2009-10-29

[Shenzhen, China]  18:00 October 28, 2009

　　Shenzhen Development Bank (“SDB”; SZSE 000001) filed its 2009 3rd Quarter Report today with the Shenzhen Stock Exchange. The Bank recorded net profit of 3,637 million Yuan in the first three quarters of 2009, 10% up from the same period of 2008. Provision Coverage Ratio was improved to 153%.

　　The full text and the summary of 2009 3rd Quarter Report are available at www.cninfo.com.cn. This press release, which is posted at www.sdb.com.cn, summarizes key items of YTD 3Q 2009 results, along with management comments, appended with Income Statement Summary.‎

　　Net profit of SDB for the first three quarters of 2009 achieved 10% growth YOY, mostly due to the strong and healthy business development in loans, deposits and fee income, conscious and effective management of spread after PBC’s successive interest rate cuts in 2008, and good credit quality. The total amount and ratio of NPLs at 09/30/2009 both declined from end 2Q 2009, and the Provision Coverage Ratio improved to over 150% as of end September.

The key highlights for the YTD 3Q performance are:

•  Net Profit of the first nine months of 2009 grew 10% YOY. Net interest income rose by 1% due to strong business growth with attention to management of interest spread.
•  Earnings in 3Q were up 13% from 3Q2008 and 12% from 2Q2009.
•  The Bank’s total assets grew 17% from end 2008 with deposits up 18%. General loans grew particularly strongly in 3Q and were up 28% from year beginning.
•  Net Interest Margin of YTD 3Q recorded 2.49% and that for 3Q improved to 2.44% from 2.34% for 2Q.
•  Annualized Return on Equity of YTD 3Q rose to 25.76% from 24.7% in 1H 2009.
•  Non Performing Loan Ratio declined to 0.65% while Special Mention Loan Ratio declined to 0.49% at end September 2009.
•  Provision Coverage Ratio was further improved to 153%; Total collection on Non performing loans (“NPL”) and written-off amounted to 1.5 billion Yuan for the first nine months.
•  Capital Adequacy Ratio was essentially stable at 8.60% and Core Capital Adequacy Ratio went up slightly to 5.20%, due to effective management of risk assets combined with the increase of capital from strong earnings.
•  Continuous investments have been made on IT, human resources, new outlets opening, process improvement and key strategic business areas, aiming at healthy and sustainable growth, and higher standards of excellence. 

Continued Strong Profit Growth with Spread Stabilized
Highlights of YTD 3Q 2009 Income Statement

　　In the first three quarters of 2009, SDB recorded 3,637 mm Yuan Net Profit, up 320 mm Yuan, or 10% from the same period of last year. Net profit in the 3rd quarter recorded 1,326 mm Yuan, up 13% YOY or 12% from 2Q.

　　The Bank achieved 9,560 mm Yuan Net Interest Income in the first nine months, up 1% YOY, as a result of 25% YOY average earning assets growth and contracted Net Interest Margin (“NIM”) from 3.09% to 2.49%, affected by the combination of several PBOC rate cuts in 2008 and up to 30% mortgage rate discount on certain loans. 3Q NIM improved from 2Q from 2.34% to 2.44%, primarily the result of asset structural change to higher yielding assets especially general loans, as well as focus on managing cost of funds. Rates on inter-bank assets have moderately improved in the third quarter which also contributed to the improved spread.

　　Net Fee Revenue YTD 3Q grew 18% YOY to 782 mm yuan, and other non interest income grew 29%, mostly from the realization of net investment return in 1H 2009. General Operating Expenses (excluding business taxes) increased 19% from the first nine months in 2008 to 4,444 mm Yuan, mainly due to increased staff to support business expansion and ongoing improvements in IT systems, and increased depreciation cost from new buildings and equipment. The Operating Cost to Income Ratio (excluding business taxes) was 40%. Asset provisions were 1,375 mm Yuan. Operating Profit thus improved 4% YOY to 4,526 mm Yuan. With the effective income tax rate of 19.89%, the Profit After Tax grew 10% to 3,637 mm Yuan.

　　The Annualized Return on Weighted Average Equity (“ROAE”) was 25.76% for the first nine months of 2009, lower than that of same period in 2008 at 29.06%, since equity increased primarily as the result of core capital addition from warrants exercise in 2008. ROAE of 1H 2009 was 24.7%.

　　The Basic Earnings Per Share for YTD 3Q 2009 was 1.17 Yuan, up 0.08 Yuan, or 7% from that of the first three quarters of 2008, reflecting the 10% earnings growth combined with the share dividend of 2008 and warrant exercise. Total number of shares was 3,105 mm as of 09/30/2009.

Solid Loan Growth in 3Q

　　The Bank maintained healthy and continuous growth across all business lines through 2009. Total Assets reached 554.3 billion Yuan, up 17% YTD. Total loans reached 360.5 billion Yuan as of end September 2009, up 27% YTD, with general loans growing 28% to 308.5 billion Yuan. Total deposits increased 18% to 423.9 billion Yuan. Liquidity was very strong, and 30-day liquidity ratio was 37%, well exceeding standard set by regulators at 25%. The Bank expanded its outlets to 294 as of the end of September 2009, up from 282 at the end of 2008.  

