2017 Interim Report

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2 Contents 目錄 Financial Highlights 1 財務摘要 101 Corporate Information 2 公司資料 102 Interim Results 3 中期業績 103 Consolidated Income Statement 3 綜合收益表 103 Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Condensed Consolidated Cash Flow Statement 5 綜合全面收益表 綜合財務狀況表 綜合權益變動表 簡略綜合現金流量表 108 Notes to the Interim Financial Statements 9 中期財務報表附註 109 Supplementary Financial Information 53 補充財務資料 153 Independent Review Report 63 獨立審閱報告 163 Interim Dividend 64 中期股息 164 Closure of Register of Members 64 過戶日期 164 Financial Review 64 財務回顧 164 Economic Overview 66 經濟概覽 166 Operations Review 66 業務回顧 166 Risk Management 73 風險管理 173 Corporate Social Responsibility 83 企業社會責任 183 Recognition 85 獎項 185 Changes to Information in respect of Directors 87 董事資料的變動 187 Interests of Directors and Chief Executive 89 董事及行政總裁權益 189 Information on Share Options 92 認股權資料 192 Interests of Substantial Shareholders and Other Persons Purchase, Sale or Redemption of the Bank s Listed Securities Compliance with Corporate Governance Code 97 主要股東及其他人士的權益 購入 出售或贖回本行的上市證券 遵守企業管治守則 199 Compliance with Model Code 100 遵守標準守則 200 Publication of Interim Report 100 刊發中期報告 200 Glossary 201 詞彙 201

3 FINANCIAL HIGHLIGHTS 30 June June December 2016 For the half year ended Profitability HK$ Mn HK$ Mn HK$ Mn Total operating income from continuing operations 7,629 7,130 7,720 Profit attributable to owners of the parent 6,220 2,095 1,628 Profit attributable to owners of the parent from continuing operations 3,171 1,981 1,524 Earnings Per Share and Dividends Per Share HK$ HK$ HK$ Basic earnings from continuing operations Basic earnings Dividends Key Ratios % % % Return on average assets (annualised) Return on average assets from continuing operations (annualised) Return on average equity (annualised) Return on average equity from continuing operations (annualised) Cost-to-income ratio from continuing operations Average liquidity coverage ratio first quarter second quarter third quarter N.A. N.A fourth quarter N.A. N.A At period/year end Balance Sheet Strength HK$ Mn HK$ Mn HK$ Mn Total loans and advances to customers and trade bills 480, , ,182 Total assets 788, , ,706 Total deposits 585, , ,646 Total equity 97,976 87,035 86,636 Key Ratios % % % Loan to deposit ratio Impaired loan ratio Common Equity Tier 1 capital ratio Tier 1 capital ratio Total capital ratio The Bank of East Asia, Limited Interim Report 2017

4 CORPORATE INFORMATION BOARD OF DIRECTORS Executive Directors Dr. the Hon. Sir David LI Kwok-po (Chairman & Chief Executive) Mr. Adrian David LI Man-kiu (Deputy Chief Executive) Mr. Brian David LI Man-bun (Deputy Chief Executive) Non-executive Directors Professor Arthur LI Kwok-cheung (Deputy Chairman) Mr. Aubrey LI Kwok-sing Mr. Stephen Charles LI Kwok-sze Dr. Isidro FAINÉ CASAS Dr. Peter LEE Ka-kit Mr. Masayuki OKU Independent Non-executive Directors Dr. Allan WONG Chi-yun (Deputy Chairman) Mr. Winston LO Yau-lai Dr. Daryl NG Win-kong Dr. the Hon. Rita FAN HSU Lai-tai Mr. Meocre LI Kwok-wing Dr. the Hon. Henry TANG Ying-yen The Hon. CHAN Kin-por Dr. Delman LEE AUDITORS KPMG Certified Public Accountants SHARE LISTING The Stock Exchange of Hong Kong Limited SHARE REGISTRARS Tricor Standard Limited Telephone: (852) Facsimile: (852) ADR DEPOSITARY BANK BNY Mellon Telephone: Toll free (domestic): BNY-ADRS shrrelations@bnymellon.com REGISTERED OFFICE 10 Des Voeux Road Central, Hong Kong Telephone: (852) Facsimile: (852) Website: info@hkbea.com SENIOR ADVISORS Mr. Joseph PANG Yuk-wing Mr. CHAN Tze-ching SENIOR MANAGEMENT Mr. Adrian David LI Man-kiu Executive Director & Deputy Chief Executive Mr. Brian David LI Man-bun Executive Director & Deputy Chief Executive Mr. Samson LI Kai-cheong Deputy Chief Executive & Chief Investment Officer Mr. TONG Hon-shing Deputy Chief Executive & Chief Operating Officer COMPANY SECRETARY Mr. Alson LAW Chun-tak The Bank of East Asia, Limited Interim Report

