2009-08-20

[Shenzhen, China] 　18:00 August 20, 2009

　　Shenzhen Development Bank (“SDB”; SZSE 000001) filed its 2009 First Half Report today with the Shenzhen Stock Exchange. The Bank recorded net profit of 2,311 million Yuan in the First Half of 2009, 8% up from the same period of 2008.

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

　　The First Half of 2009, SDB supported the national economic stimulation plan, and the total deposits and loans both achieved healthy and stable growth. The Net Interest Income of 1H 2009 went up by 1% from 1H 2008, despite PBOC’s successive interest rate cuts in 2008 that resulted in shrinkage of interest spread. Trade finance, one of the Bank’s major focuses, in particular, resumed good growth in the 2nd quarter. Credit quality remained very good with Non Performing Loan Rate at 0.72%, a very low rate of problem loans in China and around the world. The Provision Coverage Ratio was further improved to 133%. The key highlights for the 1st Half performance are:

　　■ Net Profit of 1st Half 2009 grew 8% YOY. Net interest income rose by 1% due to the Bank’s business growth combined with conscious efforts to manage the margins.
　　■ The Bank Assets grew 14% from end 2008 with deposits up 16% and general loans up 13%.
　　■ The Net Interest Margin recorded 2.51% in 1H 2009.
　　■ Annualized Return on Equity rose to 24.7% from 24.1% in 1Q 2009.
　　■ Non Performing Loan Ratio recorded 0.72% while Special Mention Loan Ratio declined to 0.68% at end of First Half 2009.
　　■ Provision Coverage Ratio was further improved to 133% and total collection of principal amounted to about 800 million Yuan.
　　■ Capital Adequacy Ratio was essentially stable at 8.62% and Core Capital Adequacy Ratio was 5.08%.
　　■ Continuous investments have been made on IT, human resources, process improvement and business strategy, aiming at a healthy and sustainable growth, and higher standards of excellence.

Strong Profit Growth Despite Challenges
Highlights of First Half 2009 Income Statement

　　In the First Half of 2009, SDB recorded 2,311 mm Yuan Net Profit, up 168 mm Yuan, or 8% from the same period of last year. Net profit grew primarily as a result of healthy growth in deposits, loans, and inter-Bank business, and improvements in net fee revenue and other non-interest income from 1H 2008.

　　The Bank recorded 7,491 mm Yuan in Operating Income, up 5% from first Half 2008, out of which Net Interest Income was 6,364 mm Yuan, up 1% YOY. Net Interest Margin in the First Half of 2009 declined to 2.51% from 3.17% of 1H 2008, as the result of the combination of several PBOC rate cuts in 2008, faster growth of low yielding and low risk assets than general loans, and up to 30% mortgage rate discount on certain loans. Rates on Inter-Bank assets, including bills, were substantially lower in 1H 2009 than in 2H 2008, but have recently shown some increases from their low points. At this time, under current monetary policies, the Bank believes that most effects of rate cuts have now been reflected in the balance sheet, and pressure on spread has substantially moderated.

　　Contributions from non-interest income continued to increase, among which Net Fee and Commission grew 26% YOY. In 1H 2009, the Bank realized net investment return of 507 million Yuan, on account of selling repossessed equity, capital gain on bonds, , and bills selling revenue. This category of income varies from time to time, as the Bank endeavors to take advantage of attractive market opportunities.

　　General Operating Expenses (excluding business taxes) increased 18% from the first six months in 2008 to 2,943 mm Yuan, mainly due to increased staff to support business expansion and ongoing improvements in IT systems, as well as increased depreciation cost and certain one-time expenses that were recorded in 2Q. The Operating Cost to Income Ratio (excluding business taxes) was 39%, at par with 1Q. Asset provisions were 1,104 mm Yuan. Operating Profit thus improved 3% YOY to 2,921 mm Yuan. As the effective income tax rate declined to 21% from 24% a year earlier, the Profit After Tax grew 8% to 2,311 mm Yuan.

　　The Annualized Return on Weighted Average Equity was 24.7% for the First Half of 2009, lower than that of same period in 2008 at 28.3%, since equity increased in the past 12 months primarily as the result of core capital addition from warrants exercise.

　　The Basic Earnings Per Share for 1H 2009 was 0.74 Yuan, up 0.03 Yuan, or 4% from that of the First Half of 2008. The lesser growth rate in EPS than Net Profit was because of increased number of shares. Total number of shares was 3,105 mm as of 06/30/2009.

