMB of the Bank, which continued to meet the requirement of the second level for deduction of depository reserve ratio stipulated by the PBOC.

We continued to optimize our inclusive finance service system supported by "Sannong + Small and Micro Enterprises" with our own features. We established a two-level specialised institution system for inclusive finance with 1,000 head office-level and 900 branch-level specialized institutions to improve the inclusive finance service capabilities of our branch outlets comprehensively.

We improved the online products of inclusive finance business. We accelerated the research and development of online products in the fields of first loan, renewal of loan, unsecured loan and medium- and long-term loans. We continued to improve our product innovation mechanism by category and by establishment level.

We continued to establish the digital marketing system for inclusive finance. A service platform for small and micro customers and an operation and management platform for small and micro businesses were launched to support comprehensive service and marketing as well as operation and management for inclusive finance business.

We built a differentiated credit policy system. We formulated administrative measures on credit business for small and micro enterprises to build a credit policy system for online and offline businesses with them. We introduced a series of targeted policy measures to support the resumption of work and production of small and micro enterprises.

We improved a digital risk control system for inclusive finance business. We launched a risk identification system on small and micro enterprise customers' behaviour, enriched our risk warning indicators, and further improved the intelligent risk control system. To strengthen post-disbursement management of our online businesses, we established a new post-disbursement management model for online small and micro businesses with dual management featuring "model + customer" and overall coordination of "online + offline" businesses.

Green Finance

Green Credit

During the reporting period, we proactively practiced the philosophy of green development. Serving the national deployment to construct ecological civilization and prevent and control pollution, we regarded green credit as the thrust for fulfilling our social responsibility, serving the real economy and adjusting our credit structure. We strengthened policy guidance for green credit, increased support for our green credit business, and propel the environmental and social risk management, so that our green credit business developed steadily. At the end of June 2020, the balance of loans in green credit business reached RMB1,304 billion, up by 9.5% as compared to the end of the previous year, 0.6 percentage point higher than the average growth of loans of the Bank.

Our policy guidance was highlighted. We formulated the annual credit policy guidelines to navigate credit funds into green projects such as ecological conservation and restoration, and afforestation, as well as six major green industries, i.e. energy conservation and environmental protection, clean production, clean energy, ecological

Interim Report 2020 43

Discussion and Analysis

environment, green upgrade of infrastructure, and green services. We incorporated five green credit indicators, including efficiency, effectiveness, environmental protection, resource consumption, and social management into our industrial credit policies.

Our environmental and social risk management was enhanced. We carried out differentiated management on customers in accordance with their environmental and social risk profiles. We applied requirements for environmental and social risk management into every procedure of credit business, including customer rating, classification, due diligence, review, approval, credit management and post-disbursement management. To customers with environmental and social risk, we shall not approve the access of new ones and cut the credit exposures of existing ones.

Our basics of management were reinforced. We held bank-wide online trainings on green credit business, optimized the statistical function of the credit system, and improved the data quality management of green credit effectively.

Green Investment Banking

We engrained the green concept into all types of investment banking products and services, aiming at developing ourselves into a leading bank in green investment banking business.

In the first half of 2020, we helped enterprises raise more than RMB64 billion through green syndicated loans, green M&A loans, green bonds, green asset-backed notes and other means. The proceeds were invested in sectors such as environmental governance, clean energy, and transportation.

We invested RMB8 billion in the National Green Development Fund to facilitate the transformation and upgrade of the green industry.

We were awarded the Best Green Bond Bank by the Asiamoney magazine and Excellent Underwriter of ChinaBond Green Bond Index Sample Bonds by China Central Depository & Clearing Co., Ltd.

Green Investment and Financing

We invested in various green bond projects related to energy, transportation infrastructure, etc. At the end of June 2020, the invested green bonds for our own account denominated in RMB and foreign currencies reached RMB29.240 billion and USD505 million, respectively.

We issued ESG-themed wealth management products, which were featured brands in the product spectrum of Agricultural Bank of China Wealth Management Co., Ltd. The proceeds were prioritized to be invested in enterprises with good ESG performance and green and environmental protection industries, such as clean energy, energy conservation and environmental protection, and ecological protection. They were also invested in areas such as poverty alleviation, rural vitalization, small and micro enterprises, the Belt and Road Initiative, relief measures for private enterprises and high-quality development. In the first half of 2020, we issued four wealth management products under ABC Anxin - Yearly Interval Open-end(ESG-themed), raising a total of RMB4.63 billion.

44

Discussion and Analysis

Cross-border Financial Service

We fully implemented the national policy of stabilizing foreign trade and foreign investment, supported foreign trade transformation and upgrading and foreign investment, and kept enhancing our comprehensive cross-border financial service system, which contributed to stable development of our cross-border business. At the end of June 2020, the total assets of our overseas branches and subsidiaries reached USD142.33 billion, and the net profit for the first half of 2020 was USD170 million.

We continued to improve our cross-border financial products and service system. We accelerated product innovation and digital transformation, that we successfully put "ABC Cross-borderE-Remittance" into operation and launched functions such as foreign exchange account opening appointments and remote video witness on "e-Account Opening". We continued to optimize service process and implemented integrated operation of local and foreign currency businesses to enhance our cross-border financial service.

The international settlement and trade financing business maintained steady growth. In the first half of 2020, the volume of the international settlement1 conducted by our domestic branches reached USD547.4 billion, representing an increase of 7.3% as compared to the same period of the previous year. The volume of international trade financing (including financing with domestic letter of credit) reached USD79.099 billion, representing an increase of 32.2% as compared to the same period of the previous year.

We supported the Belt and Road Initiative and Going Global of enterprises. Actively serving Going Global customers and key projects, we supported Chinese enterprises to contract international projects and export equipment. In the first half of 2020, our business related to Going Global business amounted to USD18.75 billion, including USD440 million of business related to the Belt and Road Initiative.

The cross-border RMB business achieved rapid development, with a total volume of RMB886.56 billion in the first half of 2020, representing an increase of 41.9% as compared to the same period of the previous year. Actively playing its role as a RMB clearing bank, Dubai Branch handled RMB34,964 million of RMB clearing business in the first half of 2020, representing an increase of 20.4% as compared to the same period of the previous year.

Integrated Operation

We continued to promote implementation of our integrated operation strategy. In the first half of 2020, our six subsidiaries of integrated operation focused on their main operation, delved into respective professional fields and operated prudently centring on the Group's overall development strategy. The synergies arising from our integrated operation gradually emerged and their market competitiveness were steadily enhanced. At the end of June 2020, total assets of our six subsidiaries of integrated operation amounted to RMB327,359 million, representing an increase of RMB33,956 million as compared to the end of the previous year and the net profit for the first half of 2020 amounted to RMB1,754 million.

1 We have adjusted the statistical calibre for remittance business in the international settlement conducted by domestic branches.

Interim Report 2020 45

Discussion and Analysis

Market competitiveness of ABC-CA Fund Management Co., Ltd. improved steadily. At the end of June 2020, ABC-CA Fund Management Co., Ltd. managed 143 funds and the total assets under its management amounted to RMB527.5 billion, including RMB153 billion of non-monetary public offering funds. Its equity funds achieved an average yield of 39.49% for the first half of 2020, ranking at the forefront of the market.

ABC International Holdings Limited maintained its leading position in terms of its core investment banking business among its comparable peers. In the first half of 2020, it completed seven sponsored underwriting projects, including JD.com and NetEase, Inc. listings in Hong Kong. It was awarded The Best IPO Advisors of HKFIA by Sina Finance in 2020.

ABC Financial Leasing Co., Ltd. adhered to its green operation principle. Focusing on clean energy and green travel, it enhanced efficiency of green leasing through professional operation. In the first half of 2020, its investment in green leasing accounted for 85% of its total leasing investments. At the end of June 2020, the balance of its leasing assets amounted to RMB52.492 billion, up by 3.5% as compared to the end of the previous year.

ABC Life Insurance Co., Ltd. achieved stable growth in premium income. Total premium income in the first half of the year was RMB20,548 million, an increase of 8.3% as compared to the first half of the previous year. The proportion of regularly-paid premium to the new insurance premium has ranked first for four consecutive years among its comparable peers. It actively fulfilled its social responsibility by providing free insurance to Hubei Province, Joint Logistic Support Force and frontline medical staff in several places for fighting against the pandemic.

ABC Financial Asset Investment Co., Ltd. actively carried out the completion of market-orienteddebt-for-equity swap projects. It established ABC Gaotou (Hubei) specific investment fund for fighting against the pandemic, to support enterprises in resuming work and production. At the end of June 2020, it completed 175 debt-for- equity swap projects cumulatively, with an amount of RMB238,385 million, remaining the leading position in the market.

Adhering to its steady development philosophy and being oriented on customers, Agricultural Bank of China Wealth Management Co., Ltd. is committed to building itself into a first-class asset management institution with best customer experience.

Firstly, it provided anti-pandemic financial services. It allowed specific customers to withdraw funds from their wealth management products on an urgent basis, promptly addressed the working capital demand of anti-pandemic enterprises and increased investments in bonds and projects in respect to pandemic prevention and control. It was first to launch wealth management product portfolios themed on the fight against the pandemic to benefit particular customer groups.

46

Discussion and Analysis

Secondly, it improved its net-worth wealth management product system. It developed its "4+2" wealth management product system into a "6+N" one, which consisted of six major wealth management products including cash management, fixed income, hybrid investment, equity, commodity and foreign exchange derivatives and alternative investments, and N types of innovative ones.

Thirdly, it optimized its marketing channels layout. It upgraded the function of wealth management on mobile banking, by optimizing information display and business processing procedures. We optimized the functions of agency distribution and share registration of wealth management products to improve customer experience.

Distribution Channels

Offline Channels

During the reporting period, we continued to transform our branch outlets into more intelligent ones with less labour forces and promoted the integrated development of online and offline businesses, so as to improve marketing capabilities, risk management and control, value creation and market competitiveness of our branch outlets comprehensively.

We coordinated the transformation of our retail businesses and branch outlets. All of the 22 thousand branch outlets completed intelligent transformation. Counter staff in branch outlets continued to be transferred to marketing service positions.

We promoted the establishment of 5G Smart Banking branch outlets. We established nearly 40 sample 5G Smart Banking branch outlets in Beijing, Shanghai, Shenzhen, Xiongan New Area and other places, in an effort to build our branch outlets into places with warm financial service. Relying on the support of digital technology and IT system, our branch outlets' capabilities in information management, data modelling and operation trend analysis were improved to enable their smart management, smart marketing and smart security protection.

Online Channels

Mobile Banking

At the end of June 2020, the number of personal mobile banking customers reached 332 million, representing an increase of 22 million as compared to the end of the previous year, and the transaction volume was RMB34.13 trillion, representing a year-on-year increase of 19.5%. The number of corporate mobile banking customers reached 2.38 million, representing an increase of 0.54 million as compared to the end of the previous year, and the transaction volume amounted to RMB914 billion, more than two times of that of the first half of the previous year.

Internet Banking

At the end of June 2020, the number of registered customers in personal Internet banking was 331 million, representing an increase of 19 million as compared to the end of the previous year, and the transaction volume in the first half of 2020 reached RMB14.7 trillion. The number of customers of the corporate banking service platform reached 7.75 million, representing an increase of 0.52 million as compared to the end of the previous year, and the transaction volume in the first half of 2020 reached RMB99.69 trillion, representing an increase of 10.4% as compared to the first half of the previous year.

Interim Report 2020 47

Discussion and Analysis

Self-service Banking

We continued to improve the basic service ability of the facilities in branch outlets. We conducted remote online monitoring and contactless inspection by code scanning with mobile phones on site. At the end of June 2020, we had

77.5 thousand sets of cash-relatedself-service facilities and 26.3 thousand sets of self-service terminals, with 13.1453 million daily average transactions.

Remote Channels

We accelerated the construction of cloud service centres for remote banking, to improve our remote service ability comprehensively. In the first half of 2020, 143 million calls were received by our telephone banking from customers, among which, 41.88 million calls were handled by customer service staff. The customer satisfaction rate reached 99.62%.

We accelerated the digital transformation. We promoted building of multi-media (new media) service channels. We expanded online financial scenes in mobile banking, WeChat banking and other channels. The intelligent voice navigation through 95599 was promoted throughout the Bank. The smart robot service continued to be improved.

We explored the contactless remote service model to improve our remote video contracting services for corporate customers.

FinTech

We worked out the Short-term Information Technology Development Plan (2020-2021),in which "seven technologies, five pillars, six middle platforms and two guarantees" were proposed to promote our "iABC" strategy in information technology to build an intelligent, user-orientedand resources and capabilities integrated ABC with FinTech as its impetus. Specifically, we follow the trends of "seven technologies" to build up more powerful FinTech infrastructure. These seven technologies cover Big Data service system, cloud computing technology capability, basic artificial intelligence capability, distributed architecture R&D and application, block chain technology innovation, information security technology and network technology innovation. We orient on users and focus on "five pillars", that five business areas are empowered in financial scenes, data, risk control, and channels to promote our business transformation and upgrade. We develop the "six middle platforms" in respect of data, credit, open banking, retail marketing, corporate marketing and operation, to address urgent needs of our business transformation. And the "two guarantees" are to provide effective guarantees for informatization construction across the Bank, which are demonstrated by our strict approach to secure safe production and our continuously optimized IT governance structure.

48

Discussion and Analysis

FinTech Innovation

Regarding application of Big Data technology, we established the AI and BI (data intelligence services) platforms to support whole-process AI modelling and self-service analysis. We also set up middle-platform data portals and developed over ten types of sharing services such as OCR (Optical Character Recognition)/NLP (Natural Language Processing)/knowledge graph to support flexible self-service.

Regarding application of cloud computing technology, we initially built the basic cloud platform (IaaS) with more than 15,500 virtual machines and 400 physical machines. Over 20 basic software and hardware cloud services were available. It can realize the automatic allocation of development, testing and product resources, and elasticity on demand, quick delivery, flexible scheduling, and intensive utilisation of IT infrastructure. We advanced the development of the cloud application platform (PaaS) and launched PaaS cloud management platform 2.0, having put 92 applications into operation.

Regarding application of AI technology, we launched mobile banking version 5.0 featuring "reengineering user's journey to improve the platform user's experience overall", so that we enhanced the capability of obtaining customers and upgraded our intelligence services. It also provided capital management services, built a unified mall platform and increased highlighted functions including registration with mobile phone number without bank card, asset profiles upgrade, payment with coupons of Poverty Alleviation Mall and medium- free transaction cap of RMB200,000. We optimized the mobile credit management system. By applying voice recognition, OCR, face recognition and other technologies, we upgraded mobile approval, video contracting, onsite inspection and other functions, to develop our credit management and operation system that integrated PC and mobile terminals.

Regarding application of distributed architecture, we accelerated the transformation of our core system to distributed architecture and commenced the operation of overall control, operation and customer information functions. In the first half of 2020, the average of transactions handled by our host core system per business day reached 383 million and the average of transactions handled by our open core system per business day reached 364 million, the latter accounting for nearly 50% of total transactions, indicating that our core systems are able to completely operate in the open platform.

Regarding application of block chain technology, we optimized the block chain-based processes for the pension business to shorten processing time. We advanced the development of the BaaS (Blockchain as a Service) platform and formulated the development plan, in order to provide a unified infrastructure support for various block chain application systems.

Regarding application of information security technology, we promoted the construction of the security operation mechanism and a centre platform for security operation, optimized the procedures for monitoring, analysing and responding to network security events. We introduced automatic penetration testing tools to improve the accuracy and coverage of loophole detection.