5 INTERIM RESULTS The Board of Directors of the Bank is pleased to announce the unaudited results (Note 1(a)) of the Group for the six months ended 30th June, The interim financial report is prepared on a basis consistent with the accounting policies and methods adopted in the 2016 audited financial statements, except for the accounting policy changes that are expected to be reflected in the 2017 audited financial statements. Details of these changes in accounting policies are set out in Note 2. The interim financial report is unaudited, but has been reviewed by KPMG in accordance with Hong Kong Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, issued by the HKICPA. KPMG s independent review report to the Board is included on page 63. Consolidated Income Statement 6 months ended 30/6/ months ended 30/6/2016 Notes HK$ Mn HK$ Mn CONTINUING OPERATIONS Interest income 3 10,459 10,361 Interest expense 4 (4,720) (4,878) Net interest income 5,739 5,483 Fee and commission income 5 1,708 1,678 Fee and commission expense (426) (425) Net fee and commission income 1,282 1,253 Net trading profits/(losses) (32) Net result from financial instruments designated at fair value through profit or loss 7 (4) (2) Net hedging loss 8 (2) (4) Net insurance revenue Other operating income Non-interest income 1,890 1,647 Operating income 7,629 7,130 Operating expenses 11 (3,903) (4,239) Operating profit before impairment losses 3,726 2,891 Impairment losses on loans and receivables (763) (1,241) Impairment losses on available-for-sale financial assets (2) Impairment losses on assets held for sale (58) Impairment losses (823) (1,241) Operating profit after impairment losses 2,903 1,650 Net profit on sale of held-to-maturity investments 6 6 Net profit on sale of available-for-sale financial assets Net profit on sale of disposal groups and assets held for sale Net profit on disposal of subsidiaries/associates 2 Net (loss)/gain on disposal of fixed assets 13 (7) 770 Valuation gains on investment properties Share of profits less losses of associates Profit for the period before taxation 3,762 2,716 Income tax 14 (574) (727) Profit for the period from continuing operations 3,188 1,989 DISCONTINUED OPERATIONS Profit from discontinued operations 41 4, Profit for the period 7,333 2,148 3 The Bank of East Asia, Limited Interim Report 2017

6 Consolidated Income Statement (Continued) 6 months ended 30/6/ months ended 30/6/2016 Notes HK$ Mn HK$ Mn Attributable to: Owners of the parent from continuing operations 3,171 1,981 from discontinued operations 3, ,220 2,095 Non-controlling interests 1, Profit for the period 7,333 2,148 Profit for the Bank 6,823 1,682 Earnings per share Basic 1(b) profit for the period HK$2.20 HK$0.69 profit from continuing operations HK$1.08 HK$0.65 Diluted 1(b) profit for the period HK$2.20 HK$0.69 profit from continuing operations HK$1.08 HK$0.65 The Bank of East Asia, Limited Interim Report

7 Consolidated Statement of Comprehensive Income 6 months ended 30/6/ months ended 30/6/2016 Notes HK$ Mn HK$ Mn Net profit 7,333 2,148 Other comprehensive income for the period: Items that will not be reclassified to income statement: Premises: unrealised surplus on revaluation of premises Items that may be reclassified subsequently to income statement: Available-for-sale investment revaluation reserve: fair value changes recognised to equity 1, fair value changes reclassified from/(to) income statement: on impairment and amortisation 3 18 on disposal 12 (220) (25) deferred taxes 29 (104) 33 Share of changes in equity of associates (86) 113 Exchange differences arising from translation of accounts/disposal of overseas branches, subsidiaries and associates 1,259 (375) Other comprehensive income 2,045 (165) Total comprehensive income 9,378 1,983 Total comprehensive income attributable to: Owners of the parent 8,212 1,921 Non-controlling interests 1, ,378 1,983 5 The Bank of East Asia, Limited Interim Report 2017

8 Consolidated Statement of Financial Position 30/6/ /12/2016 Restated Notes HK$ Mn HK$ Mn ASSETS Cash and balances with banks and other financial institutions 54,449 65,720 Placements with and advances to banks and other financial institutions 15 50,765 44,052 Trade bills 16 14,195 11,939 Trading assets 17 5,378 4,404 Financial assets designated at fair value through profit or loss 18 4,038 3,554 Positive fair value of derivatives 35(a) 6,887 8,938 Loans and advances to customers , ,445 Available-for-sale financial assets , ,491 Held-to-maturity investments 21 11,315 5,663 Investments in associates 7,843 6,011 Fixed assets 22 12,311 11,990 Investment properties 4,760 4,467 Other property and equipment 7,551 7,523 Goodwill and intangible assets 2,624 2,639 Deferred tax assets Other assets 23 37,846 39,075 Total Assets 788, ,706 EQUITY AND LIABILITIES Deposits and balances of banks and other financial institutions 27,607 26,475 Deposits from customers 549, ,789 Demand deposits and current accounts 78,706 74,993 Savings deposits 130, ,462 Time, call and notice deposits 339, ,334 Trading liabilities Negative fair value of derivatives 35(a) 7,846 7,982 Certificates of deposit issued 36,656 28,857 Designated at fair value through profit or loss 7,049 18,106 At amortised cost 29,607 10,751 Current taxation 1,671 1,605 Debt securities issued 1,001 7,154 Designated at fair value through profit or loss At amortised cost 440 6,736 Deferred tax liabilities Other liabilities 25 48,962 50,088 Loan capital at amortised cost 26 17,083 20,608 Total Liabilities 690, ,070 Share capital 1(d) 36,136 35,490 Reserves 30 50,166 42,941 Total equity attributable to owners of the parent 86,302 78,431 Additional equity instruments 31 8,894 5,016 Non-controlling interests 2,780 3,189 Total Equity 97,976 86,636 Total Equity and Liabilities 788, ,706 The Bank of East Asia, Limited Interim Report