Trade Finance Picked Up in the Second Quarter

　　In the First Half of 2009, the Bank maintained healthy growth across all business lines. Total Assets reached 541.2 billion Yuan, up 14% YTD. Total loans reached 342.3 billion Yuan as of end June 2009, up 21% YTD, with general loans growing 13% to 273.9 billion Yuan. Total deposits increased 16% to 416.6 billion Yuan. Liquidity was very strong, and 30-day liquidity ratio was 36.6%, well exceeding standard set by regulators at 25%. The Bank expanded its outlets to 290 as of the end of June 2009, up from 282 at the end of 2008.

Balance Sheet Highlights:

　　The Bank took steps to manage its mix of deposits, and total deposits grew 16% during the past six months. Another important business perspective is that the Bank contributes to the healthy growth of economy without loosening credit standards, so the general loan growth was at 13% in 1H 2009, and the extra cash from strong liquidity was invested in other financial assets with high liquidity but lower yields.

　　The Bank’s commercial general loans (excluding bills) achieved good growth of 14% from the beginning of the year. Trade finance, mostly from domestic trading, realized very good growth in 2Q 2009, with total balance growing 10% or 9 billon Yuan in 2Q to 98.3 billion Yuan. The growth amount in 2Q was 3.6 times that of 1Q, indicating signs of effectiveness of stimulation plans to SMEs. The credit quality of trade finance continued good with NPL ratio at 0.30%. The new trade finance business mostly went to key industries including automobile and steel. International trade finance, only less than 5% of the Bank’s total trade finance volume, retreated as a result of weak demand globally, as well as cautious credit policy of the Bank to deal with increasing risks in international trading. Commercial deposits grew 16% in the First Half of 2009 to 350.6 billion Yuan.

　　In retail business, the Bank’s strategies to expand value customer potential continued to be rolled out. The main initiatives include upgrading the infrastructure platform for debit card, improving sales effectiveness in bank-assurance and other wealth management products, focusing on profitability and operational efficiency in credit card business, and continuing with cross-sell efforts. As of June 30 2009, retail deposits balance amounted to 66 billion Yuan, up 13% from the beginning of the year. Sales of wealth management products rose by 54% compared with 1H 2008. Retail loans grew 13% from the beginning of this year and reached 83.5 billion Yuan. As of June 30 2009, retail NPL ratio was 0.35%. The credit card promoted new products featuring “environmental friendly, chic and healthy lifestyle”, with the launch of “Light Green Card”, “Platinum VIP Card”, the first auto credit card with environment-protection concept in China. Up to June 30 2009, effective card volume grew by 33% over June 30, 2008 to 3.20 million cards.

Assets Continued High Quality
　　The Bank’s NPL ratio continued to be well below industry figures, at 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. NPL amount grew 544 mm Yuan (0.16% of loans) during 1H 2009, to 2,472 mm Yuan, as certain loans migrated from the Special Mention category. Special Mention Loans at end June 2009 were reduced by 1,382 mm Yuan to 2,312 mm Yuan. Special Mention Loan Ratio declined from 1.30% at end 2008 to 0.68%, a very small portfolio compared with peers, indicating less source of potential new NPL formation. The Bank collected 907 mm Yuan in total in 1H 2009, including principal of 461 mm Yuan from NPL portfolio and 344 mm Yuan from loans previously written off. The Provision Coverage Ratio was further improved to 133% at end June 2009 from 105% at the beginning of the year, while the Provision Sufficiency Ratio was further improved to 436% from 365%.

CAR Maintained 
　　The Capital Adequacy Ratio (CAR) and Core CAR were 8.62% and 5.08% as of end June 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. The CCAR and CAR are both above international regulatory requirement of 8% and 4%. 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. with high approval rate. At the completion of this capital injection, after regulatory approval, the Bank will improve its core capital by between 6.7 and 10.7 billion Yuan. Also, Ping An Group (“PAG”) announced that it had signed the Share Purchase Agreement with Newbridge Asia AIV III, L.P. (“Newbridge”) to buy all the SDB shares from Newbridge. Completion of the NPO should enable the Bank to achieve CAR of more than 10%.

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 541.2 billion Yuan in assets. SDB provides a broad range of services to commercial, retail, and government customers, through 290 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 2009-06-30
　　　　- Total Deposits: ￥416.6 billion
　　　　- Total Lending: ￥342.3 billion
　　　　- Total Assets: ￥541.2 billion
 

Summary Income Statement 1H 2009 (Audited)

In million Rmb Yuan except for per share data

Note:
　　1. The 2009 1H financial statements of SDB were audited by the E&Y Huaming CPA in accordance with domestic accounting standards, and this press release reflects figures from that audit.
　　2. As the Bank’s non performing assets were substantially reduced from the First Half of 2008, the imputed interest in the First Half 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.