Regarding application of network technology, we reconstructed the Internet application of IPv6 to help improve user's experience and our risk prevention and control capabilities. By applying IPv6 segment routing technology, we optimized our core backbone network to achieve the visual and simplified operation and maintenance management based on intelligent traffic scheduling.

Interim Report 2020 49

Discussion and Analysis

Improving Technology-based Operation and Management

We established an online interactive alert platform for personal loan customers to realize automatic handling and manual intervention in alert events associated with existing personal loan customers.

We initiated the construction of a unified credit risk monitoring platform, aiming to cover all online and offline credit products by regions, business lines and customers, to promote the sustained and stable development of our credit business.

We promoted the construction of a monitoring and alert platform for case prevention, to evaluate the risk profiles of employees, identify their unusual behaviours and display all risk information about them.

Ensuring Safe Operation of Our Information System

We promoted the construction of the "two cities and three centres" and established a disaster recovery system covering all important information systems. We carried out disaster recovery drill for the core system, which enabled switching without perception of our customers.

We promoted the network construction for channel domains covering all branch outlets, adopting technologies including segment routing and software-defined WAN in backbone network earlier than our peers to realize intelligent scheduling of network traffic and transmission by sharing IPv4/IPv6.

We forwarded the construction of an integrated operation and maintenance platform according to the idea of one portal (unified portal), one centre (configuration centre) and four platforms (platforms of monitoring, management, operation, and analysis in operation and maintenance data).

During the reporting period, our transaction volume from operations increased rapidly. The average of transactions handled by our new integrated core systems per business day reached 747 million and the apex of daily transactions reached 987 million. The availability ratio of our core systems during major business hours reached 99.99%, maintaining their stable and sustainable service and operating capabilities.

Consumer Interests Protection

Adhering to the philosophy of "Consistently Putting Customers First", we integrated consumer interests protection in various aspects of corporate governance and included it into our development strategies and corporate culture.

We continued to improve the policy system of consumer interests protection. In accordance with the latest regulatory provisions and our business development, we amended the policies in respect to consumer interests protection, such as the administrative measures for customer complaints, the guidelines on consumer interests protection examination, the contingency plan for major emergencies of consumer interests protection, so as to support the operation in accordance with laws and regulations and consumer interests protection.

50

Discussion and Analysis

We highly valued the management of customer complaints. Our 24/7 voice helpline 95599 was dedicated to responding to customers' queries. We published the helpline and the procedures of handling complaints in our portal and branch outlets to form open complaints channels and improve customer satisfaction. We insisted that the staff who was the first to receive a complaint must be accountable for following up on the case. We earnestly listened to the demands of customers, and proactively and properly dealt with complaints.

We improved the examination mechanism for consumer interests protection to constantly standardize whole- process management of products and services. Taking into account the complaints, legal proceedings, public opinions, customer satisfaction surveys, and other information concerning our products and services, we updated the key points of consumer interests protection examination in time, to fully fulfil the regulatory requirements of consumer interests protection. We conducted examinations during processes of product design and development, pricing management as well as formulating agreements, which were applied on both online and offline operations to prevent risks in advance, so as to protect consumers' legal interests.

We provided dedicated, heart-warming and caring services in the fight against COVID-19 pandemic. We flexibly adjusted the housing mortgage and credit card repayment arrangements and reasonably postponed the repayment time for the customers who temporarily lost their source of income as affected by this pandemic.

We completed a synergetic customer service system featuring efficient and smooth connection between departments of the head office, branches and customer services centres, so as to realize whole-process management of customers' demands.

We popularized financial knowledge constantly through various channels and various forms. We built financial knowledge publicity brands such as Small Class for Consumer Interests Protection and Ka Ka WeChat Class and actively carried out online contactless activities to educate consumers.

Data Security and Customer Information Protection

We attached great importance to customer information protection, integrated customer privacy protection into our corporate culture and established a sound customer information management system to ensure the security of customer information.

We optimized the information security policy system. We established a sound information security system, including management measures, implementation rules and standards, covering application, network, servers, terminals, and other fields. In the first half of this year, we revised the rules relating to information security of operation and vulnerability management in accordance with the latest laws, regulations, regulatory requirements, and cyber security multi-level protection scheme 2.0 standards.

We drafted the policy for data security management. In respect of security classification, collection, processing and using of data, technical protection, monitoring and emergency response, we improved the information security policy system, clarified management requirements and standardized the business procedures.

We improved customer information management policies. We revised administrative measures for customer information protection and formulated implementation rules for personal and corporate customer information protection.

Interim Report 2020 51

Discussion and Analysis

We continuously improved privacy policies. Our privacy policies for personal customers and corporate customers were formulated to stipulate the rights and obligations of customers and the Bank in information collection, processing and protection, clarify the customers' rights to manage their information including the right to access, correct, or delete their information, and the right to opt out of marketing use. During the reporting period, we informed customers of more related to collection and use of customer information, and implemented supporting mechanism for response to protection of privacy rights.

We strengthened technical protection. We accelerated the research on terminal data protection technologies, and intensified monitoring and protection of sensitive data during terminal storage and circulation by such technical means as document encryption and control on data dissemination.

We strengthened education for our employees and the behaviour management. We conducted education and trainings in respect of their obligations, risk and behavioural rules in protecting customer information to improve employees' sense of responsibility and continuously strengthened management over employees' daily behaviours.

Human Resources Management and Organization Management

Human Resources Management

Organization structure and human resources reform

During the reporting period, focusing on the digital transformation strategy and the demand of our business development, we deepened reforms of the organizational structure and human resources.

We optimized institutional setup and functions for post-disbursement management of online credit business. A risk operation centre (a tier-2 department) in Chongqing was set up for centralized operation of online credit business.

We enriched functions and institutional settings of the global anti-money laundering centre and enhanced its centralized processing ability and compliance management.

We implemented and promoted the team management mode to enhance flexibility of organizational management and improve our efficiency of operation and market response.

We optimized the operation sites of sub-branches, downsized internal departments in branches and sub- branches by reducing the proportions of the middle and back offices as well as their staff to increase the front- line staff for our business operation.

Development and Cultivation of Human Resources

During the reporting period, aiming at building a talent pool of competent and professional staff, we actively implemented the strategy of powering the Bank with talent force.

52

Discussion and Analysis

We optimized the structure and echelon of our leadership teams. We focused on examining, identifying and using talents fighting on the front line in pandemic prevention and control.

We promoted building of talent teams for digital transformation, implemented young talent programs both in the urban areas and County Areas and optimized our selection and management mechanism for professional posts to inspire talents' enthusiasm, initiative and creativity.

We implemented the Central Government's requirement of stabilizing and ensuring employment by carrying out spring recruitment to increase the number of persons to be recruited and supplement of foundation-level institutions with more staff.

We improved our trainer team and expanded training channels. We conducted online teaching to empower our employees continuously. In the first half of the year, more than 290 live broadcasts were carried out on the online training platform of "ABC Cloud Classroom", which were attended by over 0.44 million participants.

Information on Employees

We had a total of 455,095 employees (and 7,103 dispatched employees) at the end of June 2020, representing a decrease of 8,916 employees as compared to the end of the previous year. Among them, 710 employees were employed by our overseas branches, subsidiaries and representative offices, and 8,415 employees were employed by subsidiaries of integrated operations and rural banks.

Distribution of Employees by Regions

30 June 2020

Number of

Percentage

Employees

(%)

Head Office

10,697

2.3

Yangtze River Delta

62,544

13.7

Pearl River Delta

49,845

11.0

Bohai Rim

65,453

14.4

Central China

93,829

20.6

Northeastern China

44,899

9.9

Western China

118,703

26.1

Overseas Branches, Subsidiaries and Representative Offices

710

0.2

Subsidiaries with Integrated Operations and Rural Banks

8,415

1.8

Total

455,095

100.0

Interim Report 2020 53

Discussion and Analysis

Information on Organization

Domestic Branch Outlets

At the end of June 2020, we had 23,064 domestic branch outlets, including the Head Office, Business Department of the Head Office, three specialized institutions managed by the Head Office, four training institutes, 37 tier-1 branches (including five branches directly managed by the Head Office), 394 tier-2 branches (including branches in capital cities of provinces), 3,431 tier-1sub-branches (including business departments in municipalities, business departments of branches directly managed by the Head Office and business departments of tier-2 branches), 19,141 foundation-level branch outlets (including 13,805 tier-2sub-branches) and 52 other establishments.

Number of Domestic Branch Outlets by Regions

30 June 2020

Number of

Domestic

Percentage

Branch Outlets

(%)

Head Office1

9

-

Yangtze River Delta

3,021

13.1

Pearl River Delta

2,485

10.8

Bohai Rim

3,306

14.3

Central China

5,167

22.4

Northeastern China

2,251

9.8

Western China

6,825

29.6

Total

23,064

100.0

Note: 1. Including the Head Office, Big Client Department, Private Banking Department, Credit Card Center, Bills Business Department, Beijing Advanced-Level Academy, Changchun Training Institute, Tianjin Training Institute and Wuhan Training Institute

Overseas Branch Outlets

At the end of June 2020, we had a total of 13 overseas branches and three overseas representative offices, including branches in Hong Kong, Singapore, Seoul, New York, Dubai International Financial Centre (DIFC), Tokyo, Frankfurt, Sydney, Luxemburg, Dubai, London, Macao and Hanoi, and representative offices in Vancouver, Taipei and Sao Paulo.

Major Subsidiaries

ABC-CA Fund Management Co., Ltd.

ABC-CA Fund Management Co., Ltd. was established in March 2008 with a registered capital of RMB1.75 billion, 51.67% of which was held by the Bank. Its businesses include fund-raising, sales of fund and asset management, and its major products include stock funds, mixed funds, bond funds and monetary market funds. At 30 June 2020, the total assets and net assets of ABC-CA Fund Management Co., Ltd. amounted to RMB3,695 million and RMB3,378 million, respectively. It recorded a net profit of RMB211 million for the first half of 2020.

54

Discussion and Analysis

ABC International Holdings Limited

ABC International Holdings Limited was incorporated in Hong Kong in November 2009 with a share capital of HKD4,113 million, 100% of which was held by the Bank. ABC International Holdings Limited and its wholly-owned subsidiaries are eligible to engage in providing comprehensive and integrated financial services in Hong Kong, including sponsor and underwriter for listing, issuance and underwriting of bonds, financial consultation, asset management, institutional sales, securities brokerage, securities consultation and direct investment, and is also eligible to engage in businesses including private fund management, financial consultation, investment in mainland China. At 30 June 2020, the total assets and net assets of ABC International Holdings Limited amounted to HKD41,371 million and HKD8,527 million, respectively. It recorded a net profit of HKD194 million for the first half of 2020.

ABC Financial Leasing Co., Ltd.

ABC Financial Leasing Co., Ltd. was established in September 2010 with a registered capital of RMB9.5 billion, 100% of which was held by the Bank. The principal scope of business includes financial leasing, transfer and acceptance of financial leasing assets, fixed-income securities investment business, acceptance of leasing deposits from lessees, absorbing time deposit with a maturity of three months or above from non-bank shareholders, inter-bank lending, borrowing from financial institutions, overseas borrowings, selling and disposal of leased items, economic consultation, establishment of project companies in domestic bonded zones to carry out financial leasing business, provision of guarantee for external financing to subsidiaries and project companies, and other businesses approved by the CBIRC. At 30 June 2020, the total assets and net assets of ABC Financial Leasing Co., Ltd. amounted to RMB59,341 million and RMB9,877 million, respectively. It recorded a net profit of RMB144 million for the first half of 2020.

ABC Life Insurance Co., Ltd.

ABC Life Insurance Co., Ltd. was established in December 2005 with a registered capital of RMB2,950 million, 51% of which was held by the Bank. Its principal scope of business includes various types of personal insurance such as life insurance, health insurance and accident insurance; reinsurance business for the abovementioned businesses; businesses with the application of insurance funds as permitted by the laws and regulations of the PRC; and other businesses approved by the CBIRC. At 30 June 2020, the total assets and net assets of ABC Life Insurance Co., Ltd. amounted to RMB104,275 million and RMB7,361 million, respectively. It recorded a net profit of RMB421 million1 for the first half of 2020.

ABC Financial Asset Investment Company Limited

ABC Financial Asset Investment Company Limited was established in August 2017 with a registered capital of RMB10 billion, 100% of which was held by the Bank. Its principal scope of business includes: focusing on debt-for-equity swap and ancillary supporting business, conducting public fund raising from qualified public investors for debt-for- equity swap in accordance with relevant laws and regulations, issuance of specific financial bonds for debt-for-equity swap, as well as other businesses as approved by the CBIRC. At 30 June 2020, the total assets and net assets of ABC Financial Asset Investment Company Limited amounted to RMB109,278 million and RMB11,125 million, respectively. It recorded a net profit of RMB325 million for the first half of 2020.

1 In order to keep in line with the Group's disclosure standards, the data is in accordance with the new financial instrument standard (IFRS 9), which is different from the data in accordance with the financial instrument standard (IAS 39) currently adopted by the insurance industry.

Interim Report 2020 55

Discussion and Analysis

Agricultural Bank of China Wealth Management Co., Ltd.

Agricultural Bank of China Wealth Management Co., Ltd. was established in July 2019 with a registered capital of RMB12 billion, 100% of which was held by the Bank. The principal scope of business includes public offering of wealth management products to the general public, investment and management of the above properties entrusted by the investors; private placement of wealth management products to qualified investors, investment and management of the above properties entrusted by the investors; wealth management advisory and consulting services; and other businesses approved by the CBIRC. At 30 June 2020, the total assets and net assets of Agricultural Bank of China Wealth Management Co., Ltd. amounted to RMB12,981 million and RMB12,821 million, respectively. It recorded a net profit of RMB477 million for the first half of 2020.

China Agricultural Finance Co., Ltd.

The share capital of China Agricultural Finance Co., Ltd. was HKD588.79 million, 100% of which was held by the Bank.

Agricultural Bank of China (UK) Limited

Agricultural Bank of China (UK) Limited is a wholly-owned subsidiary of the Bank incorporated in the United Kingdom with a share capital of USD0.1 billion. According to our strategy of overseas business development, the Bank was undergoing procedures related to the closure of Agricultural Bank of China (UK) Limited during the reporting period.

Agricultural Bank of China (Luxembourg) Limited

Agricultural Bank of China (Luxembourg) Limited is a wholly-owned subsidiary of the Bank incorporated in Luxembourg with a registered capital of EUR20 million. Its scope of business includes wholesale banking business such as international settlement, corporate deposits, syndicated loans, bilateral loans, trade financing and foreign exchange trading. At 30 June 2020, Agricultural Bank of China (Luxembourg) Limited had total assets of USD28 million. It recorded a net loss of USD0.07 million for the first half of 2020.

Agricultural Bank of China (Moscow) Limited

Agricultural Bank of China (Moscow) Limited is a wholly-owned subsidiary of the Bank incorporated in Russia with a registered capital of RUB7,556 million. Its scope of business includes wholesale banking business such as international settlement, corporate deposits, syndicated loans, bilateral loans, trade financing and foreign exchange trading. At 30 June 2020, Agricultural Bank of China (Moscow) Limited had total assets of USD203 million and recorded a net profit of USD0.52 million for the first half of 2020.

ABC Hubei Hanchuan Rural Bank Limited Liability Company

ABC Hubei Hanchuan Rural Bank Limited Liability Company was established in August 2008 in Hanchuan, Hubei Province, with a registered capital of RMB31 million, 50% of which was held by the Bank. At 30 June 2020, the total assets and net assets of ABC Hubei Hanchuan Rural Bank Limited Liability Company amounted to RMB306 million and RMB64 million, respectively. It recorded a net profit of RMB1.4637 million for the first half of 2020.