9 Consolidated Statement of Changes in Equity Share capital Capital reserve staff share options issued Exchange revaluation reserve Investment revaluation reserve Revaluation reserve of bank premises Capital reserve General reserve Other reserves 3 Retained profits Total Additional equity instruments Noncontrolling interests HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn Total equity At 1st January, , (2,275) 1,359 1, ,035 5,293 22,447 78,431 5,016 3,189 86,636 Changes in equity Profit for the period 6,220 6,220 1,113 7,333 Other comprehensive income 1, (86) 1, ,045 Total comprehensive income 1, (86) 6,220 8,212 1,166 9,378 Issue of additional equity instruments 1 3,878 3,878 Shares issued in lieu of dividend (Note 1(d)) Shares issued under Staff Share Option Schemes (Note 1(d)) Equity settled share-based transaction Transfer 4 (12) (16) 7 66 (49) Dividends declared or approved during the period (Note 1(c)) (1,002) (1,002) (1,422) (2,424) Change of ownership in subsidiaries (18) (18) Decrease in non-controlling interests arising from capital reduction of a subsidiary (135) (135) At 30th June, , (1,069) 2,192 1, ,042 5,273 27,616 86,302 8,894 2,780 97,976 At 1st January, , (162) 1,383 1, ,953 4,666 21,799 77,413 5,016 3,212 85,641 Changes in equity Profit for the period 2,095 2, ,148 Other comprehensive income (384) (174) 9 (165) Total comprehensive income (384) ,095 1, ,983 Shares issued in lieu of dividend (Note 1(d)) 1,060 1,060 1,060 Equity settled share-based transaction Transfer (62) (127) Dividends declared or approved during the period (Note 1(c)) (1,564) (1,564) (48) (1,612) Buy back of Hybrid Tier 1 capital instruments 2 (6) (6) (47) (53) At 30th June, , (546) 1,456 1, ,015 4,906 22,197 78,840 5,016 3,179 87, During the period, the Bank issued HK$3,892 million (USD500 million) undated non-cumulative subordinated Additional Tier 1 capital securities ( AT1 ). Direct issuance costs of HK$14 million are accounted for as a deduction from the equity instruments. 2. In first half 2016, the Bank bought back HK$47 million Hybrid Tier 1 capital instruments which are classified as non-controlling interests in the consolidated financial statements. The purchase premium of HK$6 million paid in excess of the carrying amount of the non-controlling interests acquired was charged to retained profits. 3. Other reserves include statutory reserve and other reserves. 7 The Bank of East Asia, Limited Interim Report 2017

10 Condensed Consolidated Cash Flow Statement 6 months ended 30/6/ months ended 30/6/2016 Notes HK$ Mn HK$ Mn NET CASH OUTFLOW FROM OPERATIONS (3,420) (10,130) Income tax paid Hong Kong profits tax paid (164) (6) Outside Hong Kong profits tax paid (388) (436) NET CASH USED IN OPERATING ACTIVITIES (3,972) (10,572) INVESTING ACTIVITIES Dividends received from associates Dividends received from available-for-sale equity securities Purchase of equity securities (1,309) (1,396) Proceeds from sale of equity securities 1,013 1,097 Purchase of fixed assets (174) (188) Proceeds from disposal of other properties and equipment Proceeds from disposal of investment properties 651 Proceeds from sale of disposal groups and assets held for sale Proceeds from sale of discontinued operations 5,947 (Increase)/decrease of shareholding in associates (1,483) 2 Change of ownership in subsidiaries (18) Decrease in non-controlling interests arising from capital reduction of a subsidiary (135) NET CASH GENERATED FROM INVESTING ACTIVITIES 4,152 1,836 FINANCING ACTIVITIES Ordinary dividends paid (1,563) (308) Distribution to Hybrid/Additional Tier 1 issue holders 1(c) (245) (244) Issue of ordinary share capital 26 Issue of additional equity instruments 3,892 Issue of certificates of deposit 36,183 22,921 Issue of debt securities Redemption of Hybrid Tier 1 issued (53) Redemption of certificates of deposit issued (28,811) (27,753) Redemption of loan capital (3,903) Redemption of debt securities issued (6,570) (6,542) Interest paid on loan capital (517) (452) Interest paid on certificates of deposit issued (316) (303) Interest paid on debt securities issued (99) (127) NET CASH USED IN FINANCING ACTIVITIES (1,628) (12,174) NET DECREASE IN CASH AND CASH EQUIVALENTS (1,448) (20,910) CASH AND CASH EQUIVALENTS AT 1ST JANUARY 75, ,966 Effect of foreign exchange rate changes 2,472 (1,494) CASH AND CASH EQUIVALENTS AT 30TH JUNE 32 76,865 88,562 Cash flows from operating activities included: Interest received 10,509 10,875 Interest paid 5,373 5,693 Dividend received The Bank of East Asia, Limited Interim Report

