Shenzhen Development Bank Announces:2009 First Quarter Net Profit Up 12%-PAB

Shenzhen Development Bank Announces:2009 First Quarter Net Profit Up 12%

2009-04-23

NPL Ratio Further Lowered, Provision Coverage Ratio Raised to 130%

‎‎

[Shenzhen, China] 18:00 April 23, 2009

　　Shenzhen Development Bank (“SDB”; SZSE 000001) filed its 2009 First Quarter Report today with the Shenzhen Stock Exchange. The Bank recorded net profit of 1,122 million Yuan in the first quarter of 2009, 12% up from the same period of 2008. The Non Performing Loan Ratio was further lowered from 0.68% at end 2008 to 0.61% at end of first quarter 2009, and the Provision Coverage Ratio was raised from 105% yearend 2008 to 130% at end March 2009.

　　The full text and the summary of 2009 First Quarter 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 quarter 2009 results, along with management comments, appended with Income Statement Summary.‎

　　The first quarter of 2009 showed improvement across all SDB businesses, despite the major challenges such as the macro economy slowdown, and down-shifted yield curve due to PBC interest rate cuts and increased liquidity. The key highlights for the 1st quarter performance are:

　　* Net Profit of 1st quarter 2009 grew 12% YOY; Growing assets and management measures to mitigate the squeeze on spread together achieved Net Interest Income growth from 1Q 2008 and 4Q 2008;
　　* Assets grew 10% from end 2008 with deposits up 11% and general loans up 6%;
　　* Non Performing Loan Ratio further reduced to 0.61% at 03/31/2009 from 0.68% 12/31/2008;
　　* Provision Coverage Ratio was further improved to 130% at end March 2009 from 105% at end 2008;
　　* Capital Adequacy Ratio was essentially stable at 8.53% and Core Capital Adequacy Ratio at 5.23%;
　　* Annualized Return on Equity recorded 24.1%;
　　* Continuously investments have been made on IT, human resources, process improvement and business strategy, aiming at a higher and sustainable growth.

Strong Profit Growth Despite Challenges

Highlights of First Quarter 2009 Income Statement

RMB Yuan	3 months period Ending Mar 31 2009	3 months period ending Mar 31 2008	Amount Change	% Change
Operating income (mm)	3,761	3,553	208	Up 6%
Operating Profit before provision & tax (mm)	2,036	1,960	76	Up 4%
Asset Provisions (mm)	522	583	(61)	Down 11%
Net Profit (mm)	1,122	1,004	118	Up 12%
Basic EPS	0.36	0.34	0.02	Up 6%

　　In the first quarter of 2009, SDB recorded 1,122 mm Yuan Net Profit, up 118 mm Yuan, or 12% from the same period of last year. Net profit grew as a result of healthy growth in deposits, loans, and inter-Bank business, and net fee revenue growth improvement from Q1 2008.

　　The Bank recorded 3,761 mm Yuan in Operating Income, up 6% from first quarter 2008, out of which Net Interest Income was 3,299 mm Yuan, up 5% YOY. Net Interest Margin (NIM) in the first quarter of 2009 declined to 2.70%, as the result of the combination of several PBC rate cuts, lower inter-bank spread from high liquidity, up to 30% mortgage rate discount, and growing investment portfolio with higher liquidity thus lower yield. However, the strong assets growth and asset and liability management were sufficient to achieve growth in Net Interest Income. NIM contraction from the fourth quarter of 2008 was 13 basis points, together with 12% Average Interest Earning Assets, resulted in 6% Net Interest Income growth from 4Q 2008. Contributions from non-interest income continued to increase, among which Net Fee and Commission grew 30% YOY, including healthy growth of fee income from Bank card commission and domestic settlement.

　　General Operating Expenses excluding business taxes increased 12% from the first three months in 2008 to 1,466 mm Yuan, mainly due to increased staff to support business expansion and ongoing improvements in IT systems, as well as increased investment in IT equipment and facilities. Operating Expenses were slightly less than that recorded in the fourth quarter of last year. The Operating Cost to Income Ratio (excluding business taxes) was 39% at par with 4Q, up 2 percentage points from a year ago. Asset provisions were 522 mm Yuan. Operating Profit thus improved 10% YOY to 1,514 mm Yuan. As the effective income tax rate declined to 26% from 27.2% a year earlier, the Profit After Tax grew 12% to 1,122 mm Yuan.

　　The Annualized Return on Weighted Average Equity was 24.1% for the first quarter of 2009, slightly lower than that of same period in 2008 at 26.8%, 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 Q1 2009 was 0.36 Yuan, up 0.02 Yuan, or 6% from that of the first quarter 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 03/31/2009.

Strong Liquidity and Solid Business Performance

　　In the first quarter of 2009, the Bank maintained healthy growth across all business lines. Total Assets reached 521.9 billion Yuan, up 10% YTD. Total loans reached 319.4 bn Yuan as of ending March 2009, up 13% YTD, with general loans growing 6% to 256.8 bn Yuan. Total deposits increased 11% to 400.7 bn Yuan. Liquidity was very strong, with liquidity ratio at 42%, far exceeding standard set by regulators at 25%. The Bank expanded its outlets to 286 as of the end of March 2009, up from 282 by the end of 2008.