Balance Sheet Highlights: ‎

　　As the economy improved during 2009, the Bank supported various business lending with good credit quality. The general loan growth, especially in the 3rd quarter, reflected the pattern. General loans grew over 34 billion Yuan or 13% in 3Q from end 2Q 2009. Deposits grew with a better mix and structure throughout 2009. Discounted bills, very liquid assets, went down from end 2Q to 52 bn Yuan at end 3Q, in line with the overall market trend.

　　The Bank’s commercial general loans (excluding bills) achieved good growth of 28% from the beginning of the year. Commercial deposits grew 18% in the first three quarters of 2009 to 356.6 billion Yuan. Trade finance, mostly from domestic trading, realized very good growth starting from 2Q 2009 into 3Q, with total balance growing 30% to 113 billion Yuan. Unlike 1H 2009, international trade volume grew 27% to 6.5 billion Yuan at end 3Q, showing international trade business warming up in the third quarter. The Bank’s trade finance is primarily for domestic purposes, as international trade finance accounts for less than 6% of the Bank’s total trade finance volume. The credit quality of trade finance continued to be excellent, with NPL ratio at 0.30%.

　　In retail business, the Bank’s continued to expand value customer potential through defining new customer value proposition, streamlining customer service and improving sales effectiveness, with special attention to high value customers. At end 3Q, retail lending growth achieved 11% from end 2Q, as borrowing demand kept strong. In wealth management, the Bank performed strong in product sales and agency business such as agency funds sales. Retail deposits grew 25% YTD to 67.3 billion Yuan at 09/30. Credit card kept building emphasis on launching and promoting environmental friendly cards with modern lifestyle theme. The number of effective cards rose to 3.3 million and credit card advances went up 44% YOY to 4.6 billion Yuan. Programs to improve efficiency and quality, and realize profits in the credit card business, are increasingly showing positive results.
Asset Quality Continued Improvement and Provision Coverage Ratio Improved to over 150%
　　‎The Bank’s NPL balance went down by 122 million Yuan to 2,350 mm Yuan from end 2Q to end 3Q, as NPL collection amount exceeded the new formed NPL in 3Q. The NPL ratio improved to 0.65% at 09/30 from 0.72% as of end June 2009. The ratio was 0.68% as of end 2008, when NPL amount was substantially decreased to only 1.9 billion Yuan, after a special large write-off and provision in Q4 2008. Special Mention Loans at end Sept. 2009 were reduced from end 2Q by 544 mm Yuan to 1,768 mm Yuan. Special Mention Loan Ratio declined from 1.30% at end 2008 to 0.49% at end 3Q 2009, a very small portfolio compared with peers, indicating less source of potential new NPL formation. The Bank collected 1,516 mm Yuan in total in the first nine months of 2009, including principal of 870 mm Yuan from NPL portfolio and 492 mm Yuan from loans previously written off. The Provision Coverage Ratio was further improved to 153% at end September 2009 from 105% at the beginning of the year, while the Provision Sufficiency Ratio was further improved to 411% from 365%.

CAR Well Maintained from Good Risk Assets Management
　　As a result of effective management of risk assets combined with the increase of capital from strong earnings, the Capital Adequacy Ratio (CAR) and Core CAR were 8.60% and 5.20% as of end September 2009, compared with 8.58% and 5.27% at end 2008. In the first half, the Bank added 1.5 billion Yuan tier 2 capital from issuance of Hybrid Tier 2 Bonds. 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 million and up to 585 million 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 by between 6.8 and 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 to the figures of 9/30/2009 would compute to CCAR of over 7% and CAR of more than 10%. The Bank believes that the investment by PA will provide a strong base for continued success and healthy growth of the Bank.

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 554.3 billion Yuan in assets. SDB provides a broad range of services to commercial, retail, and government customers, through 294 branches and sub-branches in 19 major cities across China. 16.76% of the Bank’s shares are owned by Newbridge Asia AIV III, L.P.

Selected balance sheet items at 2009-09-30
- Total Deposits: ￥423.9 billion
- Total Lending: ￥360.5 billion
- Total Assets: ￥554.3 billion
Summary Income Statement YTD 3Q 2009 (UnAudited)
In million Rmb Yuan except for per share data

 Note:
　　As the Bank’s non performing assets were substantially reduced from the first nine months of 2008, the imputed interest in the first nine months 2009 was also proportionately lower, thus comparisons without imputed interest and provisions, can reflect the real business trend more clearly. Under official accounting rules, the imputed interest is added to interest income, then reversed in the form of addition to provision. Profit after Provisions and Net Profit comparisons with or without imputed interests and provisions are not affected.
Summary Income Statement 3Q 2009 (UnAudited)

In million Rmb Yuan except for per share data