11 Notes to the Interim Financial Statements 1. (a) This interim report has been prepared in accordance with the same accounting policies adopted in the 2016 annual financial statements, except for the accounting policy changes that are expected to be reflected in the 2017 annual financial statements. Details of these changes in accounting policies are set out in Note 2 below. The financial information relating to the financial year ended 31st December, 2016 that is included in the interim financial report as comparative information does not constitute the Bank s statutory annual consolidated financial statements for that financial year but is derived from those financial statements. Further information relating to these statutory financial statements disclosed in accordance with section 436 of the Companies Ordinance is as follows: The Bank has delivered the financial statements for the year ended 31st December 2016 to the Registrar of Companies in accordance with section 662(3) of, and Part 3 of Schedule 6 to, the Companies Ordinance. The Bank s auditor has reported on those financial statements. The auditor s report was unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report; and did not contain a statement under section 406(2), 407(2) or (3) of the Companies Ordinance. (b) (i) The calculation of basic earnings per share is based on the consolidated profit for the period and profit from continuing operations attributable to owners of the parent of HK$5,975 million and HK$2,926 million (six months ended 30th June, 2016: HK$1,845 million and HK$1,731 million) respectively after the distribution of HK$245 million (six months ended 30th June, 2016: HK$244 million) to Hybrid/Additional Tier 1 issue holders and deduction of nil (30th June, 2016: HK$6 million) premium paid for partial bought back of Hybrid Tier 1 capital instruments, and on the weighted average of 2,714 million (six months ended 30th June, 2016: 2,662 million) ordinary shares outstanding during the six months ended 30th June, (ii) The calculation of diluted earnings per share is based on the consolidated profit for the period and profit from continuing operations attributable to owners of the parent of HK$5,975 million and HK$2,926 million (six months ended 30th June, 2016: HK$1,845 million and HK$1,731 million) respectively after the distribution of HK$245 million (six months ended 30th June, 2016: HK$244 million) to Hybrid/Additional Tier 1 issue holders and deduction of nil (30th June, 2016: HK$6 million) premium paid for partial bought back of Hybrid Tier 1 capital instruments, and on 2,714 million (six months ended 30th June, 2016: 2,662 million) ordinary shares, being the weighted average number of ordinary shares outstanding during the six months ended 30th June, 2017, adjusted for the effects of all dilutive potential shares. (c) Dividends (i) Dividends payable to equity owners of the parent attributable to the interim period 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn Interim dividend declared after the interim period of HK$0.68 per share on 2,724 million shares (six months ended 30th June, 2016: HK$0.28 per share on 2,683 million shares) 1, The interim dividend has not been recognised as a liability at the end of the reporting period. 9 The Bank of East Asia, Limited Interim Report 2017

12 Notes to the Interim Financial Statements (Continued) 1. (c) Dividends (Continued) (ii) Dividends payable to equity owners of the parent attributable to the previous financial year, approved and paid during the interim period 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn Second interim dividend paid in respect of the previous financial year on shares issued under the share option schemes subsequent to the end of the reporting period and before the close of the Register of Members of the Bank, of HK$0.28 per share (2016: HK$0.50 per share) Second interim dividend of HK$0.28 per share on 2,703 million shares (2016: HK$0.50 per share on 2,641 million shares) 757 1, ,320 (iii) Distribution to holders of Hybrid/Additional Tier 1 capital instruments 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn Interest paid/payable on the Hybrid Tier 1 capital instruments Amount paid on the Additional Tier 1 capital instruments (d) Share Capital Movement of the Bank s ordinary shares is set out below: At 30th June, 2017 At 31st December, 2016 No. of shares No. of shares Mn HK$ Mn Mn HK$ Mn Ordinary shares, issued and fully paid: At 1st January 2,703 35,490 2,641 33,815 Shares issued under Staff Share Option Schemes Transfer of the fair value of options from capital reserve share options issued 4 1 Share issued in lieu of dividend ,663 At 30th June/31st December 2,724 36,136 2,703 35,490 The Bank of East Asia, Limited Interim Report

13 Notes to the Interim Financial Statements (Continued) 2. Changes in Accounting Policies The HKICPA has issued a number of amendments to HKFRSs that are first effective for the current accounting period of the Group. None of these developments have had a material effect on how the Group s results and financial position for the current or prior periods have been prepared or presented. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. 3. Interest Income 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Securities classified as held-to-maturity or available-for-sale 1,443 1,269 Trading assets Financial assets designated at fair value through profit or loss Loans, deposits with banks and financial institutions, and trade bills 8,877 8,951 10,459 10,361 The above included HK$10,437 million (six months ended 30th June, 2016: HK$10,373 million) interest income, before hedging effect, for financial assets that are not recognised at fair value through profit or loss and of which, interest income accrued on impaired financial assets was HK$173 million (six months ended 30th June, 2016: HK$190 million). For the transactions where interest rate risk is hedged, the periodic payments and receipts arising from interest rate contracts which are qualifying hedging instruments for or individually managed in conjunction with interest-bearing financial assets are first netted together and then combined with the interest income from the corresponding financial assets. 4. Interest Expense 6 months ended 6 months ended 30/6/ /6/2016 Restated HK$ Mn HK$ Mn CONTINUING OPERATIONS Customer deposits, deposits of banks and other financial institutions 3,923 4,204 Certificates of deposit and debt securities issued at amortised cost designated at fair value through profit or loss Subordinated notes carried at amortised cost Other borrowings 3 1 4,720 4,878 The above included HK$4,682 million (six months ended 30th June, 2016: HK$4,664 million) interest expense, before hedging effect, for financial liabilities that are not recognised at fair value through profit or loss. For the transactions where interest rate risk is hedged, the periodic payments and receipts arising from interest rate contracts which are qualifying hedging instruments for or individually managed in conjunction with interest-bearing financial liabilities are first netted together and then combined with the interest expense from the corresponding financial liabilities. 11 The Bank of East Asia, Limited Interim Report 2017

14 Notes to the Interim Financial Statements (Continued) 5. Fee and Commission Income Fee and commission income arises from the following services: 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Credit cards Loans, overdrafts and guarantees Other retail banking services Trade finance Trust and other fiduciary activities Securities and brokerage Others Total fee and commission income 1,708 1,678 of which: Net fee income, other than amounts included in determining the effective interest rate, arising from financial assets or financial liabilities that are not held for trading nor designated at fair value through profit or loss 1,293 1,262 Fee income 1,708 1,678 Fee expenses (415) (416) 6. Net Trading Profits/(Losses) 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Loss on dealing in foreign currencies and funding swaps (518) (517) Profit/(Loss) on trading securities 315 (91) Net gain on derivatives Dividend income from listed trading securities (32) The Bank of East Asia, Limited Interim Report