Balance Sheet Highlights:

Mm Yuan, %	03/31/2009	Growth from 12/31/2008
Total Assets	521,879	+ 10%
Deposits	400,659	+ 11%
Total Lending	319,435	+ 13%
General Loans	256,763	+ 6%
Commercial General Loans	179,754	+ 7%
Retail Loans	77,009	+ 4%
Shareholders’ Equity	17,072	+ 4%

　　The Bank’s commercial general loans (excluding bills) achieved strong growth of 7% from the beginning of the year, due partly to the Bank’s participation in the government stimulus plan. However, the Bank continued to hold high standards for credit approval to ensure long term asset quality. The extra cash from more than sufficient liquidity was placed in the inter-bank market, including in inter-bank bills with very low risks. Although facing domestic and international macro economic challenges, trade finance, one of the Bank’s core businesses, still performed well with good credit quality. Outstanding balance of trade finance was 89.3 bn Yuan, up 3% or 2.5 bn Yuan from the beginning of the year, out of which domestic trade finance was 84.9 bn Yuan, up 4% or 3.2 bn Yuan. 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. Fee income from trade settlement business remained almost the same compared to either last quarter or the same quarter of last year, as the decrease in fees income from international trade business was more than offset by the increased fees from domestic trading. Commercial deposits grew 11% in the first quarter of 2009 to 335 billion Yuan, including growth in guarantee deposits in trade finance. Asset quality of trade finance business was stable, with NPL ratio at 0.07%.

　　In retail business, the Bank’s strategies to expand value customer potential, through new product innovation, service enhancement, marketing activities and cross-sell, were further rolled out with good effect. Total retail deposits reached 65.7 bn Yuan, up 13% from the beginning of the year, while sales of wealth management products, funds, bancassurance products, and third-party custody business all showed signs of robust growth momentum. Personal loan balance increased 4% to 77 bn Yuan despite low demand for new homes in the first quarter. Credit card business maintained its robust growth, with 200 thousand cards newly issued in the first quarter of 2009, boosted by the marketing campaign in the themes of “environmental-friendly” and “vogue”. Credit card advance balance reached 4 bn Yuan, up 7% year to date. Asset quality of personal loan portfolio maintained good, with NPL ratio at 0.24%.

　　SDB’s inter-bank business developed rapidly since last year, leveraging on good market opportunities and the Bank’s strong cash position. In Q1 2009, the Bank made breakthroughs in underwriting Commercial Paper of 1.1 bn Yuan. The Bank’s gold trading business also witnessed fast growth, with trading volume increased 200% YOY. The Bank maintained a liquid investment portfolio.

Asset Quality Stable and CAR on Pace to Improve

　　‎The Bank’s NPL ratio further improved to 0.61% as of end March 2009, from 0.68% as of end 2008, when NPL amount was dramatically decreased to only 1.9 bn Yuan, after a special large write-off and provision in Q4 2008. NPL amount grew only 35 mm Yuan despite the slower economic growth and uncertainties in the macro economy. The Bank collected 294 mm Yuan NPL principal in Q1 2009, out of which 72 mm Yuan was from NPL portfolio written off. The Special Mention Loan portfolio decreased 152 mm Yuan and accounted for 1.1% of total lending compared with 1.3% at 12/31/2008, a low ratio by historical industry standard. Due to the increase in the impaired asset provision, the Provision Coverage Ratio was improved to 130% at end March 2009 from 105% at the beginning of the year, while the Provision Sufficiency Ratio was further improved to 441% from 365%.

The Capital Adequacy Ratio (CAR) and Core CAR achieved 8.53% and 5.23% respectively as of end of March 2009, and both exceeded regulatory requirement. In the first quarter of 2009, the Bank obtained CBRC’s approval to issue 1.5 bn Yuan Hybrid Tier 2 Capital, and the actual issuance is expected to be completed in the second quarter of the year. With steps to improve capital, the Bank aims to reach 10% CAR by the end of 2009.

Recap of Net Profit and EPS

　　To recap the figures for Net Profit and EPS, ‎on consistent basis:

　　Full Year 2007: 2,650 mm Net Profit; 0.97 Yuan EPS

　　Q1 2008: 1,004mm Net Profit; 0.34Yuan EPS.

　　FY 2008: 614mm Net Profit; 0.20 Yuan EPS

　　Q1 2009: 1,122mm Net Profit; 0.36Yuan EPS

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 521.9 billion Yuan in assets. SDB provides a broad range of services to commercial, retail, and government customers, through 286 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 2009-03-31

　　　　- Total Deposits: ￥400.7 billion

　　　　- Total Lending: ￥319.4 billion

　　　　- Total Assets: ￥521.9 billion

Summary Income Statement Q1 2009 (Unaudited)

In million Rmb Yuan except for per share data

	3 months ending	3 months ending	Change
	31-Mar-09	31-Mar-08	Amount	%
1. Operating Income	3,761	3,553	208	6%
Net interest income	3,299	3,145	154	5%
Non-interest income	462	408	54	13%
2. Operating expenses
Business tax & surcharges	259	283	-24	-8%
General and administrative expenses	1,466	1,311	155	12%
3. Operating Profit before provision	2,036	1,960	76	4%
Assets Provisions	522	583	-61	-11%
4. Operating Profit	1,514	1,376	138	10%
5. Profit before tax	1,517	1,379	138	10%
Less: Income tax	395	375	20	5%
6. Net profit	1,122	1,004	118	12%
7. EPS	0.36	0.34	0.02	6%