Industrial and Commercial Bank of China (Asia) Limited

Contents 2 3 Company Profile 4 5 Corporate Information 6 6 Financial Performance 13 31 Chairman s Statement 15 33 Management s Discussion & Analysis 25 45 Biographical Details of Directors & Senior Management 49 49 Report of the Directors 59 59 Auditors Report 60 60 Consolidated Profit and Loss Account 61 61 Consolidated Balance Sheet 62 62 Balance Sheet 63 63 Consolidated Statement of Changes in Equity 64 64 Consolidated Cash Flow Statement 66 66 Notes to the Accounts 127 127 Supplementary Financial Information 141 141 Notice of Annual General Meeting 149 149 Analyst Coverage 150 150 Branches, Subsidiaries and Associated Companies

Company Profile Industrial and Commercial Bank of China (Asia) Limited Industrial and Commercial Bank of China (Asia) Limited ( ICBC (Asia) ), a member of Industrial and Commercial Bank of China ( ICBC )* family, enjoys ample support in various areas such as funding, settlement, information technology and credit card operation. ICBC (Asia), formerly known as Union Bank of Hong Kong Limited, was established in Hong Kong in 1964 and listed in 1973. Over the years, the Bank offered new and diversified banking services to its customers. Following the Bank s change of name to Industrial and Commercial Bank of China (Asia) Limited on 21st August 2000, the Bank has become a member of ICBC. In July 2001, ICBC injected the commercial banking business of its Hong Kong Branch into ICBC (Asia). By doing so, it expanded ICBC (Asia) s customer base, improved its deposits and loans portfolio as well as diversified its product mix. Such transfer of business therefore led to a substantial enhancement of the competitive edge of ICBC (Asia). The Bank has since become the flagship of ICBC in developing overseas business. Pursuant to a sale and purchase agreement entered by ICBC (Asia) with Fortis Group on 31 December 2003, ICBC (Asia) will acquire the entire issued share capital of Fortis Bank Asia HK. Subsequent to the completion of acquisition, ICBC (Asia) s rank among banks operating in Hong Kong would rise to sixth from tenth in terms of total assets. With the nationwide branch network, leadership and expertise provided by ICBC, ICBC (Asia) will continue to offer a range of banking and financial services, including various types of deposits and loans, trade finance, remittance, settlement, commercial and industrial finance, syndicated loans, inward and outward bills of exchange, China business advisory and financial services, securities business and bullion brokerage services as well as insurance agency services. * ICBC is the largest commercial bank (in terms of total assets) in the Mainland. By the end of 2002, its total assets amounted over RMB4,700 billion. ICBC has over 26,000 domestic outlets approximately 400 million personal saving accounts and more than 8 million corporate accounts while its RMB settlement market share is 45%. ICBC has established a global branch network in Hong Kong, Singapore, Tokyo, Seoul, Busan, Frankfurt, Luxembourg and Macau, subsidiary banks in Almaty (Kazakhstan) and London as well as representative offices in New York, Sydney and Moscow. In 2002, ICBC was ranked as the 10th Largest Bank in the world by tier 1 capital and for three consecutive years, was awarded the title Best Bank of China by The Banker. At the same year, The Banker named ICBC as the Bank of the Year 2002 Website. In 2003, Global Finance presented ICBC with the Best Personal Internet Bank Award 2003 China and Best Bank Award 2003 China, in which ICBC has already won the latter award for three successive years. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 3