56

Discussion and Analysis

ABC Hexigten Rural Bank Limited Liability Company

ABC Hexigten Rural Bank Limited Liability Company was established in August 2008 in Hexigten Banner, Chifeng City, Inner Mongolia Autonomous Region, with a registered capital of RMB19.60 million, 51.02% of which was held by the Bank. At 30 June 2020, the total assets and net assets of ABC Hexigten Rural Bank Limited Liability Company amounted to RMB184 million and RMB37 million, respectively. It recorded a net loss of RMB1.0024 million for the first half of 2020.

ABC Ansai Rural Bank Limited Liability Company

ABC Ansai Rural Bank Limited Liability Company was established in March 2010 in Ansai County, Yan'an City, Shaanxi Province, with a registered capital of RMB40 million, 51% of which was held by the Bank. At 30 June 2020, the total assets and net assets of ABC Ansai Rural Bank Limited Liability Company amounted to RMB582 million and RMB67 million, respectively. It recorded a net profit of RMB1.2569 million for the first half of 2020.

ABC Jixi Rural Bank Limited Liability Company

ABC Jixi Rural Bank Limited Liability Company was established in May 2010 in Jixi County, Xuancheng City, Anhui Province, with a registered capital of RMB29.40 million, 51.02% of which was held by the Bank. At 30 June 2020, the total assets and net assets of ABC Jixi Rural Bank Limited Liability Company amounted to RMB348 million and RMB42 million, respectively. It recorded a net profit of RMB0.0268 million for the first half of 2020.

ABC Zhejiang Yongkang Rural Bank Limited Liability Company

ABC Zhejiang Yongkang Rural Bank Limited Liability Company was established in June 2012 in Yongkang City, Jinhua City, Zhejiang Province, with a registered capital of RMB210 million, 51% of which was held by the Bank. At 30 June 2020, the total assets and net assets of ABC Zhejiang Yongkang Rural Bank Limited Liability Company amounted to RMB658 million and RMB257 million, respectively. It recorded a net profit of RMB4.0514 million for the first half of 2020.

ABC Xiamen Tong'an Rural Bank Limited Liability Company

ABC Xiamen Tong'an Rural Bank Limited Liability Company was established in June 2012 in Tong'an District, Xiamen City, Fujian Province, with a registered capital of RMB150 million, 51% of which was held by the Bank. At 30 June 2020, the total assets and net assets of ABC Xiamen Tong'an Rural Bank Limited Liability Company amounted to RMB1,096 million and RMB179 million, respectively. It recorded a net profit of RMB6.2043 million for the first half of 2020.

Interim Report 2020 57

Discussion and Analysis

County Area Banking Business

During the reporting period, following our strategic positioning of serving Sannong and promoting businesses in County Areas, and fully implementing the national decisions and arrangements to win the battle against poverty and the strategy of rural vitalization, we promoted the County Area Banking Business and financial poverty alleviation steadily. We continued to improve the operation mechanism of County Area Banking Division. We also actively developed a new "6+" tactics (customer+, scene+, loan+, technology+, platform+ and whole- bank+) for the development of Sannong and County Area Banking Business. Meanwhile, we deeply promoted the digital transformation of Sannong and County Area Banking Business to enhance the innovation of products and development of channels. Our County Area Banking Business remained stable with a favorable trend, and its service capabilities and market competitiveness had been further enhanced. We fulfilled the requirements of national regulations relating to serving Sannong.

We improved differentiated policies. We continued to give preferential policies to our County Area Banking Division in terms of credit scale, economic capital, fixed assets, etc., and provided specific strategic expenses to financial services for key areas related to rural vitalization. We optimized the separate assessment plan for the County Area Banking Division, with an emphasis on assessing the key areas related to rural vitalization and fight against poverty.

We optimized the credit policy system. Focusing on the central government's implementation of strategy for rural vitalization, we formulated annual guidelines on "Sannong" credit policies, and introduced credit policies for the seed industry, forestry, and other industries. We introduced specific supportive policies for pandemic prevention and control and spring ploughing.

We enhanced risk management. We adopted FinTech to enhance our credit risk management and control capabilities in County Area Banking Business. We promoted the specific governance of high-risksub-branches in County Areas steadily.

County Area Corporate Banking Business

During the reporting period, implementing the national requirements of ensuring stability on the six fronts and security in the six areas, we made every effort to guarantee our financial services for pandemic prevention and control and resumption of work and production. At the end of June 2020, the balance of deposits from corporate customers in County Areas was RMB2,364,689 million, representing an increase of RMB224,237 million as compared to the end of the previous year. The balance of loans to corporate customers in County Areas (excluding discount bills) amounted to RMB2,763,463 million, representing an increase of RMB277,036 million as compared to the end of the previous year.

We continued to increase loans to key areas related to rural vitalization. At the end of June 2020, the balance of loans to leading agricultural industrialization enterprises increased by RMB22.6 billion to RMB165.9 billion; the balance of urbanization loans in County Areas increased by RMB82.0 billion to RMB814.9 billion; the balance of water conservancy loans increased by RMB17.3 billion to RMB377.7 billion; the balance of loans to happiness industries in County Areas increased by RMB21.4 billion to RMB120.0 billion; and the balance of loans to manufacturing industry in County Areas increased by RMB58.4 billion to RMB642.0 billion, as compared to the end of the previous year.

58

Discussion and Analysis

We made every effort to ensure the pandemic prevention and control and the stable production and supply of agricultural products. We introduced specific policies to support key enterprises for the pandemic prevention and control, and to ensure the stable production and supply of agricultural products and pig production, so as to ensure the stability of the supply chains. At the end of June 2020, we had supported 4,530 key customers for stable production and supply of agricultural products, with a loan balance of RMB176.5 billion, representing an increase of RMB50.3 billion as compared to the end of the previous year. The balance of corporate loans related to food security amounted to RMB106.7 billion, increased by RMB16.7 billion as compared to the end of the previous year. The balance of loans related to pig production increased by RMB21.6 billion to RMB45.1 billion as compared to the end of the previous year.

We promoted the digital transformation of County Area Corporate Banking Business. With respect to County Areas industrial clusters and agriculture-related small and micro customers, we launched innovative products such as Rural Vitalization E-loan and Yishang E-loan and promoted the product series of ABC E-loan, so as to continuously expand our corporate online financing business.

County Area Retail Banking Business

During the reporting period, to meet financial needs of retail customers in key areas related to rural vitalization, we actively expanded individual customers in County Areas and continuously enhanced our service capabilities for County Area Retail Banking Business supported by FinTech. At the end of June 2020, the balance of deposits from retail customers in County Areas amounted to RMB6,211,319 million, representing an increase of RMB623,504 million as compared to the end of the previous year. Loans to retail customers in County Areas amounted to RMB2,134,212 million, representing an increase of RMB207,414 million as compared to the end of the previous year.

We promoted the Huinong E-loan to increase its customers and transaction volume. We upgraded the loan processing system on the mobile banking, comprehensively promoted the functions of signing and authentication by face recognition. We piloted the loan application through WeChat for white-list customers and the self-portrait system for rural households, and created a new model of batch, intensified and online operation of loans for rural households, so as to improve their access to financial services by making better use of data and IT system. At the end of June 2020, the balance of Huinong E-loan amounted to RMB310.3 billion, representing an increase of RMB111.6 billion as compared to the end of the previous year. The number of rural households with credit lines amounted to 2.4 million, representing an increase of 0.66 million as compared to the end of the previous year.

We increased support for new-type agricultural entities, and optimized credit products for rural people to purchase their houses. At the end of June 2020, the balance of loans extended to large-scale professional operators and family farms amounted to RMB160.2 billion, representing an increase of RMB40.4 billion as compared to the end of the previous year. The balance of Anjiadai loans for rural people amounted to RMB589.7 billion, representing an increase of RMB25.7 billion as compared to the end of the previous year.

We promoted the upgrading of the Huinongtong Project. We continued to increase the coverage of basic financial services in poor areas to exert ourselves to make utmost effort to the financial services in rural areas.

Interim Report 2020 59

Discussion and Analysis

Financial Poverty Alleviation

We fully implemented the national decisions and arrangements of the fight against poverty. We formulated the Opinions on Improving Financial Services to Fight against Poverty in 2020, and continued our preferential policies to the poor areas in terms of credit scale, project approval, economic capital, financial expenses, channel development, assessment and incentive. We exerted effort to rectify the problems discovered during the specific inspection on poverty alleviation by the central government to further improve our financial services for poverty alleviation. We are striving to achieve the goals for this year of providing more than RMB100 billion new loans in 832 key counties of national poverty alleviation, with the loan growth rate higher than that of the whole bank and the targeted poverty alleviation loans maintaining at a sustained growth.

We strengthened policy guidance. For the 52 counties not being lifted out of poverty and the 1,113 poverty- stricken villages highly concerned by the central government, work opinions were introduced to specify a series of preferential policies. We established a mechanism that senior management members of the Head Office and the branches were directly responsible for poverty alleviation for counties not being lifted out of poverty. We also established a mechanism of pairing Party organizations of departments in the Head Office with poverty-stricken villages in counties not being lifted out of poverty, and a specific mechanism of supervising the sub-branches in counties not being lifted out of poverty, to ensure that the responsibilities, policies and work measures for poverty alleviation were fully implemented. Differentiated credit policies were introduced for the counties of extreme poverty in "Three Regions and Three Prefectures". Financial poverty alleviation policies of the whole bank were also applied to rural households on the edge of poverty line.

We actively minimized the impact of the pandemic. A specific work notice was issued to clarify the policies and work requirements for financial poverty alleviation during the pandemic period. For the poor households who have difficulty in repayment due to the pandemic, we should take the methods of loan renewal without repayment of principal and loan extension to relieve their worries and their difficulties. We gave priority to enterprises in poverty-stricken areas to be included in the list of key enterprises who were supported during the pandemic prevention period, and implemented preferential credit support policies.

We increased loans to the poor areas. At the end of June 2020, loans for 832 key counties for national poverty alleviation increased by RMB130.43 billion or 12% to RMB1,221.87 billion; loans for targeted poverty alleviation increased by RMB59.02 billion or 15.1% to RMB450.49 billion; loans in the areas of extreme poverty increased by RMB61.65 billion or 15.3% to RMB464.28 billion; and loans for 52 counties not being lifted out of poverty increased by RMB14.36 billion or 25.2% to RMB71.42 billion, as compared to the end of the previous year.

We improved the service network in the poor areas. At the end of June 2020, the coverage rate of electronic machines in administrative villages in the key counties for national poverty alleviation, the counties of extreme poverty in "Three Regions and Three Prefectures", and 52 counties not being lifted out of poverty were 86.7%, 91.2% and 88%, respectively, increased by 0.1, 3.3 and 1.4 percentage points, respectively, as compared to the end of the previous year.

60

Discussion and Analysis

We carried out specific activities for poverty alleviation through consumption. Through both online and offline channels, we made utmost effort to sell unsalable agricultural products in the poor areas, especially the areas in Hubei Province, by direct purchase or provision of assistance in sales promotion. In the first half of 2020, we directly purchased agricultural products of RMB0.12 billion from the poor areas and helped promote sales of agricultural products of RMB0.52 billion.

We made progress in poverty alleviation collaboration between the eastern and western regions. At the end of June 2020, 12 branches in the eastern regions have reserved 47 potential investment projects for the 12 poor areas in "Three Regions and Three Prefectures" which they have been paired with, 17 of which have already been carried out.

Financial Position

Assets and Liabilities

At 30 June 2020, the total assets of County Area Banking Business reached RMB9,547,333 million, representing an increase of 9.7% as compared to the end of the previous year. Total loans and advances to customers reached RMB5,055,815 million, representing an increase of 11.0% as compared to the end of the previous year. Deposits from customers reached RMB8,713,465 million, representing an increase of 9.5% as compared to the end of the previous year.

The table below presents the major items of assets and liabilities of the County Area Banking Business at the dates indicated.

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Total loans and advances to customers

5,055,815

-

4,553,104

-

Allowance for impairment losses on loans

(243,364)

-

(226,412)

-

Loans and advances to customers, net

4,812,451

50.4

4,326,692

49.7

Intra-bank balance1

3,888,271

40.7

3,622,774

41.6

Other assets

846,611

8.9

750,439

8.7

Total assets

9,547,333

100.0

8,699,905

100.0

Deposits from customers

8,713,465

97.9

7,960,558

98.5

Other liabilities

186,549

2.1

125,058

1.5

Total liabilities

8,900,014

100.0

8,085,616

100.0

Note: 1. Intra-bank balance refers to funds provided by the County Area Banking Business to other business segments within the Bank through internal funds transfers.

Interim Report 2020 61

Discussion and Analysis

Profit

In the first half of 2020, the profit before tax of the County Area Banking Business increased by 23.7% to RMB56,528 million, primarily due to an increase in net interest income as compared to the first half of the previous year.

The table below presents the major income items of the County Area Banking Business for the periods indicated.

In millions of RMB, except for percentages

Six months

Six months

ended 30

ended 30

Increase/

Growth rate

June 2020

June 2019

(decrease)

(%)

External interest income

108,295

95,936

12,359

12.9

Less: External interest expense

58,826

57,923

903

1.6

Interest income from intra-bank balance1

58,701

57,514

1,187

2.1

Net interest income

108,170

95,527

12,643

13.2

Net fee and commission income

20,881

19,143

1,738

9.1

Other non-interest income

(9)

2,450

(2,459)

-100.4

Operating income

129,042

117,120

11,922

10.2

Less: Operating expenses

39,699

39,121

578

1.5

Credit impairment losses

32,806

32,350

456

1.4

Impairment losses on other assets

9

(35)

44

-

Total profit before tax

56,528

45,684

10,844

23.7

Note: 1. Interest income from intra-bank balance represents the interest income earned on funds provided by the County Area Banking Business to other business segments within the Bank through internal funds transfer pricing, the interest rate of which is determined based on the market interest rate.

Key Financial Indicators

In the first half of 2020, the interest spread between deposits and loans of County Area Banking Business was 3.09%, 27 basis points higher than that of the Bank. At 30 June 2020, the non-performing loan ratio of the County Area Banking Business was 1.48%, representing a decrease of 0.10 percentage point as compared to the end of the previous year. The allowance to non-performing loans was 325.26% and the allowance to loan ratio was 4.83%.

62

Discussion and Analysis

The tables below set out the key financial indicators of the County Area Banking Business at the dates or for the periods indicated.

Unit: %

Six months

Six months

ended

ended

Item

30 June 2020

30 June 2019

Average yield of loans

4.55*

4.59*

Average cost of deposits

1.46*

1.51*

Net fee and commission income to operating income

16.18

16.34

Cost-to-income ratio

29.95

32.81

30 June

31 December

Item

2020

2019

Loan-to-deposit ratio

58.02

57.20

Non-performing loan ratio

1.48

1.58

Allowance to non-performing loans

325.26

315.18

Allowance to loan ratio

4.83

4.99

*  Annualized figures.

Interim Report 2020 63

Discussion and Analysis

Risk Management and Internal Control

Risk Management

COVID-19 pandemic pervaded the world in the first half of 2020, which greatly affected the economic and financial operations. Facing this unprecedented severe challenge, we enhanced our comprehensive risk management and adhered to a strict approach to risk limitation. We formulated comprehensive risk management strategy and promulgated annual specific risk management policies. We controlled asset quality in order to consolidate the achievements of the Clean-up Plan and coordinated industrial credit limit management to further optimize our industrial credit structure. We promoted the building of risk control system for online credit businesses, improved online credit policy system and enhanced the anti-fraud and credit risk monitoring platform. We strengthened market risk management to ward off risk of contagion and resonance; we fortified the risk management in major areas such as derivative transaction business, enhanced the risk prevention and control mechanism and proceeded to build up the market risk exposure limit management. We also optimized management mechanism for operational risk, and strengthened network and information security management. To improve our financial product safety management, we formulated the implementing rule for assessment and examination on product innovation risk and standardized the procedures of assessment and examination on product innovation risk. We consolidated our efforts to risk assessment under the internal capital adequacy assessment process (ICAAP) to perfect the risk assessment system and mechanism. We continued to promote effective risk data aggregation and risk reporting capabilities building, and optimized and upgraded our risk data marts and risk reporting and control platform.

