2009-01-12

NPL Ratio Now Below 1%; 2008 Earnings Estimate Filed

Basic Business Continues Healthy Growth

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Shenzhen, China – Jan 12, 2009

　　Shenzhen Development Bank (“SDB”; SZSE 000001) announced today that in accordance with regulatory requirement for medium-sized banks, in light of domestic and international financial and economic conditions, the Bank recorded a special large provision and large write-offs in the fourth quarter of 2008. The total amount of Non Performing Loans (NPLs) are estimated to drop from 11.1 billion yuan as of 09/30/2008 to about 1.9 billion Yuan and the NPL ratio from 4.3% to less than 1%.This initiative will relieve the Bank from the legacy of large NPLs that were made before 2005. The Bank also announced that due to this special program, the net profit of 2008 Full Year is estimated to decline to about 600 million Yuan. The balance of credit provision as of 2008/12/31 is estimated to be about 2 billion Yuan, approximately 105% of the remaining balance of NPLs. The Capital Adequacy Ratio (“CAR”) at 12/31/2008 is expected to be maintained above 8% and Core Capital Adequacy Ratio (“CCAR”) above 5%.

　　The Bank released the news in its 2008 Full Year financial result pre-announcement with the Shenzhen Stock Exchange, in accordance with the Exchange rules. The full text of that filing is available on the internet at www.cninfo.com.cn .

This press release, which is posted on the internet at www.sdb.com.cn, summarizes the key aspects of the special large provision and write-off program and implications to 2008 full year result.

　　The Bank recorded about 5.6 billion Yuan provision in the 4th quarter of 2008. Under the same special program, the Bank also wrote off approximately 9.4 billion Yuan NPLs, including all loans classified as “loss”, all “doubtful” loans and a large portion of “substandard” loans; the vast majority of the write-offs were for loans made prior to 2005. The remaining NPL amount is estimated to be reduced to about 1.9 billion Yuan as of 12/31/2008, composed of only “sub-standard” loans. This means that the vast majority of the risk and burden of the old NPL portfolio is now eliminated as the bank enters 2009.

　　The NPL ratio is estimated to improve to below 1%, significantly lower than 4.3% and 5.6% as of 09/30/2008 and end 2007 respectively. The new record low NPL ratio for SDB estimated for yearend 2008 is also lower than that of any listed bank in China as of end September 2008. The Provision Coverage Ratio (total credit provisions to total NPLs) is estimated to be approximately 105%. The bank will continue to make efforts collecting the written off loans and the write-off will not have any impact on the Bank’s legal position to collect the loans. As the written-off loans are collected, the provisioning of the bank will be further improved.

　　The net new NPLs added to the portfolio in the 4th quarter before the special write-offs are estimated to be about 300 million Yuan, around 0.1% of total lending balance of the Bank as of end 2008. During 4Q, the bank grew its loan portfolio, consistent with government guidance and with the Bank's credit policies and practices. Total general loans (excluding bills) amounted to approximately 242 billion Yuan at 2008/12/31, after the write-offs. General loans excluding write-offs of 2008 grew by about 39 billion Yuan or about 20% during 2008. Total lending including bills as of end 2008 is estimated to be 285 billion Yuan, indicating growth during 2008 of about 64 billion Yuan, about 29%. The continued developing fundamentals of the Bank, together with the elimination of old NPLs from the balance sheet & substantial provisioning for the remaining NPLs, are expected to position the Bank well as the Bank enters 2009. In addition, with much lower NPLs, the earning capability of assets will be improved as a result of less drag from non interest bearing assets.

　　The write-offs and provision had no effect on the bank's strong cash position. The Liquidity Ratio continues well above CBRC guideline. During 2008, deposits grew more than 79 billion Yuan or 28%, and the bank significantly strengthened its cash position.

　　Operating profit before provision and income taxes for FY 2008 is expected to be about 8,100 to 8,200 million Yuan, about 40% to 42% increase from full year 2007, as a result of strong growth in lending, deposits, interbank activities, profitable bond investments, and fee income. Given that YTD 3Q 2008 Operating profit before provision and income taxes was 6,142 mm Yuan, this means that Operating profit before provision and taxes was up about 28%-35% in 4Q 2008 over 4Q 2007. Despite the sharp PBC interest rates reductions in the 4th quarter of 2008, the Bank has maintained quite stable operating profit before provision and income taxes. ‎

　　During 2008, the bank continued to build deposits from both commercial and retail business, provide professional and cutting edge service to trade finance and SME, and build the strength in serving consumers.

　　As a result of the unusually large special credit provision, the bank expects that net income for the year will be reduced to about 600 mm Yuan. This means a decline from 2007 net income of about 77%. Basic EPS is estimated to be 0.20 Yuan for Full Year 2008, down from 0.94 Yuan for Full Year 2007. (EPS for 2007 has been adjusted according to relevant accounting principles, as the number of shares increased due to share dividend during the reporting period.).

　　The bank expects CAR to continue above 8% at 2008/12/31, with CCAR above 5%. The bank had already planned to enhance capital during 2009, and expects to continue with those plans. The goal of the bank is to reach 10% CAR during 2009. The growing capital base will support the growth of the bank’s business. The shareholders’ equity of the Bank is estimated over 16 billion Yuan as of 12/31/2008, up from about 13 billion at 12/31/2007.

　　After this special large provision and write-off program, the Bank is now better positioned not only to deal with economic and financial uncertainties, but also to embrace more business growth opportunities, including outlet expansion, in 2009. The number of outlets as of end 2008 has reached 282.

　　The 2008 Full Year predicted figures for the Bank have not been audited. The audited 2008 Full Year results including the balance sheet are expected to be announced in late March 2009.

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 441.5 billion Yuan in assets as of 09/30/2008. SDB provides a broad range of services to commercial, retail, and government customers, through 282 branches and sub-branches in 18 major cities across China. 16.76% of the Bank’s shares are owned by Newbridge Asia AIV III, L.P.