2010-04-28

[China, Shenzhen]  April 28, 2010 18:00

　　Shenzhen Development Bank（SDB, SZSE 000001） filed its 2010 First Quarter Report with Shenzhen Stock Exchange today. The full text and the summary of 2010 1Q Report are available at www.sdb.com.cn or www.cninfo.com.cn . This press release summarizes key items of 2010 1Q results, along with management comments, appended with Income Statement Summary.‎

　　In 1Q 2010, the Bank maintained steady growth of interest earning assets, further improved asset quality, kept interest spread generally stable from the prior quarter, achieved strong fee income growth year on year (YOY), and thus realized good profitability improvement. Highlights are as follows:

•  Net profit in the first quarter of 2010 achieved 1,578 million (mm) Yuan, up 41% from the same period last year and 13% from last quarter; Earnings Per Share (EPS) was 0.51 Yuan, 41% increase YOY; Annualized Return On Average Equity (ROAE) reached 26.7%.
•  Total assets recorded 619.9 bn Yuan at 03/31/2010, 5.5% up from yearend 2009; General loans amounted to 336.5 bn Yuan, 7.1% up; Total deposits grew 2.9% to 467.6 bn Yuan.
•  Both Non Performing Loans ( NPL）amount and ratio declined: by end 1Q, NPL amount was reduced to 2,330 mm Yuan, 114 mm Yuan or 4.7% down from last yearend; NPL ratio went down 5 bps to 0.63%. Collections in 1Q progressed well, with total collection of about 800 mm Yuan.
•  Provision Coverage Ratio (“PCR”) was further improved from 162% at end 2009 to 188% at end 1Q.
•  Capital Adequacy Ratio（CAR） recorded 8.66% and Core Capital Adequacy Ratio (CCAR) 5.46% at end 1Q.
•  The Bank continued investment in IT, HR, procedure optimization and business strategies.

Net Profit Achieved Strong YOY Increase
　　Net profit of 2010 1Q recorded 1,578 mm Yuan, up 41% YOY. The increase was driven by healthy growth of interest earning assets, good growth of fee income as well as significant decrease of credit provisions due to ongoing improvement of asset quality and strong collection results. Net profit growth compared with 2009 4Q recorded 13%.

Highlights of 1Q Income Statement

RMB Yuan	Jan- Mar 2010	Jan-Mar 2009	Amount	%
Net Interest Income（mm）	3,610	3,299	311	9%
Operating Revenue（mm）	4,084	3,761	323	9%
Net Profit（mm）	1,578	1,122	456	41%
Basic EPS（Yuan）	0.51	0.36	0.15	41%

　　In the first quarter, operating revenue reached 4,084 mm Yuan, 9% up YOY, among which net interest income grew 9% YOY to 3,610 mm Yuan. Re-pricing of assets and liabilities after several rate cuts by PBC since end of 2008 has completed. Net interest margin recorded 2.42% and loan and deposit spread was 3.77% at end 1Q, basically at par with last quarter. In 1Q2009, the effects of PBC interest rate reductions were in an early stage, and the NIM was at a higher level of 2.70%. Good growth of assets especially general loans effectively promoted YOY increase of net interest income. Net fee income and commission rose by 62% YOY, while bank card commission, consultancy fee and trade finance fee all achieved robust YOY increase. Other operating income in 1Q went down by 41% YOY, mainly as the Bank realized high bond gains by leveraging good market opportunities in 1H 2009. Although the NIM in 1Q 2010 declined by 28 bps from 1Q 2009, and 1Q 2010 did not have the 186 mm Yuan of bond gains realized in 1Q2009, still operating revenue increased by 9%.

　　Operating expenses (excluding business tax) in 1Q increased 15% YOY to 1,685 mm Yuan, mainly because of business expansion and ongoing investment in managerial procedure improvement and IT building. Cost to Income Ratio (excluding business tax) recorded 41%, at par with that of full year 2009. Profit before asset provisions increased by 4% YOY and 15% from the prior quarter. Asset impairment provisions in 1Q amounted to 119 mm Yuan, down 77% YOY, mainly contributed by the remarkably strong collection in 1Q and continuously improved asset quality. Operating profit increased 32% YOY to 1,995 mm Yuan. Effective tax rate dropped from 26% in 1Q 2009 to 21% in 1Q 2010 and net profit after tax recorded 41% increase YOY to 1,578 mm Yuan.
Annualized Return on Average Equity (ROAE) in 1Q 2010 was 26.7%, 2.6 percentage points higher than the same period last year. Basic EPS was 0.51 Yuan, 0.15 Yuan up YOY, namely 41%. At 03/31/2010, total shares of the Bank were 3,105 mm.