Credit Risk Management

In the first half of 2020, implementing national macro-control policies, we improved our credit risk management system. We continued to optimize the credit structure and strengthened the risk prevention and control in key areas and the industry-specific credit limit management, thereby mitigating various potential risks in time. We diversified the channels for collection and disposal of non-performing loans, thus maintaining our asset quality stable.

Risk Management of Corporate Banking Business

We introduced relevant credit support policies to help win the battle of pandemic prevention and control. Special authorization was given to our branches for enterprises which produce hygienic supplies and thus are entitled to be a part of the joint prevention and control mechanism of the National Development and Reform Commission, so as to improve the efficiency of business approval and help enterprises to fully guarantee sufficient production of protective supplies.

We refined the credit policy system. Three comprehensive policies were formulated including the annual credit policy guideline, Sannong and inclusive finance credit policy guidelines. The credit policies for 11 industries were formulated or revised including urban underground comprehensive pipeline corridors, metal mining and dressing, photovoltaic and polysilicon, etc. We instituted 16 differential regional credit policies for branches, and formulated supporting policies for serving transformation and upgrading as well as new drivers for economic growth, investment and transaction business management. We also integrated the internal policies by revising the administrative measures for such businesses as working capital loans, fixed asset loans and project financing.

64

Discussion and Analysis

We enhanced the credit risk management in key areas. We optimized to allocate our credit resources into the prioritizing areas including rural vitalization, old infrastructure upgrade and new infrastructure construction, high- quality development of manufacturing industry, people's livelihood and happiness industry, private enterprises and inclusive financing and green finance. We also reinforced the risk management in relation to real estate business, online business and integrated operation of the Group. Following up with the national policy adjustments to power industry, we revised our credit policies for thermal power, wind power, and solar power generation sectors in time to prevent policy risks. We tightened the management over credits to traditional industries, especially industries with excess production capacity, by regularly monitoring the increased credits granted to steel and coal industries, analyzing the rationality of increased credit on an account-by-account basis, and making good use of credit increment.

We improved the management and control over asset quality. We dynamically monitored the customers' risk profiles and devised pertinent control measures for loans to customers notably affected by the pandemic. We centralized the monitoring of group customers with large credit amount and strengthened monitoring on the risks of overseas branches and our subsidiaries. By strictly implementing the loan classification standards, we prudently identified our non-performing loans. We balanced the pandemic prevention and control with the collection and disposal of non-performing loans, while making more efforts to dispose of non-performing loans. We carried out three major actions including collection of large-amount loans, clearing of depreciable assets and collection of non-performing loans through legal actions, and continued with the disposal strategies of more collection, more write-offs and more restructuring as well as targeted transfer in batches.

Risk Management of Retail Banking Business

We continued to centralize the retail loan operation centers to the tier-1 branches and expanded the coverage of the centralized management. The research and development of risk control models and systems were promoted to improve the risk control of our retail banking business. We promoted the construction of a smart risk control system for retail loan business to strengthen risk management and control over online loans and improve our capabilities of identifying risks in respect of customers and portfolios. We stepped up efforts to collect overdue loans by applying the retail loan collection system and making more efforts to local and judicial collection, while striving to reduce new retail non-performing loans.

Risk Management of Credit Card Business

Retaining a prudent risk appetite, we strengthened credit portfolio management, optimized our credit structure and constantly improved the delicacy management on credit card assets. We strengthened pre-lending management by continuous promotion of differential management and control, risk prevention of and control over coexisting debts of the same individual and control of information authenticity. We promoted lending management by monitoring the risks of customers affected by the pandemic, early warning and implementing various types of measures to mitigate risks. We performed post-disbursement management well by strengthening asset preservation and improving the efficiency of collection of overdue loans and disposal of non-performing assets, thus maintaining our asset quality overall stable.

Interim Report 2020 65

Discussion and Analysis

Risk Management of Treasury Business

We refined the risk management measures for treasury business by improving the whole-process risk management mechanism and the management of credit bond before, during and after investment. We monitored the risk profiles of credit customers and counterparties in relation to our existing treasury business, updated the list of existing credit customers that required special attention and dynamically adjusted the measures to address risks. We improved our risk control of online products by promoting the construction of Phase II of the global management platform for investment and transaction. Our subsidiaries and overseas institutions improved their monthly reporting on risks of treasury business and the sharing mechanism.

Loan Risk Classification

We formulated and refined the loan risk classification management system in accordance with the Guidelines of Loan Risk Classification issued by the CBIRC. We comprehensively assessed the recoverability of loans when due and classified the loans by taking into account of factors including the borrower's repayment ability, repayment record, willingness to repay the loan, profitability of the loan project, and the reliability of the secondary repayment sources.

We adopted two classification management systems for loans: the five-category classification system and the 12-category classification system. Corporate loans were mainly managed with 12-category classification system. Comprehensive evaluations on customer default risk and debt transaction risk objectively reflected the risk level of loans. Such evaluations were made with more details in preparing the annual classification policies at the beginning of every year to specify the requirements for classification standards and management of loans to core corporate customers and thus improving the foreseeability and sensitivity of risk identification. Retail loans were managed with the five-category classification system which automatically classified risks based on the length of period by which payments of principal or interest were overdue and the types of collaterals, allowing for a more objective risk assessment. Large retail loans to private businesses were classified manually on a quarterly basis to enhance risk sensitivity. In addition, the classification was promptly adjusted based on the risk information collected in the credit management.

Distribution of Loans by Collaterals

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Loans secured by mortgages

6,644,061

45.8

5,898,736

44.3

Loans secured by pledges

2,249,119

15.5

2,131,098

16.0

Guaranteed loans

1,580,058

10.9

1,856,415

13.9

Unsecured loans

4,037,559

27.8

3,443,297

25.8

Sub-Total

14,510,797

100.0

13,329,546

100.0

Accrued interest

37,472

-

30,642

-

Total

14,548,269

-

13,360,188

-

66

Discussion and Analysis

Distribution of Overdue Loans by Overdue Period

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Percentage of

Percentage of

total loans

total loans

Item

Amount

(%)

Amount

(%)

Overdue for less than 90 days

  (including 90 days)

72,730

0.5

71,118

0.5

Overdue for 91 to 360 days

61,495

0.4

49,650

0.4

Overdue for 361 days to 3 years

44,678

0.3

47,787

0.4

Overdue for more than 3 years

14,291

0.1

14,438

0.1

Total

193,194

1.3

182,993

1.4

Loan Concentration

In millions of RMB, except for percentages

Percentage

Top ten single

of total

borrowers

Industry

Amount

loans (%)

Borrower A

Transportation, logistics and postal services

112,022

0.77

Borrower B

Transportation, logistics and postal services

38,700

0.27

Borrower C

Transportation, logistics and postal services

31,674

0.22

Borrower D

Transportation, logistics and postal services

26,432

0.18

Borrower E

Transportation, logistics and postal services

26,353

0.18

Borrower F

Transportation, logistics and postal services

25,361

0.18

Borrower G

Transportation, logistics and postal services

22,594

0.16

Borrower H

Transportation, logistics and postal services

19,586

0.13

Borrower I

Production and supply of power, heat, gas and water

18,969

0.13

Borrower J

Transportation, logistics and postal services

18,105

0.12

Total

339,796

2.34

At 30 June 2020, we fulfilled the regulatory requirements as total loans to our largest single borrower represented 4.14% of our net capital and total loans to our ten largest single borrowers represented 12.57% of our net capital.

Large Risk Exposures

During the reporting period, pursuant to the requirements of the Administrative Measures for Large Risk Exposures of Commercial Banks issued by the CBIRC, we continued to propel various infrastructural work for the measurement and management of large risk exposures, conducted measurement and monitoring on a regular basis and optimized the measurement system for continuous improvement on our capability to manage large risk exposures.

Interim Report 2020 67

Discussion and Analysis

Distribution of Loans by Five-category Classification

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

Amount

Percentage (%)

Amount

Percentage (%)

Normal

13,999,128

96.48

12,843,935

96.36

Special mention

303,924

2.09

298,401

2.24

Non-performing loans

207,745

1.43

187,210

1.40

Substandard

96,239

0.66

66,462

0.50

Doubtful

95,527

0.66

103,763

0.78

Loss

15,979

0.11

16,985

0.12

Sub-Total

14,510,797

100.00

13,329,546

100.00

Accrued interest

37,472

-

30,642

-

Total

14,548,269

-

13,360,188

-

During the reporting period, adhering to seeking progress while ensuring stability as our overarching working principle, we coped with the adversities brought by the pandemic and ensured stability on the six fronts and security in the six areas, maintaining our asset quality overall stable. At 30 June 2020, the balance of our non-performing loans was RMB207.745 billion, representing an increase of RMB20.535 billion; and the non-performing loan ratio increased by 0.03 percentage point to 1.43%; and the balance of special mention loans was RMB303.924 billion, representing an increase of RMB5.523 billion; and special mention loans accounted for 2.09% of the total loans, representing a decrease of 0.15 percentage point as compared to the end of the previous year.

We granted more credits to support the real economy and proactively adjusted and optimized our credit structure. The increased loans were mainly extended to areas in relation to stabilizing economic growth, securing supply, promoting resumption of work, and fighting against the pandemic.

Earnestly implementing the financial relief policy and strictly adhering to our risk limitations, we formulated and promulgated the pandemic-specific risk management policy to fully support the major enterprises being affected by the pandemic to get out of the predicament and accelerate their resumption of work and production, by comprehensively employing such means as term extension, loan renewal, and delayed payment of principals and interests. We also adopted multiple measures to help small and micro enterprises solve financing difficulties and reduce their high financing cost.

We strictly implemented the regulatory requirements for loan classification and made more provisions. Based on conducting stress testing and multi-scenario analysis to dynamically study and assess our asset quality and prudently assessing the impact of the pandemic, we formulated a tailor-made scheme for risk control. We also reinforced the early risk warning and risk monitoring, paid attention to key customers affected by the pandemic, and classified risks of loans to prevent potential risks.

We continued our collection and disposal of non-performing loans and diversified the relevant channels. Based on collection in cash, we accelerated the write-off of bad debts and adopted market-oriented disposal means including transfer in batches, debt-for-equity swaps and non-performing asset securitization, to avoid risk accumulation.

68

Discussion and Analysis

Distribution of Non-Performing Loans by Business Type

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Non-

Non-

Percentage

performing

Percentage

performing

Item

Amount

(%)

loan ratio (%)

Amount

(%)

loan ratio (%)

Corporate loans

166,393

80.1

2.12

148,695

79.4

2.10

Short-term corporate loans

88,849

42.8

3.45

81,488

43.5

3.70

Medium- and long-term

  corporate loans

77,544

37.3

1.47

67,207

35.9

1.37

Discounted bills

20

-

0.01

21

-

-

Retail loans

34,626

16.7

0.59

31,699

16.9

0.59

Residential mortgage loans

14,084

6.8

0.32

12,386

6.6

0.30

Credit card balances

8,765

4.2

1.81

7,465

4.0

1.57

Personal consumption loans

2,906

1.4

1.61

1,746

0.9

1.04

  Loans to private business

3,323

1.6

1.01

4,281

2.3

1.62

  Loans to rural households

5,514

2.7

1.34

5,785

3.1

1.80

Others

34

-

5.44

36

-

4.92

Overseas and others

6,706

3.2

1.45

6,795

3.7

1.62

Total

207,745

100.0

1.43

187,210

100.0

1.40

Distribution of Corporate Non-Performing Loans by Industry

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Non-

Non-

Percentage

performing

Percentage

performing

Item

Amount

(%)

loan ratio (%)

Amount

(%)

loan ratio (%)

Manufacturing

66,686

40.1

5.03

60,529

40.7

5.06

Production and supply of power,

  heat, gas and water

4,508

2.7

0.51

5,725

3.8

0.67

Real estate

11,122

6.7

1.47

10,038

6.8

1.45

Transportation, logistics and

postal services

15,932

9.6

0.91

12,630

8.5

0.77

Wholesale and retail

30,453

18.3

7.90

30,541

20.5

9.83

Water, environment and

public utilities management

859

0.5

0.15

659

0.4

0.13

Construction

2,893

1.7

1.12

2,543

1.7

1.13

Mining

6,500

3.9

3.21

4,697

3.2

2.34

Leasing and commercial services

21,663

13.0

1.85

15,150

10.2

1.46

Finance

194

0.1

0.07

87

0.1

0.05

Information transmission,

  software and IT service

154

0.1

0.44

84

0.1

0.30

Others

5,429

3.3

2.16

6,012

4.0

2.92

Total

166,393

100.0

2.12

148,695

100.0

2.10

Interim Report 2020 69

Discussion and Analysis

Distribution of Non-Performing Loans by Geographic Region

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Non-

Non-

Percentage

performing

Percentage

performing

Item

Amount

(%)

loan ratio (%)

Amount

(%)

loan ratio (%)

Head Office

1,314

0.6

0.48

6

-

-

Yangtze River Delta

29,714

14.3

0.90

29,228

15.6

0.98

Pearl River Delta

16,286

7.8

0.69

16,805

9.0

0.79

Bohai Rim

53,281

25.7

2.48

46,883

25.1

2.34

Central China

44,411

21.4

2.04

35,969

19.2

1.81

Northeastern China

10,974

5.3

2.04

8,987

4.8

1.79

Western China

45,059

21.7

1.39

42,537

22.7

1.43

Overseas and others

6,706

3.2

1.45

6,795

3.6

1.62

Total

207,745

100.0

1.43

187,210

100.0

1.40

Changes in the Allowance for Impairment Losses on Loans

In millions of RMB

Six months ended 30 June 2020

Stage I

Stage II

Stage III

Total

12-month

expected

Lifetime expected

Item

credit losses

credit losses

31 December 2019

364,045

57,720

131,350

553,115

Transfer1

  Stage I to stage II

(7,138)

7,138

-

-

  Stage II to stage III

-

(20,201)

20,201

-

  Stage II to stage I

3,170

(3,170)

-

-

  Stage III to stage II

-

2,483

(2,483)

-

Originated or purchased financial assets

104,644

-

-

104,644

Remeasurement

7,159

26,566

27,778

61,503

Repayment and transfer-out

(55,072)

(7,697)

(27,365)

(90,134)

Write-offs

-

-

(22,013)

(22,013)

30 June 2020

416,808

62,839

127,468

607,115

Notes: 1.

For details of the three-stage impairment model, please refer to "Note 21 Loans and Advances to Customers" to the

Condensed Consolidated Interim Financial Statements.

2. The table includes the allowance for impairment losses on loans measured at fair value through other comprehensive income.

70

Discussion and Analysis

Market Risk Management

During the reporting period, we formulated annual market risk management strategies and optimized our market risk management system. We continued to optimize various functions of the market risk management system and carried out comprehensive validation of Internal Model Approach. We enhanced business management on the derivative transactions with customers and account-specific products. We strengthened the performance guarantee for customers regarding their derivative transaction contracts and risk control over account-specific products. We further optimized and adjusted the exposure limits, by setting different market risk exposure limits based on parameters such as the types of products, business portfolios and types of risks. All the indicators were under control and within the limits. We properly controlled the financial investment volume and duration of the investment portfolio and constantly maintained the exposure limits of various kinds of proprietary trading at a prudential level. As a result, the exposures to our market operations were under control as a whole.