15 Notes to the Interim Financial Statements (Continued) 7. Net Result from Financial Instruments Designated at Fair Value through Profit or Loss 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Revaluation gain/(loss) on debts issued 5 (2) Revaluation loss on financial assets (9) (3) Profit on sale of financial assets 3 8. Net Hedging Loss (4) (2) 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Fair value hedges Net profit on hedged items attributable to the hedged risk Net loss on hedging instruments (265) (458) (2) (4) There was insignificant ineffectiveness recognised in the Group s income statement arising from cash flow hedge for the six months ended 30th June, 2017 and 30th June, Net Insurance Revenue 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS (a) Net insurance revenue Net interest income Net trading profit/(loss) 51 (3) Net result from financial instruments designated at fair value through profit or loss 32 (8) Net hedging loss (12) (4) Net insurance premium and other income (b) 3,033 2,341 Other operating income 1 3,321 2,515 Net insurance claims and expenses (c) (3,171) (2,312) Operating expenses (2) (1) Impairment loss on available-for-sale financial assets (2) (19) Net profit on sale of available-for-sale financial assets The Bank of East Asia, Limited Interim Report 2017

16 Notes to the Interim Financial Statements (Continued) 9. Net Insurance Revenue (Continued) 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn (b) Net insurance premium and other income Gross insurance premium income 3,063 2,374 Reinsurer s share of gross insurance premium income (30) (33) 3,033 2,341 (c) Net insurance claims and expenses Claims, benefits and surrenders paid 2,468 1,362 Movement in provisions ,150 2,257 Reinsurers share of claim, benefits and surrenders paid (907) (33) Reinsurers share of movement in provisions (56) (23) 3,094 2,234 Net insurance commission expenses ,171 2, Other Operating Income 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Dividend income from available-for-sale financial assets listed 6 8 unlisted 8 7 Rental from safe deposit boxes Rental income on properties Others The Bank of East Asia, Limited Interim Report

17 Notes to the Interim Financial Statements (Continued) 11. Operating Expenses 6 months ended 6 months ended 30/6/ /6/2016 Restated Note HK$ Mn HK$ Mn CONTINUING OPERATIONS Contributions to defined contribution plan Hong Kong Outside Hong Kong Equity-settled share-based payment expenses Salaries and other staff costs 2,078 2,177 Total staff costs 2,275 2,396 Premises and equipment expenses excluding depreciation Rental of premises Maintenance, repairs and others Total premises and equipment expenses excluding depreciation Depreciation on fixed assets Amortisation of intangible assets Other operating expenses Legal and professional fees Communications, stationery and printing Advertising expenses Card related expenses Business promotions and business travel Stamp duty, overseas and PRC business taxes, and value added taxes Insurance expenses Membership fees 7 10 Bank charges 5 5 Bank licence 2 2 Donations 2 3 Others Total other operating expenses Total operating expenses 3,903 4,239 Note: To better reflect the expenses nature, HK$49 million expenses under social insurance plans of Mainland China was reclassified to salaries and other staff costs from contributions to defined contribution plan outside Hong Kong. 15 The Bank of East Asia, Limited Interim Report 2017

18 Notes to the Interim Financial Statements (Continued) 12. Net Profit on Sale of Available-for-Sale Financial Assets 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Net revaluation gain transferred from reserves (Loss)/Profit arising in the period (5) Net (Loss)/Gain on Disposal of Fixed Assets 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Net gain on disposal of investment properties 146 Net (loss)/gain on disposal of bank premises, furniture, fixtures and equipment (7) 624 (7) Income Tax Taxation in the consolidated income statement represents: 6 months ended 6 months ended 30/6/ /6/2016 HK$ Mn HK$ Mn CONTINUING OPERATIONS Current tax Hong Kong Tax for the year Under-provision in respect of prior years Current tax outside Hong Kong Tax for the year* Write back of over-provision in respect of prior years (76) (35) Deferred tax Origination and reversal of temporary differences (21) (228) * For the first half of 2016, certain properties in Mainland China were disposed of, which resulted in an impact of land value added tax and corporate income tax totalling HK$396 million. The Bank of East Asia, Limited Interim Report

19 Notes to the Interim Financial Statements (Continued) 14. Income Tax (Continued) The provision for Hong Kong profits tax is calculated at 16.5% (six months ended 30th June, 2016: 16.5%) of the estimated assessable profits for the six months ended 30th June, Taxation for overseas branches and subsidiaries is charged at the appropriate current rates of taxation ruling in the relevant countries. 15. Placements with and Advances to Banks and Other Financial Institutions 30/6/ /12/2016 HK$ Mn HK$ Mn Placements with and advances to banks and other financial institutions Maturing within one month 41,840 36,511 after one month but within one year 8,925 7,541 after one year 50,765 44,052 Of which: Placements with and advances to central banks 16. Trade Bills 30/6/ /12/2016 HK$ Mn HK$ Mn Gross trade bills 14,196 11,940 Less: Individual impairment allowance (1) (1) 14,195 11, The Bank of East Asia, Limited Interim Report 2017

20 Notes to the Interim Financial Statements (Continued) 17. Trading Assets 30/6/ /12/2016 HK$ Mn HK$ Mn Treasury bills (including Exchange Fund Bills) 242 1,034 Certificates of deposit held 1, Debt securities 899 1,663 Equity securities 2,262 1,276 Investment funds 3 5,378 4, Financial Assets Designated at Fair Value through Profit or Loss 30/6/ /12/2016 HK$ Mn HK$ Mn Debt securities 3,824 3,330 Equity securities Investment funds ,038 3, Loans and Advances to Customers (a) Loans and advances to customers 30/6/ /12/2016 HK$ Mn HK$ Mn Gross loans and advances to customers 466, ,242 Less: Impairment allowances Individual (1,565) (1,715) Collective (2,210) (2,082) 462, ,445 The Bank of East Asia, Limited Interim Report