Consolidated Feature Business Advantage with Good Business Performance
　　Businesses maintained healthy development in 1Q 2010. At 03/31/2010, total assets grew 32.1 bn Yuan or 5.5% to 619.9 bn Yuan from a quarter ago. Total loans (discounted bills included) went up by 3.5% to 372 bn Yuan and general loans increased by 22.2 bn Yuan or 7%. Total deposits grew by 2.9% to 467.6 bn Yuan from end 2009. The Bank has maintained very good liquidity. At end 1Q, the Liquidity Ratio was 41.9%, far above 25% of the regulatory standard. The Bank maintained strong liquidity by separately managing funding of basic banking and inter-bank business, monitoring funding capacity in one month- “quick cash” and through other modern liquidity risk management tools.

Highlights of Balance Sheet
Unit: RMB mm

	2010/03/31	Vs 2009/12/31	Vs 2009/03/31
Total Assets	619,928	5.5%	19%
Deposits	467,615	2.9%	17%
Total Lending	371,974	3.5%	16%
General Loans	336,480	7.1%	31%
Commercial General Loans	234,332	8.2%	30%
Retail Loans	102,148	4.6%	33%
Shareholder Equity	22,110	8.0%	30%

　　In the first quarter, commercial banking business placed focus on expanding new areas in trade finance, improving corporate E business, improving small accounts contributions, balancing loan growth and optimizing loan structure. At end 1Q, commercial deposits recorded 396.8 bn Yuan, 3.4% over the year beginning. Commercial general loans grew 8.2% to 234.3 bn Yuan. Trade finance of the Bank maintained steady growth, 5.8% up from last quarter end with steady low NPL ratio of 0.38%. Supported by upward import and export trend, international trade finance increased 32% from end 2009. International settlement achieved USD 19.1 bn Yuan, a strong 52% growth YOY. The Small Business Unit established last year actively proceeded with the new service model to support this area and pilot branches had a good start and achieved good progress in 1Q.

　　In retail banking business, the Bank continued carrying out the Leapfrog Project and initiated Frontline Sales Enhancement, Sales Remodelling and Deposit Boosting Programs. At end 1Q, retail loans grew 4.6% from last yearend to 102.1 bn Yuan; NPL ratio of retail loans was 0.35%, 5 bps lower than the year beginning. Promoted by Leapfrog Program, wealth management sales increased by 409% YOY to 17 bn Yuan in 1Q 2010. At end 1Q, effective credit cards issued amounted to 3.69 mm, a YOY increase of 19%. Credit card advances reached 4.7 bn Yuan, 18% up YOY, and profitability of credit card business kept improving. Credit card continued its core value positioning of focus at environmental protection and fashion, carried on with Liang series of card products. Number of credit cards with eco-friendly materials achieved 1 million. At end 1Q, NPL ratio of credit card loans was 1.8%, good performance among peers.