We classify all of the on- and off-balance sheet assets and liabilities into either the trading book or the banking book. The trading book includes the financial instruments and commodity positions held for trading or hedging against the risk of other items in the trading book. Any other positions are classified into the banking book.

Market Risk Management for Trading Book

We manage the market risk of the trading book through various approaches such as Value at Risk (VaR), exposure limit management, sensitivity analysis, duration analysis, exposure analysis and stress testing.

We adopt a historical simulation method with a confidence interval of 99% based on a holding period of one day and historical data for 250 days to measure the VaR for the trading book of the Head Office and domestic and overseas branches of the Bank.

VaR Analysis for the Trading Book

In millions of RMB

Six months ended 30 June 2020

Six months ended 30 June 2019

At the

At the

end of

end of

Item

period

Average

Maximum

Minimum

period

Average

Maximum

Minimum

Interest rate risk

115

88

164

52

78

98

116

78

Exchange rate risk1

200

161

200

90

153

118

156

62

Commodity risk

87

48

87

9

13

19

25

5

Overall VaR

256

188

256

117

170

145

172

98

Note: 1. According to the Capital Rules for Commercial Banks (Provisional), VaR relating to gold was reflected in exchange rate risk.

Interim Report 2020 71

Discussion and Analysis

Change in VaR of Trading Book in the first half of 2020

In millions of RMB

300

Overall VaR

Commodity risk

250

Exchange rate risk

Interest rate risk

200

150

100

50

0

2020/01

2020/02

2020/03

2020/04

2020/05

2020/06

During the reporting period, since the bond portfolio investments increased and the interest rate showed a significant short-term upward trend, the VaR of interest rate risk increased slightly as compared to the first half of the previous year. As the foreign exchange exposure remained stable, the net exposure of gold portfolio increased, and domestic and overseas gold prices fluctuated higher than that in the first half of the previous year, the VaR of exchange rate risk increased as compared to the first half of the previous year. As the net exposure of silver portfolio increased and the volatility of prices increased, the VaR of commodity risk was higher than that in the first half of the previous year.

Market Risk Management for Banking Book

We manage market risk of the banking book through comprehensive use of technical measures such as exposure limit management, stress testing, scenario analysis and gap analysis.

Interest Rate Risk Management

In the first half of 2020, we paid close attention to interest rate movements, flexibly adjusted our internal and external pricing strategies, and constantly optimized the asset and liability product portfolio and their term structure, so as to reduce the impact of interest rate fluctuations on our overall earnings and economic value. We steadily promoted the conversion of benchmark interest rate for existing loans and applied LPR as the pricing benchmark to all new loans, resulting in most of our corporate loans linked to LPR and a significant decline in our interest rates. Under the regulators' guidelines of cutting costs and benefiting the real economy, we stabilized our net interest margins and maintained the steady growth of our net interest income by adopting measures such as optimizing asset and liability structure and enhancing delicacy management. During the reporting period, our interest rate risk generally remained stable, while all risk exposure limits were controlled within the scope of regulatory requirements and management objectives.

At 30 June 2020, the accumulative negative gap with interest rate sensitivity due within one year of the Bank amounted to RMB876,815 million, representing a decrease of RMB244,540 million in absolute terms as compared to the end of the previous year.

72

Discussion and Analysis

Interest Rate Risk Gap

In millions of RMB

Sub-Total of

Within

1-3

3-12

1 year and

Over

Non-interest

1 month

months

months

below

1-5 years

5 years

earning

30

June 2020

(9,073,548)

816,270

7,380,463

(876,815)

215,634

2,307,295

138,970

31

December 2019

(3,981,517)

341,810

2,518,352

(1,121,355)

814,042

1,986,997

79,447

Note: Please refer to "Note 47.3 Financial Risk Management: Market Risk" to the Condensed Consolidated Interim Financial Statements for more details.

Interest Rate Sensitivity Analysis

In millions of RMB

30 June 2020

31 December 2019

Movements

Movements

Movements

in other

Movements

in other

in net interest

comprehensive

in net interest

comprehensive

Movements in basis points

income

income

income

income

Increased by 100 basis points

(52,476)

(44,648)

(25,607)

(42,579)

Decreased by 100 basis points

52,476

44,648

25,607

42,579

The interest rate sensitivity analysis above indicates the movements within the next twelve months in net interest income and other comprehensive income under various interest rate conditions, assuming that there is a parallel shift in the yield curve and without taking into account any risk management measures probably adopted by the management to reduce interest rate risk.

Based on the composition of the assets and liabilities at 30 June 2020, if the interest rates instantaneously increase (or decrease) by 100 basis points, the net interest income and other comprehensive income of the Bank would decrease (or increase) by RMB52,476 million and RMB44,648 million, respectively.

Exchange Rate Risk Management

The Bank's exchange rate risk is mainly the exposure risk arising from the exchange rate of USD against RMB. During the reporting period, we regularly monitored exchange rate risk exposures and performed sensitivity analysis, continued to refine the measurement on exchange rate risk, and flexibly adjusted the trading exchange rate risk exposures, while maintaining structural exchange rate risk exposures stable. Therefore, our bank-wide exchange rate risk exposure was controlled within a reasonable range.

In the first half of 2020, the mid-point rate of RMB against USD depreciated accumulatively by 1,033 basis points or 1.48%. At 30 June 2020, the foreign exchange exposure of on- and off-balance sheet financial assets/liabilities was USD6,504 million, representing an increase of USD2,962 million in absolute terms as compared to the end of the previous year.

Interim Report 2020 73

Discussion and Analysis

Foreign Exchange Exposure

In millions of RMB (USD)

30 June 2020

31 December 2019

USD

USD

RMB

equivalent

RMB

equivalent

Net foreign exchange exposure of

on-balance sheet financial assets/liabilities

156,318

22,080

50,482

7,236

Net foreign exchange exposure of

off-balance sheet financial assets/liabilities

(110,271)

(15,576)

(25,767)

(3,694)

Note: Please refer to "Note 47.3 Financial Risk Management: Market Risk" to the Condensed Consolidated Interim Financial Statements for more details.

Exchange Rate Sensitivity Analysis

In millions of RMB

Increase/decrease

in exchange rate

Impact on profit before tax

of foreign currency

30 June

31 December

Currency

against RMB

2020

2019

USD

+5%

(587)

1,346

-5%

587

(1,346)

HKD

+5%

602

(832)

-5%

(602)

832

The non-RMB denominated assets and liabilities of the Bank were primarily denominated in USD and HKD. Based on the exchange rate exposure at the end of the reporting period, the profit before tax of the Bank will decrease (or increase) by RMB587 million if USD appreciates (or depreciates) by 5% against RMB.

Liquidity Risk Management

Liquidity Risk Management Governance Structure

The liquidity risk management governance structure of the Bank consists of a decision-making system, an execution system and a supervision system, among which, the decision-making system comprises the Board of Directors and its Risk Management/Consumers' Interest Protection Committee and the senior management; the execution system comprises departments of liquidity management, asset and liability businesses and information and technology departments, etc.; and the supervision system comprises the Board of Supervisors, the Audit Office, the Internal Control and Compliance Supervision Department and the Legal Affairs Department. The aforesaid systems perform their respective decision-making, execution and supervision functions based on the division of responsibility.

74

Discussion and Analysis

Liquidity Risk Management Strategy and Policy

We adhered to a prudent liquidity management strategy. We formulated our liquidity risk management policy pursuant to the regulatory requirements, external macroeconomic environment and our business development. We maintained an effective balance among liquidity, security and profitability, having the liquidity security being insured as prerequisite.

Liquidity Risk Management Objectives

We were able to effectively identify, measure, monitor and report liquidity risk by establishing a scientific and refined liquidity risk management system, to ensure that we could promptly fulfil the liquidity needs of assets, liabilities and off-balance sheet businesses and perform the payment obligations under normal business environment or under operational pressure, and to effectively balance both capital efficiency and security of liquidity while preventing the overall liquidity risk of the Group.

Liquidity Risk Management Method

We paid close attention to changes in economic and financial situation, monetary policies, and market liquidity, continued to monitor our bank-wide liquidity condition. We strengthened the asset liability management to mitigate risks related to mismatch of maturity. We secured the core sources of deposits and facilitated the use of financial instruments, to keep our financing channels smooth in the market. We improved the liquidity management mechanism through strengthening the monitoring, early warning, and overall allocation of liquidity position. With a moderate reserve level, we satisfied various payment demands. In addition, we refined the functions of the liquidity management system to improve our electronic management.

Stress Testing Situation

We set liquidity risk stress scenarios based on the market condition and operation practice and full consideration of various risk factors which may affect the liquidity. We conducted stress testing quarterly. According to the testing results, under the prescribed stress scenarios, we have passed all the shortest survival period tests as required by regulatory authorities.

Main Factors Affecting Liquidity Risk

In the first half of 2020, due to the impact of the pandemic, major economies all adopted looser monetary policies. The focuses of China's macro-economic policy varied at different stages of the pandemic prevention and control, while there was greater fluctuation in the market. Therefore, we faced much more challenges in our liquidity risk management such as increased volatility of liabilities, greater pressure from maturity mismatch management and structural optimization of assets and liabilities, and increased difficulty in balancing liquidity, security, and profitability.

Interim Report 2020 75

Discussion and Analysis

Liquidity Risk Analysis

During the reporting period, we managed cash flows brought by maturing fund properly and the overall liquidity was sufficient, secured and under control, with all regulatory indicators fulfilling the regulatory requirements. At the end of June 2020, our liquidity ratios for RMB and foreign currency were 55.53% and 151.98%, respectively. The daily average of the liquidity coverage ratio over the second quarter in 2020 decreased by 3.5 percentage points to 141.7% as compared to the previous quarter. At the end of June 2020, the net stable funding ratio was 124.7%, representing a decrease of 2.5 percentage points as compared to the previous quarter, with available stable funding of RMB18,592.6 billion in numerator and the required stable funding of RMB14,910.3 billion in denominator.

Liquidity Gap Analysis

The table below presents the Bank's net position of liquidity as at the dates indicated.

In millions of RMB

Within

1-3

3-12

Over

Past due

On demand

1 month

months

months

1-5 years

5 years

Undated

Total

30

June 2020

27,260

(12,719,098)

550,473

(388,168)

481,209

2,548,315

8,867,725

2,417,368

1,785,084

31

December 2019

25,889

(11,688,565)

567,445

(690,129)

36,340

3,066,681

8,144,318

2,297,152

1,759,131

Note: Please refer to "Note 47.2 Financial Risk Management: Liquidity risk" to the Condensed Consolidated Interim Financial Statements for more details.

For details of liquidity coverage ratio and net stable funding ratio of the Bank, please refer to "Appendix II Liquidity Coverage Ratio Information" and "Appendix III Net Stable Funding Ratio Information", respectively.

Operational Risk Management

During the reporting period, we continued to improve the standards, strengthened the management, and effectively increased the accuracy, completeness and timeliness of the operational risk data. The operational risk management information system was optimized by improving its automatic data aggregation technology. We monitored, analyzed and reported operational risk events on an on-going basis, sorted out material and important cases as well as major hidden risks, and focused on the prevention and control of operational risks in key business areas and personnel in important positions. We continued to improve our IT risk management system in respect of measures for IT administration, development and operation management of IT system, and cyber security and protection, so as to prevent bank-wide and regional major IT risks. We also continued to promote the emergency response and disaster recovery drills in relation to our information systems to ensure the safe and stable operation of our important information systems.

76

Discussion and Analysis

Legal Risk Management

In the first half of 2020, we continued the construction of Agricultural Bank of China under the Rule of Law to further promote law-based governance. We provided legal support for digital transformation, serving Sannong, inclusive finance and private enterprises, reform of liberalization of the interest rate and other related businesses, to serve the real economy. We properly handled material litigations, risk events and intellectual property disputes at home and prudently addressed the risk of being involved in overseas litigations. We enhanced control over legal risks related to integrated and cross-border operation. We increased the guidance on the legal risk management for our subsidiaries, monitored important laws and regulations overseas and conducted legitimacy assessments on cross-border data, in order to establish an integrated legal risk management system at Group level.

We popularized the rule of law to raise the legal consciousness of all employees. We strengthened the learning and publicity of the Civil Code to help all employees deeply understand and grasp the core concept of the Civil Code, to ensure that adaptive adjustments had been made timely for various systems and contracts in the bank. We carried out the publicity on the rule of law for pandemic prevention and control and compiled more than 50 documents including the Legal Guidelines for the Prevention and Control of COVID-19 to improve the employees' ability to prevent and control the pandemic according to law.

Reputational Risk Management

In the first half of 2020, we improved the reputational risk management mechanism, focused on resolving reputational risks from the source, and enhanced the overall collaborative management within the Group. We continued to strengthen the inspection and early warning of reputational risk, optimized our list for public opinion management, and refined the assessment and evaluation on reputational risk management, to improve the delicacy management of reputational risk. For those key fields in which public opinions frequently occurred, we conducted positive publicity and inducement and responded to market concerns timely and appropriately.

Country Risk Management

In accordance with regulatory requirements, we managed country risk through tools such as country risk rating, limit approval, exposure analysis and stress testing. In response to changes in the external situation, we timely made country risk assessment and adjustments to rating and limit. Taking full account of the impact of country risk on the asset quality, we made full provision for asset impairment.

Risk Consolidated Management

We continued to promote the risk consolidation management of the Group, and advanced the integration of risk management of the parent company and subsidiaries, through instructing the subsidiaries to revise their risk appetite statements and risk management policies, improve their quantitative indicators for risk appetite, and focus on the important work of the year relating to business development and risk management. We supported our subsidiaries to provide financial services for the pandemic prevention and control, and strengthen the monitoring, prevention, and control of pandemic related risks. We continued to carry out risk monitoring, risk management and assessment as well as risk evaluation at the level of affiliate, impelled the construction of risk data marts for our subsidiaries and increased the Group's risk data aggregation capabilities.

Interim Report 2020 77

Discussion and Analysis

Internal Control

Internal Control Construction

During the reporting period, we improved the construction of our supervision system for internal control and compliance and implemented the plan for prevention of cases of violations, to continuously improve our management capabilities of internal control and prevention and control of risks, which ensure our operation is in compliance with laws and regulations.

We improved the internal control and compliance system. We promoted the construction of system in the whole bank and effectively conducted compliance review. We coordinated the promotion the sharing and integration of operational risk management, internal control and compliance management in methods, tools, procedures, systems, personnel and rules. We carried out the warning and education activities through cases of violations, and promoted the construction of compliance culture.

We implemented the Sharp Arrow Plan for prevention of cases of violations. To effectively prevent and control risks related to the cases of violations and ensure the steady development of business operation, we issued the Sharp Arrow Plan (2020-2022) for prevention of cases of violations, which stipulated the objectives for the three years to prevent and control of cases of violations in the whole bank. We comprehensively carried out all assignments to improve the quality and efficiency of case prevention work.

We intensified integrated management of the Group. Following the regulatory requirements, we continued to promote the establishment of a long-term compliance management mechanism for our overseas institutions. We continued our construction of integrated authorization system of the Group and standardized the authorization management of subsidiaries. We reinforced the management over limits of insider trading for major institutions and businesses, to prevent the risks of insider trading within the Group.

We strengthened supervision and accountability. In response to frequent behaviours violating laws and regulations, we strengthened compliance inspections and specific measures. We established a mechanism for supervision and evaluation on quality of inspections as well as punishment, which strengthened accountability and due diligence exemption, to constantly enhance our capability of self-examination,self-correction, self- improvement and self-perfection.