21 Notes to the Interim Financial Statements (Continued) 19. Loans and Advances to Customers (Continued) (b) Loans and advances to customers - by industry sectors The analysis of gross advances to customers and the percentage of secured advances by industry sector is based on the categories and definitions used by the HKMA. 30/6/ /12/2016 Gross advances % of secured advances Gross advances % of secured advances HK$ Mn % HK$ Mn % Loans for use in Hong Kong Industrial, commercial and financial Property development 24, , Property investment 37, , Financial concerns 12, , Stockbrokers 3, , Wholesale and retail trade 10, , Manufacturing 2, , Transport and transport equipment 4, , Recreational activities Information technology 2, , Others 22, , Sub-total 120, , Individuals Loans for the purchase of flats in the Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 1, Loans for the purchase of other residential properties 40, , Credit card advances 4, , Others 29, , Sub-total 75, , Total loans for use in Hong Kong 196, , Trade finance 4, , Loans for use outside Hong Kong* 266, , Total advances to customers 466, , * Loans for use outside Hong Kong include the following loans for use in Mainland China. 30/6/ /12/2016 Gross advances % of secured advances Gross advances % of secured advances HK$ Mn % HK$ Mn % Property development 44, , Property investment 28, , Financial concerns 33, , Wholesale and retail trade 13, , Manufacturing 5, , Loans for the purchase of other residential properties 15, , Others 38, , , , The Bank of East Asia, Limited Interim Report 2017

22 Notes to the Interim Financial Statements (Continued) 19. Loans and Advances to Customers (Continued) (b) Loans and advances to customers - by industry sectors (Continued) Individually impaired loans, as well as relevant information, in respect of industry sectors which constitute 10% or more of total advances to customers are as follows: 30/6/ /12/2016 HK$ Mn HK$ Mn (i) Property development a. Individually impaired loans b. Individual impairment allowance 7 8 c. Collective impairment allowance d. Provision charged to income statement individual impairment loss collective impairment loss e. Written off 16 8 (ii) Property investment a. Individually impaired loans 1, b. Individual impairment allowance c. Collective impairment allowance d. Provision charged to income statement individual impairment loss collective impairment loss e. Written off (iii) Loans for purchase of residential properties a. Individually impaired loans b. Individual impairment allowance 1 6 c. Collective impairment allowance d. Provision charged to income statement individual impairment loss collective impairment loss 3 91 e. Written off 5 44 (iv) Wholesale and retail trade a. Individually impaired loans 2,287 2,317 b. Individual impairment allowance c. Collective impairment allowance d. Provision charged to income statement individual impairment loss 317 1,680 collective impairment loss e. Written off (v) Hotels a. Individually impaired loans 1, b. Individual impairment allowance c. Collective impairment allowance d. Provision charged to income statement individual impairment loss collective impairment loss 4 40 e. Written off The Bank of East Asia, Limited Interim Report

23 Notes to the Interim Financial Statements (Continued) 19. Loans and Advances to Customers (Continued) (c) Loans and advances to customers by geographical areas The information concerning the breakdown of the gross amount of advances to customers by countries or geographical areas is derived according to the location of the counterparties after taking into account any transfer of risk. In general, such transfer of risk takes place if the claims are guaranteed by a party in a country which is different from that of the counterparty or if the claims are on an overseas branch of a bank whose head office is located in another country. Total advances to customers Advances overdue for over three months 30/6/2017 Impaired advances to customers Individual impairment allowance Collective impairment allowance HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn Hong Kong 200,763 1,664 2, Mainland China 199,536 3,930 4,344 1,358 1,576 Other Asian Countries and Regions 29, Others 36, Total 466,574 5,717 6,956 1,565 2,210 % of total advances to customers 1.49% Market value of collateral held against impaired advances to customers 5,321 Total advances to customers Advances overdue for over three months 31/12/2016 (Restated Note ) Impaired advances to customers Individual impairment allowance Collective impairment allowance HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn Hong Kong 194, , Mainland China 192,550 3,389 4,309 1,428 1,474 Other Asian Countries and Regions 30, Others 37, Total 454,242 4,189 6,767 1,715 2,082 % of total advances to customers 1.49% Market value of collateral held against impaired advances to customers 4,948 Note: The 2016 comparative figures have been restated to conform to current period s presentation. To align with the segment reporting, segment People s Republic of China was renamed as Mainland China which does not include Macau and Taiwan operations. Advances to customers from Macau and Taiwan operations were now presented under segment Other Asian Countries and Regions (previously named Other Asian Countries). 21 The Bank of East Asia, Limited Interim Report 2017

24 Notes to the Interim Financial Statements (Continued) 19. Loans and Advances to Customers (Continued) (c) Loans and advances to customers by geographical areas (Continued) Impaired loans and advances are individually assessed loans with objective evidence of impairment on an individual basis. The above information by countries or geographical areas is derived according to the location of the counterparties after taking into account any transfer of risk. Collateral includes any tangible security that carries a fair market value and is readily marketable. This includes (but is not limited to) cash and deposits, stocks and bonds, mortgages over properties and charges over other fixed assets such as plant and equipment. Where collateral values are greater than gross loans and advances to customers, only the amount of collateral up to the gross loans and advances is included. 20. Available-for-Sale Financial Assets 30/6/ /12/2016 HK$ Mn HK$ Mn Treasury bills (including Exchange Fund Bills) 20,959 18,795 Certificates of deposit held 1,235 1,205 Debt securities 90,556 86,964 Equity securities 3,820 3,064 Investment funds , , Held-to-Maturity Investments 30/6/ /12/2016 HK$ Mn HK$ Mn Treasury bills (including Exchange Fund Bills) 1,712 2,252 Certificates of deposit held 2, Debt securities 6,634 2,593 11,315 5,663 The Bank of East Asia, Limited Interim Report