Corporate Information Board of Directors Jiang Jianqing (Chairman) Wang Lili (Vice Chairman) Zhu Qi (Managing Director & Chief Executive Officer) Chen Aiping (Non-executive Director) Kwok Kin Hung (Director & Deputy General Manager) Wang Yan (Director & Deputy General Manager) Wong Yue Chim, Richard, S.B.S., J.P. (Independent Non-executive Director) Tsui Yiu Wa, Alec (Independent Non-executive Director) Yuen Kam Ho, George (Independent Non-executive Director) Company Secretary Lai Wing Nga Audit Committee Wong Yue Chim, Richard, S.B.S., J.P. (Independent Non-executive Director & Chairman) Yuen Kam Ho, George (Independent Non-executive Director & Alternate Chairman) Tsui Yiu Wa, Alec (Independent Non-executive Director) Chen Aiping (Non-executive Director) Senior Management Zhu Qi (Managing Director & Chief Executive Officer) Kwok Kin Hung (Director & Deputy General Manager) Wang Yan (Director & Deputy General Manager) Zhang Yi (Deputy General Manager) Tang Kam Sun (Assistant General Manager & Chief Financial Officer) Fong Yuen Kwai (Assistant General Manager) Solicitors Herbert Smith 23/F Gloucester Tower 11 Pedder Street Hong Kong Telephone: 2845 6639 Facsimile: 2845 9099 Auditors PricewaterhouseCoopers 22/F, Prince s Building Central Hong Kong Telephone: 2289 8888 Facsimile: 2810 9888 Registrar Tengis Limited G/F, Bank of East Asia Harbour View Centre 56 Gloucester Road Wanchai Hong Kong Telephone: 2980 1888 Facsimile: 2810 8185 Registered Office ICBC Tower 122-126 Queen s Road Central Hong Kong Telephone: 2534 3333 Facsimile: 2805 1166 Telex: 73264 ICBCA HX Post Box: GPO Box 872 SWIFT: UBHKHKHH English version of this Annual Report can be accessed through the internet at: http://www.icbcasia.com/html/ eng/info.html Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 5

Financial Performance 2003 Financial Highlights As restated For the Year (in HK$ million) 2003 2002 % Change Net Interest Income 823 689 +19 Other Operating Income 321 391-18 Operating Expenses 314 307 +2 Charge for Bad and Doubtful Debts 129 182-29 Profit before Taxation 645 571 +13 Taxation 123 96 +28 Profit Attributable to Shareholders 522 475 +10 As restated At Year End (in HK$ million) 2003 2002 % Change Loans and Advances 41,811 32,874 +27 Total Assets 75,320 62,262 +21 Total Deposits 42,307 40,180 +5 Shareholders Funds 5,917 5,907 +0 Financial Ratios 2003 2002 Capital Adequacy (Adjusted) 16.7% 17.8% Average Liquidity for the Year 41.3% 35.9% Cost to Income 27.4% 28.5% Loans to Deposits 96.0% 80.0% Financial Calendar Final Results Announcement 22nd March 2004 Posting Date for Annual Report 30th March 2004 Share Register Closing Period 15th-22nd April 2004 Date of Annual General Meeting 22nd April 2004 Dividend Payment Date 14th May 2004 Industrial and Commercial Bank of China (Asia) Limited 6 Annual Report 2003

Financial Performance Five Year Summary As restated For the Year (in HK$ million) 2003 2002 2001 2000 1999 Net Interest Income 823 689 488 386 321 Other Operating Income 321 391 203 98 87 Operating Expenses 314 307 289 230 218 Charge for Bad and Doubtful Debts 129 182 66 156 738 Profit/(loss) before Taxation 645 571 331 150 (547) Taxation Charge/(Credit) 123 96 1 (2) Profit/(loss) Attributable to Shareholders 522 475 330 150 (545) As restated Per Share (in HK$) 2003 2002 2001 2000 1999 Basic Earnings per Share 0.71 0.69 0.56 0.33 (1.59) Dividends per Share 0.38 0.35 0.27 0.13 N/A As restated At Year End (in HK$ million) 2003 2002 2001 2000 1999 Loans and Advances 41,811 32,874 28,452 13,673 11,968 Total Assets 75,320 62,262 43,497 20,657 19,158 Total Deposits 42,307 40,180 29,705 16,281 16,155 Shareholders' Funds 5,917 5,907 5,071 2,583 2,430 As restated Financial Ratios 2003 2002 2001 2000 1999 Capital Adequacy (Adjusted) 16.7% 17.8% 16.1% 17.8% 20.0% Average Liquidity for the Year 41.3% 35.9% 39.7% 43.3% 56.4% Loans to Deposits 96.0% 80.0% 92.0% 74.0% 61.3% Loans to Total Assets 55.5% 52.8% 65.4% 66.2% 62.5% NPL ratio 1.7% 2.3% 6.8% 23.2% 31.5% General Provision Coverage 0.8% 0.9% 0.8% 0.9% 1.0% Cost to Income 27.4% 28.5% 41.9% 47.5% 53.4% Dividend Payout 66.4% 61.0% 59.9% 39.1% N/A Return on Average Assets 0.8% 1.0% 1.1% 0.8% N/A Return on Average Common Equity 10.2% 10.2% 9.3% 5.9% N/A N/A Not Applicable HK$ million 1,000 900 800 700 600 500 400 300 200 100 0 Operating Profit Before Provisions 190-48% 254 +34% 384 +51% 737 +92% 795 +8% 1999 2000 2001 2002 2003 HK$ million 600 500 400 300 200 100 0-100 -200-300 -400-500 -600 Profit/(loss) Attributable to Shareholders (545) N/A 150 N/A 330 +120% 475 +44% 522 +10% 1999 2000 2001 2002 2003 Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 7