78

Discussion and Analysis

Anti-money Laundering

In the first half of 2020, we earnestly implemented the onshore and offshore regulatory requirements, coordinated overall arrangements for pandemic prevention and control, anti-money laundering and sanction compliance, and fully promoted the construction of our system for global anti-money laundering and sanction compliance.

We strengthened the top design. We carried out institutional reform of our global anti-money laundering center, promoted the improvement of our system for the anti-money laundering and sanction compliance, and commenced building an enterprise-level intelligent management and control platform for sanctions compliance.

By strengthening the integrated management over institutions overseas and subsidiaries, we enhanced the direct control of the Head Office over anti-money laundering and sanction compliance.

We strengthened the fundamentals of our anti-money laundering compliance management. We steadily promoted the money-laundering risk assessment in respect of clients, products and institutions and maintained high-frequency compliance training with high quality.

Through monitoring the suspicious transactions during the pandemic, we successfully detected and intercepted a number of cases of fraud, smuggling, illegal fund-raising and underground banking related to the pandemic, thus playing an important role in safeguarding China's financial security and social stability.

Anti-corruption and Anti-bribery

Based on the action program of fighting and winning the battle of prevention of cases of violations, we successively drafted or revised the administrative measures for prevention of cases of violations and administrative measures for case disposal, and continued to establish a sound management system to effectively strengthen our capability for prevention of cases of violations.

We fortified the ideological and moral defense of our staff against corruption and bribery. We gave full play to our characteristic "Three Lines and One Grid" management mode, to continuously strengthen the daily management of employees' behaviours and supervision and management of key positions. We improved the mechanism for violation clues reporting and early warning information, examination to encourage employees to actively participate in the prevention of cases related to corruption and bribery. We continued to carry out education activities giving alerts through demonstration of cases of violations, so as to constantly improve all employees' awareness of compliance operation in accordance with laws and prevent the risk of cases related to the employees' corruption and bribery.

Interim Report 2020 79

Discussion and Analysis

Capital Management

During the reporting period, we implemented our capital plan for 2019-2021 in accordance with the requirements of the Capital Rules for Commercial Banks (Provisional), fulfilled the restriction and guidance functions of capital on business, enhanced internal and external capital replenishment capacity, improved our long-term mechanism of capital management, and maintained prudent capital adequacy.

During the reporting period, our capital adequacy ratios increased steadily by promoting capital replenishment actively, which provided strong support for our business development and operation transformation. We continued to enhance the establishment of the internal capital adequacy assessment process (ICAAP), completed the internal capital adequacy assessment for 2020 and upgraded ICAAP working mechanism continuously in order to consolidate the foundation of capital and risk management.

Following the requirements of the Financial Stability Board (FSB) and other international and domestic regulatory requirements, as one of the Global Systemically Important Banks, we established a retest mechanism for the recovery and disposal plan and constantly improved risk warning and crisis management capabilities to reduce our risk spillover in the crises and strengthen the foundation for financial stability. We kept track of regulatory policies, enhanced the research and analysis of Total Loss Absorption Capacity (TLAC) and consolidated the basics for meeting regulatory requirements in order to enhance our risk resistance capability and public confidence.

We implemented advanced approaches of capital management and adopted advanced approaches of capital measurement and other approaches in the parallel implementation period to calculate capital adequacy ratio according to requirements of the CBIRC.

Management of Capital Financing

In May 2020, we issued RMB40 billion of tier-2 capital bonds in the inter-bank bond market of China. After deducting expenses in relation to the issuance, the proceeds were fully used to replenish our Tier 2 capital.

In May and August 2020, we issued RMB85 billion and RMB35 billion of write-down undated capital bonds in the inter-bank bond market of China, respectively. After deducting expenses in relation to the issue, the proceeds were fully used to replenish our additional Tier 1 capital.

For details of such issue, please refer to the relevant announcements published on the websites of the Shanghai Stock Exchange (www.sse.com.cn) and the Hong Kong Stock Exchange (www.hkexnews.hk).

Management of Economic Capital

During the reporting period, we constrained total capital, optimized asset structure and controlled the growth of risk- weighted assets in order to achieve capital-intensive development. We continued to improve the economic capital allocation mechanism, focused on strategic objectives and increased economic capital allocation in key areas, such as the fight against poverty, pandemic prevention and control, inclusive finance, and County Area Banking Business. We upgraded the capital management system, which improved the promptness and effectiveness of the transmission of capital management policies and the efficiency of monitoring economic capital.

Capital Adequacy Ratio and Leverage Ratio

For details of our capital adequacy ratio and leverage ratio, please refer to "Appendix I Capital Adequacy Ratio Information" and "Appendix IV Leverage Ratio Information", respectively.

80

Changes in Share Capital and Shareholdings of Substantial Shareholders

Changes in Share Capital of Ordinary Shares

Details of Changes in Share Capital

Unit: Share

Increase/decrease during the

31 December 2019

reporting period (+, -)

30 June 2020

Number of

New Shares

Number of

Shares

Percentage3 (%)

Issued

Others

Sub-Total

Shares

Percentage3 (%)

I. Shares held subject to restrictions on sales1

25,188,916,873

7.20

-

-

-

25,188,916,873

7.20

1.

State-owned2

19,959,672,543

5.70

-

-

-

19,959,672,543

5.70

2.

State-owned legal entity2

5,037,783,373

1.44

-

-

-

5,037,783,373

1.44

3.

Other domestic shares2

191,460,957

0.05

-

-

-

191,460,957

0.05

II. Shares held not subject to restrictions on sales

324,794,117,000

92.80

-

-

-

324,794,117,000

92.80

1.

RMB-denominated ordinary shares

294,055,293,904

84.02

-

-

-

294,055,293,904

84.02

2.

Foreign-invested shares listed overseas2

30,738,823,096

8.78

-

-

-

30,738,823,096

8.78

III. Total number of shares

349,983,033,873

100.00

-

-

-

349,983,033,873

100.00

Notes: 1.

"Shares held subject to restrictions on sales" refer to the shares held by shareholders who are subject to restrictions

on sales in accordance with laws, regulations, rules, or commitments.

  1. "State-owned"in this table refers to the shares held by the MOF and Huijin. "State-owned legal entity" refers to the shares held by China National Tobacco Corporation, Shanghai Haiyan Investment Management Company Limited, Zhongwei Capital Holding Company Limited and China National Tobacco Corporation Hubei Province Company. "Other domestic shares" refer to the shares held by New China Life Insurance Company Limited. "Foreign- invested shares listed overseas" refer to the H shares as defined in the No. 5 Standards on the Content and Format of Information Disclosure of Companies with Public Offerings - Content and Format of the Report of Change in Shareholding (Revision 2007) of the CSRC.
  2. Rounding errors may arise in the "Percentage" column of the table above as the figures are rounded to the nearest decimal number.
  3. Information in the table above was based on the share registration recorded in Shanghai Branch of China Securities Depository and Clearing Corporation Limited and Computershare Hong Kong Investor Services Limited at 30 June 2020.

The trading date of shares held subject to restrictions on sales

Unit: Share

Number of

new shares for trading

Balance of shares

Balance of shares

upon the expiry of the

held subject to

held not subject to

Date

restrictions on sales

restrictions on sales

restrictions on sales

Description

2 July 2021

5,229,244,330

19,959,672,543

330,023,361,330

China National Tobacco Corporation, Shanghai Haiyan

Investment Management Company Limited, Zhongwei Capital

Holding Company Limited, China National Tobacco Corporation

Hubei Province Company and New China Life Insurance

Company Limited

2 July 2023

19,959,672,543

-

349,983,033,873

Huijin, MOF

Interim Report 2020 81

Changes in Share Capital and Shareholdings of Substantial Shareholders

The shareholdings of the shareholders subject to restrictions on sales and the terms of restrictions on sales

Unit: Share

Number of shares

Shareholders

held subject to

Number of

subject to

restrictions

new shares

No.

restrictions on sales

on sales

Date of trading

for trading

Restrictions on sales

1

Huijin

10,082,342,569

2 July 2023

-

Five years from the date of

acquisition of equity

2

MOF

9,877,329,974

2 July 2023

-

Five years from the date of

acquisition of equity

3

China National Tobacco

2,518,891,687

2 July 2021

-

36 months from the date of

  Corporation

  completion of the private

placement

4

Shanghai Haiyan Investment

1,259,445,843

2 July 2021

-

36 months from the date of

  Management Company Limited

  completion of the private

placement

5

Zhongwei Capital Holding

755,667,506

2 July 2021

-

36 months from the date of

  Company Limited

  completion of the private

placement

6

China National Tobacco Corporation

503,778,337

2 July 2021

-

36 months from the date of

  Hubei Province Company

  completion of the private

placement

7

New China Life Insurance

191,460,957

2 July 2021

-

36 months from the date of

  Company Limited

  completion of the private

placement

Details of Issuance and Listing of Securities

Issue of Securities

For issue of securities of the Bank during the reporting period, please refer to "Note 33 Debt Securities Issued" to the Condensed Consolidated Interim Financial Statements for details.

Employee Shares

The Bank had no employee shares.

Particulars of Holders of Ordinary Shares

Number of Shareholders and Particulars of Shareholding

As at 30 June 2020, the Bank had a total of 417,216 shareholders, including 22,654 holders of H Shares and 394,562 holders of A Shares.

82

Changes in Share Capital and Shareholdings of Substantial Shareholders

Particulars of shareholdings of the top 10 shareholders of the Bank (the shareholdings of holders of H Shares are based on the number of shares as set out in the register of members of the Bank maintained by its H Share registrar)

Unit: Share

Total number of shareholders

417,216 (as set out in the registers of shareholders of

A Shares and H Shares as at 30 June 2020)

Particulars of shareholdings of the top 10 shareholders (the information below is based on the registers of shareholders as at 30 June 2020)

Increase/

Number of

decrease

shares held

during the

Shareholding

subject to

Number of

Nature of

Type of

reporting

percentage

Total number

restrictions

shares pledged

Name of shareholders

shareholders

shares

period (+, -)

(%)

of shares held

on sales

or locked-up

Huijin

State-owned

A Shares

-

40.03

140,087,446,351

10,082,342,569

None

MOF

State-owned

A Shares

-

35.29

123,515,185,240

9,877,329,974

None

HKSCC Nominees Limited

Overseas legal

H Shares

-3,851,080

8.73

30,557,230,066

-

Unknown

  entity

SSF

State-owned

A Shares

-

6.72

23,520,968,297

-

None

China Life Insurance Company Limited

Others

A Shares

+269,966,533

0.81

2,824,241,632

-

None

- Traditional

  - General insurance products

- 005L - CT001 Hu

China Life Insurance Company Limited

Others

A Shares

+36,201,457

0.74

2,575,513,484

-

None

- Dividend distribution

- Individual dividend

- 005L - FH002 Hu

China National Tobacco Corporation

State-owned

A Shares

-

0.72

2,518,891,687

2,518,891,687

None

  legal entity

China Securities Finance Corporation

State-owned

A Shares

-

0.53

1,842,751,186

-

None

Limited

  legal entity

Hong Kong Securities Clearing Company

Overseas legal

A Shares

-87,203,272

0.37

1,308,640,283

-

None

Limited

  entity

Shanghai Haiyan Investment

State-owned

A Shares

-

0.36

1,259,445,843

1,259,445,843

None

Management Company Limited

  legal entity

Notes: 1. The total number of shares held by HKSCC Nominees Limited represents the number of H Shares held by it in aggregate as a nominee on behalf of all institutional and individual investors registered with it as at 30 June 2020.

  1. The number of shares held by Hong Kong Securities Clearing Company Limited represents the A Shares (northbound shares of Shanghai-Hong Kong Stock Connect) held by it as a nominee for and on behalf of investors from Hong Kong and overseas.
  2. Pursuant to the Notice on the Full Implementation of Transferring Part of State-owned Capital to Replenish Social Security Funds (Cai Zi [2019] No. 49) jointly issued by the MOF, Ministry of Human Resources and Social Security, State-owned Assets Supervision and Administration Commission of the State Council, State Taxation Administration, and the CSRC, the MOF transferred 13,723,909,471 shares to the state-owned capital transfer account of the SSF on one-off basis. In compliance with the Notice of the State Council on Printing and Distributing the Implementation Plan of Transferring Part of State-owned Capital to Replenish Social Security Funds (Guo Fa [2017] No. 49), the SSF shall be obligated to observe a lock-up period not less than three years from the date on which the shares are credited to the account.

Interim Report 2020 83

Changes in Share Capital and Shareholdings of Substantial Shareholders

4. Among the shareholders listed above, both "China Life Insurance Company Limited - Traditional - General insurance products - 005L - CT001 Hu" and "China Life Insurance Company Limited - Dividend distribution - Individual dividend - 005L - FH002 Hu" are under the management of China Life Insurance Company Limited; China National Tobacco Corporation is the de facto controller of Shanghai Haiyan Investment Management Company Limited. Save as mentioned above, the Bank is not aware of any connections between the shareholders above, or whether they are parties acting in concert. The number of shares held by "China Life Insurance Company Limited

  • Traditional - General insurance products - 005L - CT001 Hu" and "China Life Insurance Company Limited
  • Dividend distribution - Individual dividend - 005L - FH002 Hu" amounted to 5,399,755,116 in aggregate, accounting for 1.54% of the total share capital of the Bank. The number of shares held by China National Tobacco Corporation and Shanghai Haiyan Investment Management Company Limited amounted to 3,778,337,530 in aggregate, accounting for 1.08% of the total share capital of the Bank.

Particulars of shareholdings of the top 10 shareholders not subject to restrictions on sales (the data below

are based on the registers of shareholders as at 30 June 2020)

Unit: Share

Number of

shares held not

subject to

restrictions

Name of shareholders

on sales

Type of shares

Huijin

130,005,103,782

A Shares

MOF

113,637,855,266

A Shares

HKSCC Nominees Limited

30,557,230,066

H Shares

SSF

23,520,968,297

A Shares

China Life Insurance Company Limited

2,824,241,632

A Shares

  - Traditional - General insurance products

  - 005L - CT001 Hu

China Life Insurance Company Limited

2,575,513,484

A Shares

  - Dividend distribution - Individual dividend

  - 005L - FH002 Hu

China Securities Finance Corporation Limited

1,842,751,186

A Shares

Hong Kong Securities Clearing Company Limited

1,308,640,283

A Shares

Central Huijin Asset Management Ltd.

1,255,434,700

A Shares

Wutongshu Investment Platform Co., Ltd.

980,723,700

A Shares

Notes: 1. The total number of shares held by HKSCC Nominees Limited represents the number of H Shares held by it in aggregate as a nominee on behalf of all institutional and individual investors registered with it as at 30 June 2020.

  1. The number of shares held by Hong Kong Securities Clearing Company Limited represents the A Shares (northbound shares of Shanghai-Hong Kong Stock Connect) held by it as a nominee for and on behalf of investors from Hong Kong and overseas.
  2. Central Huijin Asset Management Ltd. is a wholly-owned subsidiary of Huijin. Both "China Life Insurance Company Limited - Traditional - General insurance products - 005L - CT001 Hu" and "China Life Insurance Company Limited - Dividend distribution - Individual dividend - 005L - FH002 Hu" are under the management of China Life Insurance Company Limited. Save as mentioned above, the Bank is not aware of any connections between the shareholders above or between such shareholders and the top 10 shareholders, or whether they are parties acting in concert.

84

Changes in Share Capital and Shareholdings of Substantial Shareholders

Particulars of Substantial Shareholders

Change in Substantial Shareholders and De Facto Controller

During the reporting period, the Bank's substantial shareholders and controlling shareholders remained unchanged. The Bank had no de facto controller.