25 Notes to the Interim Financial Statements (Continued) 22. Fixed Assets 30/6/2017 Investment properties Bank premises Furniture, fixtures and equipment Sub-total Total HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn Cost or valuation At 1st January, ,467 7,961 4,871 12,832 17,299 Additions Revaluation surplus Disposals (28) (110) (138) (138) Transfer from bank premises to investment properties 62 (62) (62) Revaluation surplus on bank premises transferred to investment properties Less: Elimination of accumulated depreciation on revalued bank premises (6) (6) (6) Transfer to assets held for sale (1) (8) (9) (9) Exchange adjustments At 30th June, ,760 8,059 4,994 13,053 17,813 Accumulated depreciation and amortisation At 1st January, ,660 3,649 5,309 5,309 Charge for the period Elimination of accumulated depreciation on revalued bank premises (6) (6) (6) Transfer to assets held for sale (2) (2) (2) Written off on disposal (9) (97) (106) (106) Exchange adjustments At 30th June, ,754 3,748 5,502 5,502 Net book value at 30th June, ,760 6,305 1,246 7,551 12,311 Net book value at 31st December, ,467 6,301 1,222 7,523 11,990 The gross amounts of the above assets are stated: At cost 7,280 4,994 12,274 12,274 At Directors valuation At professional valuation ,760 4,760 4,760 8,059 4,994 13,053 17, The Bank of East Asia, Limited Interim Report 2017

26 Notes to the Interim Financial Statements (Continued) 23. Other Assets 30/6/ /12/2016 HK$ Mn HK$ Mn Accrued interest 2,199 2,247 Customer liabilities under acceptances 22,511 25,084 24,710 27,331 Other accounts 12,997 9,324 Less: Impairment allowances Individual (17) (85) Collective (1) (1) 12,979 9,238 Assets held for sale (Note 41) 157 2,506 37,846 39, Trading Liabilities 30/6/ /12/2016 HK$ Mn HK$ Mn Exchange fund bills sold Other Liabilities 30/6/ /12/2016 HK$ Mn HK$ Mn Accrued interest payable 3,160 3,812 Acceptance draft payable 22,511 25,084 Other accounts 23,291 20,766 Liabilities held for sale (Note 41) ,962 50,088 The Bank of East Asia, Limited Interim Report

27 Notes to the Interim Financial Statements (Continued) 26. Loan Capital 30/6/ /12/2016 HK$ Mn HK$ Mn Subordinated notes, at amortised cost with fair value hedge adjustments USD600 million fixed rate subordinated notes due 16th July, 2020 (1) 4,836 4,820 USD500 million fixed rate subordinated notes due 4th May, 2022 (2) 3,881 SGD800 million fixed rate subordinated notes due 13th September, 2022 (3) 4,539 4,284 USD500 million fixed rate subordinated notes due 20th November, 2024 (4) 3,902 3,874 USD500 million fixed rate subordinated notes due 3rd November, 2026 (5) 3,806 3,749 17,083 20,608 The Group has not had any defaults of principal, interest or other breaches with respect to its debt securities during the period/year ended 30th June, 2017 and 31st December, (1) Two tranches of loan capital of face value totalling HK$4,682 million (USD600 million) and carrying amount totalling HK$4,836 million (31/12/2016: HK$4,820 million) were issued on 16th July, 2010 (USD450 million) and on 23rd July, 2010 (USD150 million) by the Bank. These subordinated notes carrying a coupon rate of 6.125% qualifying as Tier 2 capital are listed on the Singapore Exchange and will mature on 16th July, The notes are under fair value hedge accounting and hedge ineffectiveness of HK$2 million loss was recorded in the first half of 2017 (first half 2016: HK$2 million loss). (2) On 4th May, 2017, the Bank redeemed the HK$3,891 million (USD500 million) 6.375% subordinated notes (under the Euro Medium Term Note Programme) which were issued on 4th November, 2011 and which qualified as Tier 2 capital. (3) Loan capital of face value of HK$4,535 million (SGD800 million) and carrying amount of HK$4,539 million (31/12/2016: HK$4,284 million) represents two tranches of 4.25% subordinated notes (under the Euro Medium Term Note Programme) qualifying as Tier 2 capital issued on 13th March, 2012 (SGD600 million) and on 27th April, 2012 (SGD200 million) by the Bank. The notes are listed on the Singapore Exchange and will mature on 13th September, The notes are under fair value hedge accounting and hedge ineffectiveness of HK$0.5 million loss was recorded in first half of 2017 (first half 2016: HK$1 million loss). (4) Loan capital of face value of HK$3,903 million (USD500 million) and carrying amount of HK$3,902 million (31/12/2016: HK$3,874 million) represents 4.25% subordinated notes (under the Euro Medium Term Note Programme) qualifying as Tier 2 capital issued on 20th November, 2014 by the Bank. The notes are listed on the Hong Kong Stock Exchange and will mature on 20th November, The notes are under fair value hedge accounting and hedge ineffectiveness of HK$2 million profit was recorded in first half of 2017 (first half 2016: HK$1 million loss). (5) Loan capital of face value of HK$3,903 million (USD500 million) and carrying amount of HK$3,806 million (31/12/2016: HK$3,749 million) represents 4% subordinated notes (under the Euro Medium Term Note Programme) qualifying as Tier 2 capital issued on 3rd November, 2016 by the Bank. The notes are listed on the Hong Kong Stock Exchange and will mature on 3rd November, The notes are under fair value hedge accounting and hedge ineffectiveness of HK$0.4 million profit was recorded in first half of The Bank of East Asia, Limited Interim Report 2017