Financial Performance Deposits 1. By Type 2003 2002 Current 3.0% 1.8% Savings 13.2% 5.6% Fixed 83.8% 92.6% Total 100.0% 100.0% 2. By Remaining Maturity 2003 2002 Repayable on Demand 16.5% 7.4% Three Months or Less 80.1% 85.2% One Year or Less, but Over Three Months 3.4% 7.2% Five Years or Less, but Over One Year 0.0% 0.2% Total 100.0% 100.0% 3. By Currency 2003 2002 HKD 52.2% 53.9% USD 41.2% 41.4% Others 6.6% 4.7% Total 100.0% 100.0% Other Operating Income 2003 2002 Net Fees and Commission Income 81.6% 84.3% Net Gain from Foreign Exchange Activities 3.1% 2.1% Net Gain from Trading Securities 0.4% 0.6% Dividend Income from Investments in Securities 2.4% 2.0% Others 12.5% 11.0% Total 100.0% 100.0% HK$ million 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 19,158-11% 20,657 +8% Total Assets 43,497 +111% 62,262 43% 75,320 +21% HK$ million 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 16,155-12% 16,281 +1% Total Deposits 29,705 +82% 40,180 +35% 42,307 +5% 8 0 1999 2000 2001 2002 2003 5,000 1999 2000 2001 2002 2003 Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003

Financial Performance Loan Portfolio # 1. By Industry Sectors 2003 2002 Loans for Use in Hong Kong Industry, Commercial and Financial Property Development 6.4% 4.8% Property Investment 11.3% 14.6% Financial Concerns 11.6% 7.4% Stockbrokers 0.1% 0.1% Wholesale and Retail Trade 2.9% 4.7% Civil Engineering Works 2.4% 2.3% Manufacturing 8.2% 4.5% Transport and Transport Equipment 15.0% 14.9% Electricity, Gas and Telecommunications 3.2% 4.7% Hotels, Boarding House & Catering 2.6% 3.5% Others 10.1% 10.3% Individuals Loans for the purchases of flats in Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Schemes 0.2% 0.4% Loans for the purchase of Other Residential Properties 19.6% 19.6% Others 1.5% 2.2% Trade Finance 3.9% 3.3% Loans for Use outside Hong Kong 1.0% 2.7% Total 100.0% 100.0% 2. By Remaining Maturity 2003 2002 Repayable on Demand 3.5% 4.3% One Year or Less 14.0% 18.4% Five Years or Less, but Over One Year 47.5% 39.5% Over Five Years 33.4% 35.5% Undated 1.6% 2.3% Total 100.0% 100.0% 3. By Currency 2003 2002 HKD 82.6% 83.3% USD 14.3% 15.9% Others 3.1% 0.8% Total 100.0% 100.0% Excluding Trade Bills and Advances to Banks and Other Financial Institutions HK$ million 45,000 40,000 35,000 30,000 25,000 Total Loans and Advances 28,452 +108% 32,874 +16% 41,811 +27% 35% 30% 25% 20% 31.5% NPL Ratio 23.2% 20,000 15,000 10,000 5,000 0 11,968-17% 13,673 +14% 1999 2000 2001 2002 2003 15% 10% 5% 0 6.8% 2.3% 1.7% 1999 2000 2001 2002 2003 Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 9