Interests and Short Positions Held by Substantial Shareholders and Other Persons

As at 30 June 2020, the Bank received notifications from the following persons regarding their interests or short positions in the shares and underlying shares of the Bank. Such interests or short positions were recorded in the register required to be kept pursuant to Section 336 of the Securities and Futures Ordinance of Hong Kong, details of which are set out below:

Unit: Share

Percentage of

Percentage of

Interest and

issued class

total issued

Name

Capacity

short positions

Nature

shares (%)

shares (%)

Huijin

Beneficial owner

140,087,446,351 (A Shares)

Long position

43.88

40.03

Interest of controlled entity

1,255,434,700

(A Shares)

Long position

0.39

0.36

MOF

Beneficial owner/nominee1

133,312,244,066 (A Shares)2

Long position

41.76

38.09

China Life Insurance

Beneficial owner

320,369,000 (H Shares)3

Long position

1.04

0.09

  (Group) Company

Interest of controlled entity

2,780,695,000

(H Shares)3

Long position

9.05

0.79

China Life Insurance

Beneficial owner

2,780,695,000 (H Shares)3

Long position

9.05

0.79

  Company Limited

SSF

Beneficial owner

23,520,968,297

(A Shares)

Long position

7.37

6.72

The Bank of New York

Interest of controlled entity

2,528,604,097

(H Shares)

Long position

8.23

0.72

  Mellon Corporation

2,475,577,852

(H Shares)

Shares available

8.05

0.71

  for lending

BlackRock, Inc.

Interest of controlled entity

1,836,607,204

(H Shares)4

Long position

5.97

0.52

6,655,000

(H Shares)

Short position

0.02

0.00

Citigroup Inc.

Interest of controlled entity

39,703,597

(H Shares)5

Long position

0.13

0.01

14,269,755

(H Shares)

Short position

0.05

0.00

Approved lending agent

1,546,163,444

(H Shares)5

Shares available

5.03

0.44

  for lending

China Taiping Insurance

Interest of controlled entity

1,545,179,000

(H Shares)6

Long position

5.03

0.44

  Group Ltd.

China Taiping Insurance

Interest of controlled entity

1,545,179,000

(H Shares)6

Long position

5.03

0.44

  Holdings Company Limited

Taiping Life Insurance

Beneficial owner

1,545,179,000

(H Shares)6

Long position

5.03

0.44

  Co., Ltd.

Taiping Asset

Investment manager

1,543,690,000

(H Shares)

Long position

5.02

0.44

  Management Co., Ltd.

Interest of controlled entity

1,489,000

(H Shares)7

Long position

0.00

0.00

Interim Report 2020 85

Changes in Share Capital and Shareholdings of Substantial Shareholders

Notes: 1. 9,797,058,826 A Shares are held by the SSF, but the voting rights of these shares were transferred to the MOF according to the share subscription agreement dated 21 April 2010 and the Approval on the Proposed Transfer of State-owned Shares of the Agricultural Bank of China issued by the MOF on 5 May 2010.

  1. According to the register of members of the Bank at 30 June 2020, the MOF held 123,515,185,240 A Shares of the Bank, representing 38.69% of the issued A Shares and 35.29% of the total issued shares of the Bank, respectively.
  2. China Life Insurance Company Limited is interested in 2,780,695,000 H Shares. As China Life Insurance Company Limited is a controlled entity of China Life Insurance (Group) Company, China Life Insurance (Group) Company is deemed to be interested in the 2,780,695,000 H Shares directly held by China Life Insurance Company Limited.
  3. BlackRock, Inc. is deemed to be interested in 1,836,607,204 H Shares in aggregate, directly or indirectly held by BlackRock Investment Management, LLC and BlackRock Financial Management, Inc., both of which are the wholly- owned subsidiaries of BlackRock, Inc.
  4. Citigroup Inc. is deemed to be interested in 1,585,867,041 H Shares in aggregate, directly or indirectly held by Citicorp LLC and Citibank, N.A., both of which are the wholly-owned subsidiaries of Citigroup Inc.
  5. China Taiping Insurance Group Ltd. and its non-wholly owned subsidiary, China Taiping Insurance Holdings Company Limited, are deemed to be interested in 1,545,179,000 H Shares directly held by Taiping Life Insurance Co., Ltd., which is the controlled entity of China Taiping Insurance Group Ltd.
  6. Taiping Asset Management Co., Ltd. is deemed to be interested in 1,489,000 H Shares directly held by Taiping Fund Management Co., Ltd., which is the controlled entity of Taiping Asset Management Co., Ltd., and such number of shares represented approximately 0.0048% of the issued class shares.

86

Details of Preference Shares

Issuance and Listing of Preference Shares

During the reporting period, the Bank did not issue or list any preference shares.

Number of Holders of Preference Shares and Their Shareholdings

As at 30 June 2020, the Bank had a total of 25 holders1 of the preference shares "農行優1".

Particulars of Shareholding of the Top 10 Holders of Preference Shares "農行優1" (Stock Code: 360001) (the

information below is based on the registers of shareholders as at 30 June 2020)

Unit: Share

Increase/

decrease

Number

during the

Shareholding

of shares

Nature of

reporting

Total number

percentage4

pledged or

Name of shareholders1

shareholders2

Type of shares

period (+, -)3

of shares held

(%)

locked-up

Bank of Communications

Others

Domestic preference

-

60,000,000

15.00

None

Schroder Fund Management

shares

Co., Ltd.

China Merchants Fund

Others

Domestic preference

-

49,000,000

12.25

None

Management Co., Ltd.

shares

Beijing Tiandi Fangzhong Asset

Others

Domestic preference

-

35,000,000

8.75

None

Management Co., Ltd.

shares

PICC Life Insurance Company Limited

Others

Domestic preference

-

30,000,000

7.50

None

shares

Ping An Life Insurance

Others

Domestic preference

-

30,000,000

7.50

None

  Company of China, Ltd.

shares

Hexie Health Insurance Co., Ltd.

Others

Domestic preference

-

30,000,000

7.50

None

shares

Beijing International Trust Co., Ltd.

Others

Domestic preference

-

30,000,000

7.50

None

shares

Zhonghai Trust Co., Ltd.

Others

Domestic preference

-

20,000,000

5.00

None

shares

Bank of Ningbo Co., Ltd.

Others

Domestic preference

-

15,000,000

3.75

None

shares

Bank of Beijing Scotiabank

Others

Domestic preference

-

12,000,000

3.00

None

Asset Management Co., Ltd.

shares

Notes: 1. The Bank is not aware of any connections between the above holders of preference shares, and between the above holders of preference shares and the top 10 holders of ordinary shares, or whether they are parties acting in concert.

2. As stipulated in the No. 3 Standards on the Content and Format of Information Disclosure of Companies with Public Offerings - Content and Format of Interim Report (Revision 2017), "Particulars of holders of preference shares should indicate the entities which hold shares on behalf of the states and foreign holders". Except for the entities which hold shares on behalf of the states and foreign holders, the nature of other holders of preference shares is categorized as "others".

1 The number of the holders of preference shares was calculated based on the number of qualified investors that hold such preference shares. When calculating the number of qualified investors, an asset management institution that purchases or transfers the preference shares through two or more products under its control will be counted as one.

Interim Report 2020 87

Details of Preference Shares

  1. "Increase/decrease during the reporting period (+, -)" refers to the change of shareholding due to secondary market transactions.
  2. "Shareholding percentage" refers to the percentage of "農行優1" held by the holders of preference shares to the total number of "農行優1" (i.e. 400 million shares).

As at 30 June 2020, the Bank had a total of 32 holders of the preference shares "農行優2".

Particulars of Shareholding of the Top 10 Holders of Preference Shares "農行優2" (Stock Code: 360009) (the data

below are based on the registers of shareholders as at 30 June 2020)

Unit: Share

Increase/

decrease

Number

during the

Shareholding

of shares

Nature of

reporting

Total number

percentage4

pledged or

Name of shareholders1

shareholders2

Type of shares

period (+, -)3

of shares held

(%)

locked-up

China Life Insurance

Others

Domestic preference

-

50,000,000

12.50

None

Company Limited

shares

China National Tobacco

Others

Domestic preference

-

50,000,000

12.50

None

Corporation

shares

Maxwealth Fund Management

Others

Domestic preference

-

25,000,000

6.25

None

Co., Ltd.

shares

China Zheshang Bank

Others

Domestic preference

+25,000,000

25,000,000

6.25

None

Co., Ltd.

shares

China Mobile Communications

Others

Domestic preference

-

20,000,000

5.00

None

Group Co., Ltd.

shares

Bank of Communications

Others

Domestic preference

-

20,000,000

5.00

None

Schroder Fund Management

shares

Co., Ltd.

Bank of China Limited,

Others

Domestic preference

-

20,000,000

5.00

None

Shanghai Branch

shares

China National Tobacco

Others

Domestic preference

-

20,000,000

5.00

None

Corporation Jiangsu

shares

Province Company

China National Tobacco

Others

Domestic preference

-

20,000,000

5.00

None

Corporation Yunnan

shares

Province Company

Shanghai Tobacco Group

Others

Domestic preference

-

15,700,000

3.93

None

Co., Ltd.

shares

Notes: 1. China National Tobacco Corporation Jiangsu Province Company, China National Tobacco Corporation Yunnan Province Company and Shanghai Tobacco Group Co., Ltd. are the wholly-owned subsidiaries of China National Tobacco Corporation. China National Tobacco Corporation is the de facto controller of Shanghai Haiyan Investment Management Company Limited. "China Life Insurance Company Limited - Traditional - General insurance product

- 005L - CT001 Hu" and "China Life Insurance Company Limited - Dividend distribution - Individual dividend - 005L - FH002 Hu" are both under the management of China Life Insurance Company Limited. Save as mentioned above, the Bank is not aware of any connections between the above holders of preference shares, and between the above holders of preference shares and the top 10 shareholders of ordinary shares, or whether they are parties acting in concert.

88

Details of Preference Shares

  1. As stipulated in the Standards on the Content and Format of Information Disclosure of Companies with Public Offerings No. 3 - Content and Format of the Interim Report (Revision 2017), "Particulars of holders of preference shares should indicate the entities which hold shares on behalf of the states and foreign holders". Except for the entities which hold shares on behalf of the states and foreign holders, the nature of other holders of preference shares is categorized as "others".
  2. "Increase/decrease during the reporting period (+, -)" refers to the change of shareholding due to secondary market transactions.
  3. "Shareholding percentage" refers to the percentage of "農行優2" held by the holders of preference shares to the total number of "農行優2" (i.e. 400 million shares).

The preference shares "農行優1" and "農行優2" of the Bank are shares not subject to restrictions on sale, and the top 10 holders of preference shares "農行優 1" and "農行優 2" who are not subject to restrictions on sales are the same as the top 10 holders of preference shares.

Profit Distribution of Preference Shares

Dividends of our preference shares are paid in cash annually. When we resolve to cancel part or all of the dividends to holders of preference shares, such undistributed dividends of current period shall not be accumulated to subsequent dividend periods. The holders of our preference shares, upon receiving dividends at the agreed rate, shall not participate in the distribution of the remaining profit attributable to the holders of ordinary shares.

On 11 March 2020, we paid cash dividends of RMB5.50 (tax inclusive) per preference share or RMB2.2 billion (tax inclusive) in aggregate (calculated at a coupon rate of 5.50%) to all holders of "農行優2" (stock code: 360009) whose names appeared on the register of members at the close of business on 10 March 2020.

On 3 July 2020, the Board of Directors of the Bank considered and approved the Dividend Payment Scheme of 2019- 2020 for the First Tranche of the Preference Shares. On 5 November 2020, we will pay cash dividends of RMB5.32 (tax inclusive) per preference share or RMB2.128 billion (tax inclusive) in aggregate, at a coupon rate of 5.32% to all holders of "農行優 1" (stock code: 360001) whose names appear on the register of members at the close of business on 4 November 2020.

Please refer to our relevant announcements published on the website of the Shanghai Stock Exchange (www.sse.com.cn) for details.

Redemption or Conversion of Preference Shares

During the reporting period, there was no redemption or conversion of the preference shares issued by the Bank.

Restoration of Voting Rights of Preference Shares

During the reporting period, there was no restoration of voting rights of the preference shares issued by the Bank.

Accounting Policies

In accordance with the Accounting Standards for Enterprises No. 22 - Recognition and Measurement of Financial Instruments, Accounting Standards for Enterprises No. 37 - Presentation of Financial Instruments and the Provisions on Differentiating Financial Liabilities and Equity Instruments and Related Accounting Treatment issued by the MOF, as well as International Financial Reporting Standard 9 - Financial Instruments and International Accounting Standard 32 - Financial Instruments: Presentation issued by the International Accounting Standards Board, we are of the view that the terms of preference shares "農行優 1" (stock code: 360001) and "農行優 2" (stock code: 360009) meet the definition of equity instruments.

Interim Report 2020 89

Directors, Supervisors and Senior Management

Directors, Supervisors and Senior Management of the Bank

As at the date of this interim report being considered and approved by the Board of Directors, the compositions of the Board of Directors, Board of Supervisors and senior management of the Bank were as follows:

The Board of Directors of the Bank consisted of 13 Directors, including three Executive Directors, namely Mr. ZHOU Mubing, Mr. ZHANG Qingsong and Ms. ZHANG Keqiu; five Non-executive Directors, namely Mr. ZHU Hailin, Mr. LIAO Luming, Mr. LI Qiyun, Mr. LI Wei and Mr. WU Jiangtao; and five Independent Non-executive Directors, namely Ms. XIAO Xing, Mr. WANG Xinxin, Mr. HUANG Zhenzhong, Ms. LEUNG KO May Yee, Margaret and Mr. LIU Shouying.

The Board of Supervisors of the Bank consisted of seven Supervisors, including one Supervisor Representing Shareholders, namely Mr. WANG Jingdong, three Supervisors Representing Employees, namely Mr. XIA Taili, Mr. SHAO Lihong and Mr. WU Gang, and three External Supervisors, namely Mr. LI Wang, Mr. ZHANG Jie and Ms. LIU Hongxia.

The senior management of the Bank consisted of six members, namely Mr. ZHANG Qingsong, Mr. ZHANG Xuguang, Ms. ZHANG Keqiu, Mr. ZHAN Dongsheng, Mr. CUI Yong and Mr. LI Zhicheng.

As at the end of the reporting period, except for Mr. ZHOU Wanfu, the then Secretary to the Board of Directors of the Bank, who held 10,000 A Shares of the Bank, none of the incumbent Directors, Supervisors or senior management of the Bank or who left office during the reporting period held any shares of the Bank, or held any share options of the Bank, or was granted restricted shares of the Bank.

Departure of Directors, Supervisors and Senior Management

On 18 June 2020, Mr. XU Jiandong resigned as a Non-executive Director of the Bank due to work arrangements.

On 29 June 2020, Mr. CHEN Jianbo resigned as a Non-executive Director of the Bank due to work arrangements.

On 28 June 2020, Mr. WANG Xingchun resigned as a Supervisor upon the expiry of his term of office and ceased to serve as a Supervisor Representing Shareholders of the Bank, a member of the Due Diligence Supervision Committee and the Finance and Internal Control Supervision Committee of the Board of Supervisors of the Bank.

On 24 March 2020, Mr. ZHOU Wanfu resigned as the Secretary to the Board of Directors of the Bank and the Company Secretary of the Bank due to work arrangements. We have been actively identifying a suitable candidate to fill the vacancy of the Company Secretary of the Bank to meet the requirements of Rules 3.28 and 8.17 under the Hong Kong Listing Rules. We will announce the appointments of the Secretary to the Board and Company Secretary of the Bank in due course.