Asset Quality Continued Improvement and CAR Maintained Stable
　　In the first quarter of 2010, the Bank seriously implemented the national macro control policy of applying differentiated treatment to different industries, focused on Small and Medium Sized Enterprise (SME) finance, trade finance, and retail lending, strictly implemented the state credit policy against “two-high” industries and industries with overcapacity, reinforced inspection throughout the lending process, required strict review of the rationality of loan usage and authenticity of transaction, emphasized on analysis of the first repayment source of credit customer,,conducted special risk inspection for major areas such as lendings to local government financing vehicles and major processes such as loan disbursement, expedited disposal of loans with early-warning signal and NPLs, and kept the loan quality at a solid level.
　　At 03/31/2010, NPL balance of the Bank was 2,330 mm Yuan, down 4.7% from last yearend. NPL ratio was 0.63%, down by 5 basis points from last yearend. The special mention loans declined further to 1,076 mm Yuan, accounting for only 0.29% of total loans, down by 9 basis points from last year end. In the first quarter of 2010, the Bank did well in collection, and achieved total collections of 804 mm Yuan, among which 393 mm Yuan was written-off loan principal and 334 mm Yuan was NPL principal on balance sheet. Besides, the Bank strictly controls lending to real estate development loans. At the end of first quarter, real estate development loans made up only 3.9% of total loans, and new real estate development loans made since 2005 had no NPLs.
　　As a result of effective management of risk weighted assets and addition to core capital from good profit, at 03/31/2010, CAR was kept at 8.66% and CCAR was generally stable at 5.46%. At June 29th, the Shareholders’ Meeting of the Bank passed the Non Public Offering (“NPO”) plan of issuing new shares of no less than 370 mm and up to 585 mm at 18.26 Yuan per share to Ping An Life Insurance Company of China, Ltd. At the completion of this capital injection, after regulatory approval, the Bank will improve its core capital up to 10.7 billion Yuan. Also, Ping An Group (“PAG”) announced that it had signed a Share Purchase Agreement with Newbridge Asia AIV III, L.P. (“Newbridge”) to buy all the SDB shares from Newbridge. Addition of the new equity capital from the investment by PA is estimated to improve CCAR and CAR to over 7% and 10%. The Bank believes that the investment by PA will provide a strong base for continued success and healthy growth of the Bank. The Bank announced today that the Bank and Ping An Life had agreed to extend the “Long Stop Date” in the NPO agreement to 06/28/2010.
Look into the future
　　In the future, the Bank will take active measures to manage the balance sheet, continue to focus on innovation and pricing of fee business, continue investments in IT system building, constantly strengthen capital management, and further streamline processes. As for business initiatives, the Bank continuous emphasis will be placed on product innovation and enhancement at customer service, while commercial banking will keep focusing on SME and trade finance and retail banking will prioritize to become the primary Bank for value customers, increase cross selling, and explore new front office operation model. In risk management, the Bank will continue the practice of prudent risk management and will keep making progress in internal control and compliance.

About SDB
　　Shenzhen Development Bank, the first joint-stock owned company to list on the Shenzhen Stock Exchange (SZSE 000001), is a national bank headquartered in Shenzhen, with RMB 619.9 billion Yuan in total assets as of March 31 2010. SDB provides a broad range of services to commercial, retail, and government customers, through 303 branches and sub-branches in 20 major cities across China. 16.76% of the Bank’s shares are owned by Newbridge Asia AIV III, L.P.

Key items of balance sheet as of Mar 31, 2010
Total deposits: 467.6 bn Yuan
Total loans：372.0 bn Yuan
Total assets: 619.9 bn Yuan

Summary Income Statement 2010 Jan-Mar (Un-audited)
In million Rmb Yuan except for per share data

			Change
	2010 1Q	2009 1Q	Amount	%
1. Operating Income	4,084	3,761	323	9%
Net interest income	3,610	3,299	311	9%
Non-interest income	474	462	12	3%
2. Operating expenses	1,970	1,725	245	14%
Business tax & surcharges	285	259	26	10%
General and administrative expenses	1,685	1,466	219	15%
3. Profit before Assets Provisions	2,114	2,036	78	4%
Provision for assets	119	522	(403)	(77%)
4. Operating Profit	1,995	1,514	481	32%
5. Profit before tax	1,997	1,517	480	32%
Less: Income tax	419	395	24	6%
6. Net profit	1,578	1,122	456	41%
7. EPS (Yuan)	0.51	0.36	0.15	41%

			Change
	2010 1Q	2009 4Q	Amount	%
1. Operating Income	4,084	4,001	83	2%
Net interest income	3,610	3,425	185	5%
Non-interest income	474	576	(102)	(18%)
2. Operating expenses	1,970	2,168	(198)	(9%)
Business tax & surcharges	285	301	(16)	(5%)
General and administrative expenses	1,685	1,867	(182)	(10%)
3. Profit before Assets Provisions	2,114	1,833	281	15%
Provision for assets	119	200	(81)	(41%)
4. Operating Profit	1,995	1,633	362	22%
5. Profit before tax	1,997	1,650	347	21%
Less: Income tax	419	257	162	63%
6. Net profit	1,578	1,393	185	13%
7. EPS (Yuan)	0.51	0.45	0.06	13%