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Driving growth through acquisition The acquisition of Fortis Bank Asia HK will enhance ICBC (Asia) s commercial and retail banking base with a significantly expanded branch network focusing on small to medium sized enterprises and retail customers, thereby complementing ICBC (Asia) s current business and product profiles, with particular strengths at corporate banking. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 11

Dr. Jiang Jianqing Chairman Hong Kong s economy was extremely volatile in 2003. The overall economy was badly hit by the SARS outbreak, which in turn adversely affected the operating environment of the banking industry. Despite such challenges, Industrial and Commercial Bank of China (Asia) Limited has once again achieved remarkable performance following two years of robust growth, attributable to the pragmatic leadership of the management, our effective development strategies, and the continuous hard work of all staff members. For the year 2003, the Bank s audited consolidated after tax profit increased 10% to HK$522 million. The Bank has been making great efforts to improve the quality of its assets. During the year, non-performing loans dropped from 2.3% to 1.7%. The Bank continued to play an active part in loan syndication business and other capital market financing activities, maintaining our superior position in the large-scale financing market. A particularly encouraging note is the considerable growth achieved by our retail banking and commercial banking divisions, which respectively recorded a growth of 88% and 61%. This has significantly strengthened the Bank s income structure and profitability. ICBC (Asia) has continued to strengthen since its acquisition by the Industrial and Commercial Bank of China ( ICBC ) in 2000. On 31st December 2003, the Bank entered into an agreement with Fortis Bank for the acquisition of the entire issued share capital of Fortis Bank Asia HK ( FBAHK ). The acquisition is expected to broaden our customer base and strengthen the competitiveness of our commercial and retail banking business. In addition to improving the cost efficiency of the Bank, which eventually creates a more favorable operating platform and a competitive position for generating business from China, Hong Kong and Europe. Industrial and Commercial Bank of China (Asia) Limited 30 Annual Report 2003

Chairman s Statement In accordance with the acquisition, ICBC (Asia) placed 124,874,000 ordinary shares to independent investors on 9th February 2004. After the completion of the placement, ICBC held a 53.18% interest in the entire issued ordinary shares capital of ICBC (Asia). Being the listed flagship company for the overseas business of ICBC, ICBC (Asia) has interacted closely with its parent to strategically expand our different areas of business in Hong Kong. Taking advantage of ICBC s brand name, branch networks, customer base and settlement system in the Mainland, the Bank has worked closely with ICBC s Mainland branches to jointly develop the domestic and the financial market by providing efficient, high quality and integrated cross-border services for our customers in Hong Kong and the Mainland. In the area of retail banking, ICBC (Asia) was among the first batch of banks to offer personal Renminbi banking business in Hong Kong, including deposits, exchange and remittance services, following the signing of the CEPA and the permission granted to Hong Kong banks to operate Renminbi business. As for Renminbi financing business, the Bank has assisted customers whose enterprises are located in the Mainland to obtain Renminbi financing by providing guarantees and issuing letters of credits to ICBC mainland branches. In the long term, capitalising on our parent bank s leadership position in Renminbi business in the Mainland, we will strive to become a key player in the Renminbi market in Hong Kong. As regards Taiwan business, ICBC (Asia) has capitalised on the growing demand for cross-strait and cross-border financial services from Taiwan enterprises by acting as a bridge between banks in the Mainland and Taiwan, providing a variety of services such as remittance, settlement, trade finance, Renminbi financing, factoring and forfeiting services. For credit card business, since the end of 2002, the Bank has been acting as agent for ICBC s brand-new dualcurrency credit card that carries both Renminbi and Hong Kong Dollar accounts. In addition, the Bank has also helped the ICBC Hong Kong Credit Card Centre to market a HKD credit card that was first issued in October 2003 - ICBC Xplore Visa, which targets at the juvenile market. Looking forward to 2004, with the recovery of the Hong Kong economy and closer economic links between Hong Kong and the Mainland, we expect a rapid increase in the demand of financial services and ample development opportunities for the banking industry. We will continue to capitalise on the reputation and resources of our parent company and interact closely with our branches in the Mainland to further expand our corporate banking service, as well as our commercial and retail banking activities and wealth management services in order to enhance our competitive edge. ICBC (Asia) also endeavours to become one of the leading banks in Hong Kong and to maximise return for our shareholders. I wish to take this opportunity to extend my sincere gratitude to our customers, business partners and shareholders for their enormous support, and express my heartfelt thanks to the hard work of all members of our staff. Dr. Jiang Jianqing Chairman 22 March 2004 Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 31