90

Significant Events

Corporate Governance

During the reporting period, we continued to promote the modernization of corporate governance and enhance our governance capacities in strict compliance with the laws and regulations including the Company Law of the People's Republic of China, Securities Law of the People's Republic of China and the Law of the People's Republic of China on Commercial Banks. We improved our policy systems, optimized the governance structure and made adjustments to the composition of the Board of Directors and its special committees thereunder to consistently improve the effectiveness of our corporate governance.

During the reporting period, save as disclosed above, we fully complied with all the principles and code provisions of the Corporate Governance Code set out in Appendix 14 to the Hong Kong Listing Rules and most of the recommended best practices thereof.

Shareholders' General Meetings

During the reporting period, we held one annual general meeting and one extraordinary general meeting, at which 13 proposals were considered and approved and three debriefing sessions were conducted in total, details of which are as follows:

On 28 February 2020, we held the first extraordinary general meeting for 2020 in Beijing, at which three proposals were considered and approved, including the fixed assets investment budget for 2020, and issuance plans of write- down undated capital bonds and write-down eligible tier-2 capital instruments.

On 29 June 2020, we held the 2019 Annual General Meeting in Beijing, at which 10 proposals were considered and approved, including the final financial accounts for 2019 and the profit distribution plan for 2019, etc., and three debriefing sessions in respect of the 2019 work report of independent directors, the report on the management of related party transactions of the Bank, etc. were conducted.

The above shareholders' general meetings were convened or held in strict compliance with the laws, regulations and listing rules of Hong Kong and the PRC. The Directors, Supervisors and senior management of the Bank attended the meetings and discussed with shareholders about matters they concerned. We published the poll results announcements and legal opinions on the above shareholders' general meetings in a timely manner in accordance with regulatory requirements. Such poll results announcements were published on the website of the Hong Kong Stock Exchange on 28 February 2020 and 29 June 2020, respectively, and on the website of the Shanghai Stock Exchange as well as on the media designated by the Bank for information disclosure on 29 February 2020 and 30 June 2020, respectively.

Internal Audit

During the reporting period, we adopted a risk-oriented approach to conduct risk and management audits on the key aspects, including serving the real economy, credit business, financial management, intermediary business, and internal control and case prevention; to carry out specific audits on various aspects, including targeted poverty alleviation, reduction and exemption of interest on non-performing loans, anti-money laundering and sanction compliance, protection of consumers' interests, consolidated management at group level, credit card and ETC

Interim Report 2020 91

Significant Events

business, bill business, information technology management, and overseas institutions; and to implement the audit on economic responsibilities of the senior management members. We continued to conduct off-site monitoring and supervise the rectification of issues identified during the internal audit to improve the quality and effectiveness of rectification and supervision. We also promoted the digital transformation of internal audit, strengthened basics of audit management and reinforced training for audit skills to effectively improve our capability of audit and supervision.

Profit and Dividends Distribution

As approved by the 2019 Annual General Meeting, we paid cash dividends of RMB0.1819 (tax inclusive) per ordinary share or RMB63,662 million (tax inclusive) in aggregate to holders of ordinary shares whose names appeared on the register of members at the close of business on 9 July 2020. We did not propose to pay any interim dividends for 2020 or increase share capital by capitalizing our capital reserve.

Material Litigation and Arbitration Matters

During the reporting period, there was no litigation or arbitration with material impact on our operations.

As at 30 June 2020, the value of the claims of the pending litigation or arbitration in which the Bank was involved as a defendant, a respondent or a third party amounted to approximately RMB5.09 billion. The management believes that the Bank has made full provision for potential losses arising from the aforesaid litigation or arbitration, and they will not have any material adverse effect on our financial position or operating results.

Major Asset Acquisition, Disposal and Merger

During the reporting period, we did not carry out any major asset acquisition, disposal, or merger.

Related Party Transactions

In the first half of 2020, we applied standardized management to related party transactions, in strict compliance with the regulations issued by the MOF, the CSRC, the CBIRC, as well as the listing rules of Shanghai and Hong Kong. During the reporting period, the related party transactions of the Bank were conducted on normal commercial terms and in accordance with laws and regulations; its pricing for interest rates was subject to the fair commercial principles and no actions that damaged the interests of the Bank and minority shareholders were identified.

In the first half of 2020, we conducted a series of related party transactions with the connected persons (as defined in Hong Kong Listing Rules) of the Bank in the ordinary course of business. Such transactions fulfilled the applicable exemption conditions under Rule 14A.73 of the Hong Kong Listing Rules, and therefore were fully exempted from compliance with the requirements for shareholders' approval, annual review and all disclosure requirements.

For details of the related party transactions defined under the laws, regulations, and accounting standards of the PRC, please refer to "Note 43 Related Party Relationships and Transactions" to the Condensed Consolidated Interim Financial Statements.

92

Significant Events

Use of Proceeds

All the proceeds raised were used to strengthen our capital base to support the future development of our business as disclosed in the prospectus, offering documents and other documents.

Details and Performance of Material Contracts

Material Custody, Contract and Lease

During the reporting period, we did not enter into any material custody, contracting or leasing arrangements on the assets of other companies, which were subject to disclosure and no other companies entered into any custody, contracting or leasing arrangements on our assets, which were subject to disclosure.

Material Guarantees

Provision of guarantees is one of our off-balance-sheet businesses in our usual course of business. During the reporting period, we did not have any material guarantees required to be disclosed, except for the financial guarantee services within the business scope as approved by the PBOC and the CBIRC.

Material Equity Investments Obtained and Material Non-equity Investments in Progress

In July 2018, we entered into the Promoters' Agreement on National Financing Guarantee Fund Co., Ltd., pursuant to which, we shall invest RMB3 billion in National Financing Guarantee Fund Co., Ltd., representing a contribution proportion of 4.5386%, which shall be paid up in four years from 2018. In November 2018, we completed the first contribution of RMB0.75 billion. In June 2019, we completed the second contribution of RMB0.75 billion. In April 2020, we completed the third contribution of RMB0.75 billion.

In July 2020, we entered into the Promoters' Agreement on the National Green Development Fund Co., Ltd., pursuant to which, we shall invest RMB8 billion in the National Green Development Fund Co., Ltd., representing a contribution proportion of 9.0396%, which shall be paid up in five years from 2020.

In August 2020, the Board of Directors of the Bank resolved to increase the share capital of ABC International Holdings Limited by HKD4.25 billion. Such capital increase is subject to the CBIRC's approval.

Please refer to our relevant announcements published on the websites of the Shanghai Stock Exchange (www.sse.com.cn) and of the Hong Kong Stock Exchange (www.hkexnews.hk) for details.

During the reporting period, saved as disclosed above, we did not have any other material equity and non-equity investment.

Commitments

During the reporting period, we did not have any commitments that had been duly fulfilled and completed. As at the end of the reporting period, we did not have any expired commitments that had not been duly performed.

Interim Report 2020 93

Significant Events

Penalties Imposed on the Bank and its Directors, Supervisors, Senior Management and Controlling Shareholders

During the reporting period, neither the Bank nor any of its Directors, Supervisors, senior management or controlling shareholders was investigated by competent authorities, subject to coercive measures imposed by judicial authorities or disciplinary authorities, transferred to judicial authorities for prosecution or held criminally liable, investigated, suffered administrative punishment, barred from the market or disqualified by the CSRC, subject to material administrative punishments imposed by other administrative authorities including environmental protection, work safety and taxation, or publicly denounced by any stock exchanges.

Integrity of the Bank and Controlling Shareholders

There was no circumstance where we or our controlling shareholders have failed to fulfill an effective court judgment or repay any outstanding debt of a significant amount that was matured.

Purchase, Sale or Redemption of the Bank's Shares

During the reporting period, neither we nor our subsidiaries purchased, sold, or redeemed any of our listed shares.

Implementation of Share Incentive Plan

During the reporting period, we did not implement any share incentive schemes such as share appreciation rights scheme for the management and employee share ownership scheme.

Securities Transactions by Directors and Supervisors

The Bank has adopted a code of conduct for securities transactions by Directors and Supervisors with terms no less exacting than those set out in the Model Code for Securities Transactions by Directors of Listed Issuers in Appendix 10 to the Hong Kong Listing Rules. Each of the Directors and Supervisors of the Bank had confirmed that they had complied with such code of conduct during the reporting period.

Rights of Directors and Supervisors to Acquire Shares or Debentures

As at 30 June 2020, the Bank did not grant any rights to acquire shares or debentures to any Directors or Supervisors, nor was any of such rights exercised by any Directors or Supervisors. Neither the Bank nor its subsidiaries entered into any agreements or arrangements enabling the Directors or Supervisors to obtain benefits by acquiring shares or debentures of the Bank or any other corporations.

94

Significant Events

Interests in Shares, Underlying Shares and Debentures Held by Directors and Supervisors

As at 30 June 2020, none of the Directors or Supervisors of the Bank had any interests or short positions in the shares, underlying shares or debentures of the Bank or any of its associated corporations (as defined in Part XV of the Securities and Futures Ordinance of Hong Kong) which were required to be notified to the Bank and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance of Hong Kong (including interests and short positions deemed to be owned by them under such provisions of the Securities and Futures Ordinance of Hong Kong), or any interests or short positions which were required to be recorded in the register referred to in Section 352 of the Securities and Futures Ordinance of Hong Kong, or any interests or short positions which were required to be notified to the Bank and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Hong Kong Listing Rules. For the interests and short positions of substantial shareholders of the Bank and other persons, please refer to "Changes in Share Capital and Shareholdings of Substantial Shareholders".

Interim Review

The 2020 Interim Financial Report prepared by the Bank in accordance with the CASs and IFRSs was reviewed by PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers in accordance with the PRC and international standards on review engagements, respectively.

The interim report of the Bank has been reviewed and approved by the Board of Directors of the Bank and its Audit and Compliance Committee.

Change of External Auditors

During the reporting period, there was no change of the external auditors of the Bank.

Financial Poverty Alleviation

Please refer to "Discussion and Analysis - County Area Banking Business - Financial Poverty Alleviation".

Issue of Capital Bonds

For the details of issue and redemption of capital bonds of the Bank, please refer to "Discussion and Analysis - Capital Management - Management of Capital Financing".

Interim Report 2020 95

Appendix I  Capital Adequacy Ratio Information

Pursuant to the Capital Rules for Commercial Banks (Provisional), the Notice of the China Banking Regulatory Commission on Issuing the Supporting Policy Documents for the Capital Regulation of Commercial Banks and other regulatory requirements, the Bank discloses the following information.

  1. Capital Adequacy Ratio Information

As of 30 June 2020, given relevant rules were in the parallel implementation period, the Bank's capital adequacy ratio, Tier 1 capital adequacy ratio and CET 1 capital adequacy ratio, which were calculated in accordance with the Capital Rules for Commercial Banks (Provisional), were 16.42%, 12.60% and 10.87%, respectively, and were in compliance with the regulatory requirements. The Bank's capital adequacy ratio and Tier 1 capital adequacy ratio increased 0.29 percentage point and 0.07 percentage point, respectively, CET1 capital adequacy ratio decreased by 0.37 percentage point as compared to 31 December 2019. During the first half of 2020, the Bank conducted the issue of perpetual bonds of RMB85 billion and Tier 2 capital bonds of RMB40 billion. The Bank proactively optimized and adjusted structure of assets. Accordingly, the growth rate of net capital was higher than that of risk-weighted assets, leading to an increase of 0.29 percentage point in capital adequacy ratio as compared to the end of 2019.

  1. Scope for Calculating Capital Adequacy Ratio

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

  1. Capital Adequacy Ratio and Risk-weighted Assets

According to the application scope of the advanced approach of capital management as approved by the regulatory bodies, the Bank adopted the foundation Internal Ratings-Based (IRB) approach for non-retail exposures and IRB approach for retail exposures to measure credit risk-weighted assets, weighting approach for credit risk-weighted assets uncovered by IRB approach. Internal Model Approach (IMA) was adopted to measure market risk-weighted assets. Standardized Approach (SA) was adopted to measure market risk-weighted assets uncovered by IMA. Standardized Approach was adopted to measure operational risk-weighted assets.

96

Appendix I  Capital Adequacy Ratio Information

In millions of RMB, except for percentages

30 June 2020

31 December 2019

Item

The Group

The Bank

The Group

The Bank

CET 1 capital, net

1,788,932

1,737,252

1,740,584

1,691,171

Additional Tier 1 capital, net

284,887

284,878

199,894

199,886

Tier 1 capital, net

2,073,819

2,022,130

1,940,478

1,891,057

Tier 2 capital, net

629,536

622,383

557,833

549,698

Net capital

2,703,355

2,644,513

2,498,311

2,440,755

Risk-weighted assets

16,459,381

15,903,301

15,485,352

14,914,138

Credit risk-weighted assets

15,293,237

14,755,895

14,319,045

13,767,354

  Portion covered by IRB

10,132,726

10,132,726

9,485,001

9,485,001

  Portion uncovered by IRB

5,160,511

4,623,169

4,834,044

4,282,353

Market risk-weighted assets

145,441

139,257

145,604

138,635

  Portion covered by IMA

132,813

132,813

133,113

133,113

  Portion uncovered by IMA

12,628

6,444

12,491

5,522

Operational risk-weighted assets

1,020,703

1,008,149

1,020,703

1,008,149

  • Additional risk-weighted assets
  • due to the requirement

    of the capital floor

-

-

-

-

CET 1 capital adequacy ratio

10.87%

10.92%

11.24%

11.34%

Tier 1 capital adequacy ratio

12.60%

12.72%

12.53%

12.68%

Capital adequacy ratio

16.42%

16.63%

16.13%

16.37%

IV. Risk Exposure

  1. Credit Risk

The following tables set out the credit risk exposure of the Bank calculated according to the foundation internal rating-based (IRB) approach for non-retail exposures, IRB approach for retail exposures and weighting approach.

In millions of RMB

30 June 2020

31 December 2019

Risk-

Risk-

Risk

weighted

Risk

weighted

Item

exposures

assets

exposures

assets

Credit risk covered by IRB approach1

16,488,460

8,859,477

15,405,176

8,387,018

Non-retail credit risk

11,032,366

7,460,408

10,202,033

7,074,066

Retail credit risk

5,396,710

1,373,232

5,129,428

1,279,388

Counterparty credit risk

59,384

25,837

73,715

33,564

Note: 1. Regulatory calibration is not included.

Interim Report 2020 97

Appendix I  Capital Adequacy Ratio Information

In millions of RMB

30 June 2020

31 December 2019

Risk-

Risk-

Risk

weighted

Risk

weighted

Item

exposures

assets

exposures

assets

Credit risk uncovered by IRB approach

12,407,954

5,160,511

12,250,531

4,834,044

On-balance sheet credit risk

10,740,298

4,032,054

10,395,858

3,726,537

  of which: asset securitization

25,788

90,940

24,088

77,765

Off-balance sheet credit risk

1,620,443

1,074,855

1,807,345

1,050,585

Counterparty credit risk

47,213

53,602

47,328

56,922

Please refer to "Discussion and Analysis - Risk Management and Internal Control" in 2020 Interim Report for details of overdue loans, non-performing loans and loan loss provisions of the Bank.

  1. Market Risk

The Bank calculated the capital requirement of market risk by using the Internal Model Approach (IMA), of which uncovered portion measured by standardized approach. As of 30 June 2020, the capital requirements of all types of market risks of the Bank are shown in the following table.

In millions of RMB

Capital requirements

30 June

31 December

Item

2020

2019

Portion covered by IMA

10,625

10,649

Portion covered by standardized approach

1,010

999

Interest rate risk

532

470

Equity risk

-

-

Foreign exchange risk

478

529

Commodity risk

-

-

Option risk

-

-

Total

11,635

11,648

98

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Agricultural Bank of China Ltd. published this content on 19 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 September 2020 09:39:03 UTC