28 Notes to the Interim Financial Statements (Continued) 27. Segment Reporting The Group manages its businesses by divisions, which are organised by a mixture of both business lines and geography. In a manner consistent with the way in which information is reported internally to the Group s Senior Management for the purposes of resource allocation and performance assessment, the Group has presented the following nine reportable segments. No operating segments have been aggregated to form the following reportable segments. Personal banking includes branch operations, personal internet banking, consumer finance, property loans and credit card business in Hong Kong. Corporate banking includes corporate lending and loan syndication, asset based lending, commercial lending and securities lending in Hong Kong. Treasury markets include treasury operations and securities dealing in Hong Kong. Wealth management includes private banking business and related assets in Hong Kong. Financial institutions include trade financing activities with correspondent banks in Hong Kong. Other Hong Kong banking operations mainly include insurance business, trust business, securities & futures broking, money lender activities and corporate financial advisory in Hong Kong. Mainland China operations (previously named as China Operation) mainly include the back office unit for Mainland China operations in Hong Kong, all branches, subsidiaries and associates operated in Mainland China, except those subsidiaries carrying out corporate services, data processing and other back office operations in Mainland China. Previously, Macau and Taiwan operations were grouped under China operations. With effect from 2017, China operations are renamed as Mainland China operations which do not include Macau and Taiwan operations. The 2016 figures have been restated for comparison purpose. Overseas operations include the back office unit for overseas banking operations in Hong Kong, all branches, subsidiaries and associates operated in overseas, except those subsidiaries carrying out corporate services in overseas. Before 2017, Macau and Taiwan operations were grouped under China operations. With effect from 2017, Macau and Taiwan operations are grouped under Overseas operations and the 2016 figures have been restated for comparison purpose. Corporate services include company secretarial services, share registration and business services, and offshore corporate and trust services. Other businesses include property-related business, supporting units of Hong Kong operations, investment properties, bank premises, the net results of other subsidiaries in Hong Kong except for those subsidiaries which are included in other Hong Kong banking operations. For the purposes of assessing segment performance and allocating resources between segments, the Group s Senior Management monitors the results, assets and liabilities attributable to each reportable segment on the following bases: Segment assets include all tangible assets, intangible assets and financial assets with the exception of interests in associates, deferred tax assets and other corporate assets. Segment liabilities include deposits, financial liabilities and other liabilities attributable to the individual segments. Revenue and expenses are allocated to the reportable segments with reference to interest and fee and commission income generated by those segments and the expenses incurred by those segments or which otherwise arise from the depreciation or amortisation of assets attributable to those segments. Segment revenue and expenses do not include the Group s share of revenue and expenses arising from the activities of the Group s associates. Other than reporting inter-segment income, assistance provided by one segment to another, including sharing of assets, is not measured. The Bank of East Asia, Limited Interim Report

29 Notes to the Interim Financial Statements (Continued) 27. Segment Reporting (Continued) Hong Kong banking operations Personal banking Corporate banking Treasury markets Wealth management Financial institutions Others Mainland China operations Overseas operations Total reportable segments Others Intersegment elimination Total HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn HK$ Mn 6 months ended 30th June, 2017 CONTINUING OPERATIONS Net interest income/(expense) 1, (177) , , (2) 5,739 Non-interest income/(expense) (83) , (167) 1,890 Operating income 2,164 1,145 (260) , , (169) 7,629 Operating expenses (832) (88) (64) (100) (5) (224) (1,424) (281) (3,018) (1,054) 169 (3,903) Operating profit/(loss) before impairment losses 1,332 1,057 (324) ,109 (383) 3,726 (Charge for)/write back of impairment losses on loans and receivables (75) (169) (1) (6) (510) 1 (760) (3) (763) Impairment losses on available-for-sale financial assets (2) (2) (2) Impairment losses on assets held for sale (58) (58) (58) Operating profit/(loss) after impairment losses 1, (326) ,289 (386) 2,903 Profit/(Loss) on sale of fixed assets, held-to-maturity investments and available-for-sale financial assets (4) (1) 215 (1) 214 Profit/(Loss) on sale of disposal groups and assets held for sale (2) (2) Profit on disposal of subsidiaries/associates 2 2 Valuation gains on investment properties Share of profits less losses of associates Profit/(Loss) before taxation 1, (113) , ,762 Depreciation for the period (30) (1) (2) (1) (7) (100) (16) (157) (73) (230) At 30th June, 2017 Segment assets 74, , ,847 24,657 8,351 20, , , ,793 15,037 (75,374) 780,456 Investments in associates 49 2,120 5,674 7,843 7,843 Other assets Assets held for sale Total assets 74, , ,847 24,657 8,351 20, , , ,793 15,037 (75,374) 788,456 Segment liabilities 296,398 1,112 58,541 22, , ,911 95, ,366 2,378 (48,264) 690,480 Other liabilities Liabilities held for sale Total liabilities 296,398 1,112 58,541 22, , ,911 95, ,366 2,378 (48,264) 690, The Bank of East Asia, Limited Interim Report 2017