4 1 2 3 Senior Management 1. 1. Zhu Qi 2. (Managing Director & Chief Executive Officer) 3. 2. Kwok Kin Hung 4. (Director & Deputy General Manager) 3. Wang Yan (Director & Deputy General Manager) 4. Zhang Yi (Deputy General Manager) Industrial and Commercial Bank of China (Asia) Limited 32 Annual Report 2003

Management s Discussion & Analysis Overview Hong Kong s economy was extremely volatile in 2003. The economic woes that persisted during the past few years continued until early 2003. Exacerbated by the Severe Acute Respiratory Syndrome (SARS) outbreak, Hong Kong s economy once came to a standstill, but rebounded swiftly in the middle of the year with the signing of the Closer Economic Partnership Agreement (CEPA) and the relaxation of travel restrictions on mainland visitors to Hong Kong. While rising consumer spending boosted retail sales, the recovery of the property market and the rising stock market soothed the negative asset problem that has adversely affected many homeowners. With improvement in asset quality and increased loan demand, we believe that the worst is over and greater opportunities are expected in the coming year. Financial Review Industrial and Commercial Bank of China (Asia) Limited ( ICBC (Asia) or the Bank ) achieved notable growth during the year although the operating environment in the first half of the year was unfavorable. With the Board of Directors and our senior management s leadership and staff members effort, the consolidated profit attributable to shareholders reached HK$522 million, representing an increase of 10% over that of HK$475 million for the year of 2002. The significant growth in earnings was due to expansion of interest-bearing assets in 2003. Earnings per share was HK$0.71 (2002: HK$0.69). Return on average assets and return on average common equity were 0.8% and 10.2% respectively (2002: 1% and 10.2%). Net interest income for the year of 2003 surged by 19% to HK$823 million over 2002, mainly due to a 27% increase in total loans. The net interest margin actually reduced by 14 basis points to 1.31% in the first half of 2003 but increased by 1 basis point to 1.32% for the second half of 2003. Other operating income decreased slightly by HK$69 million to HK$321 million, resulting from weakened demand for loans in 2003. Arrangement and commitment fees from syndication loans tapered off in 2003 as the Bank arranged a HK$14.8 billion syndication loan for GH Water Supply (Holdings) Ltd., representing the largest syndication loans in Hong Kong in 2002, while no loans of a similar magnitude were recorded in 2003. The proportion of other operating income to total operating income was 28% (2002: 36%). While total operating income increased 6% to HK$1,144 million, operating expenses were effectively controlled and only up by 2% to HK$314 million (2002: HK$307 million). The cost income ratio (excluding amortisation of goodwill of HK$35 million) dropped from 29% in 2002 to 27% in 2003. Total number of staff was 591 as at 31st December 2003, compared with 553 at the end of 2002. Income Composition 2003 Loans Composition 2003 Net interest income 72% Net fee and commission income 23% Net gains from foreign exchange activities 1% Other income 4% Property investment - residential mortgage 2% Trade finance 4% Loans for use outside Hong Kong 1% Individuals - Others 1% Individuals - Residential mortgage 20% Property development & other property investment 16% Industrial, commercial & finance 56% Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 33

Management s Discussion & Analysis Net charge for bad and doubtful debts for the year of 2003 was HK$129 million, HK$68 million of which related to building up of the general provisions as the loan book expanded and HK$61 million related to net specific charge (after netting off provisions written back). Compared with last year, net specific provisions reduced significantly by HK$62 million, or 50%, mainly due to a reduced level of new charges by HK$97 million despite the enlarged loan book. Share of losses from associated companies enlarged from HK$9 million in 2002 to HK$32 million in 2003, mainly due to change of accounting policies of the Tai Ping Insurance Company, Limited. Balance Sheet Total assets were HK$75.3 billion as at 31st December 2003, a 21% rise when compared with 31st December 2002. The asset growth was mainly achieved through the enlargement of loan book. Additional debt securities were secured in order to achieve higher returns for our assets portfolio. As at 31st December 2003, total investment in debt securities increased 30% to HK$13.2 billion, representing 18% of total assets. Our investments were concentrated in quality bonds with ratings of BBB- and above. Customer deposits recorded a slight drop this year, due to an extremely low interest rate environment. Customer deposits were down by 9% to HK$35.4 billion, standing for 54% of total liabilities as at 31st December 2003. In order to secure longer term funding and lock up the low funding cost during the year, the Bank issued HK$6.4 billion Certificates of Deposit in total in 2003. The loans to deposits ratio (i.e. customer deposits + certificates of deposit issued) stood at an efficient level of 96% (31st December 2002: 80%). Asset Quality Compared with 31st December 2002, the asset quality of the Bank was improved in 2003, and this was reflected in the key asset quality ratio as at 31st December 2003. Key Asset Quality Ratio 2003 2002 HK$ 000 HK$ 000 Non-Performing Loans Amount 668,397 738,932 % of Total Loans 1.7% 2.3% Overdue Loans Amount 511,912 453,972 Debt Coverage Ratio 94.0% 97.0% The debt coverage ratio (i.e. specific provision + collateral) for overdue loans was 94% as at 31st December 2003 (31st December 2002: 97%). The debt coverage ratio for UB China Business Management Co. Ltd. s overdue portfolio was 87% while the Bank s overdue portfolio was 98%. Industrial and Commercial Bank of China (Asia) Limited 34 Annual Report 2003

Management s Discussion & Analysis Capital and Liquidity Management At the end of 2003, the adjusted consolidated capital adequacy ratio for the Bank was 16.7%, down 1.1% when compared with the same ratio of 17.8% at the end of 2002, which was a healthy level when compared with International Settlements minimum requirement of 8%. In order to effectively manage capital requirements, the Bank issued US$120 million perpetual subordinated debt in July 2003 to the ultimate holding company for supporting further business expansion. Loans to Deposits Ratio raised from 80% at the end of 2002 to 96% at the end of 2003. The Bank s liquidity position remained strong throughout the year of 2003 with an average liquidity ratio of 41.3% (2002: an average of 35.9%), which was well above the statutory requirement of 25%. Acquisition of Fortis Bank Asia HK On 31st December 2003, ICBC (Asia) entered into a sale and purchase agreement (the SPA ) with Generale Belgian Holding B.V. ( GBH ) and Fortis Bank, pursuant to which ICBC (Asia) has agreed to purchase the entire issued share capital of Fortis Bank Asia HK ( FBAHK ) from GBH, following a carve-out of the Excluded Assets (as defined in the SPA), subject to the conditions and on the terms of the SPA (the Acquisition ). The consideration for the Acquisition was HK$2,157 million which was to be satisfied by the allotment and issue of new shares in the capital of ICBC (Asia) representing 9% of the total issued share capital as at the date of completion of the Acquisition, as enlarged by such issuance, to GBH and the remaining balance of the consideration will be satisfied by cash. The Acquisition shall be completed on 30th April 2004, conditional upon approvals by the Hong Kong Monetary Authority and other regulatory authorities, as well as the fulfilment of certain conditions as stipulated in the SPA. The Acquisition will create a substantially larger and stronger banking operation for ICBC (Asia) with an enhanced commercial and retail banking base for the Group and a significantly expanded branch network focusing on small to medium sized enterprises and retail customers, thereby complementing ICBC (Asia) s current business and product profile with particular emphasis in the corporate banking business. The acquisition of Fortis Bank Asia HK will enhance ICBC (Asia) s branch network focusing on small to medium sized enterprises and retail customers. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 35

Management s Discussion & Analysis Corporate Banking Against the background of sluggish economy and the outbreak of Severe Acute Respiratory Syndrome (SARS), Hong Kong corporate loan transactions, by way of either new demand or re-financing, dropped by approximately 20% in the year 2003. Coupled with a continuously strong liquidity position of the banking sector, corporate loan yield was driven down, by about one-fifth. Despite this, the Bank s Corporate Banking Department continued to record strong growth in loan portfolio by 25%, and a decent profitability. It remains to be a key contributor to the Bank, constituting 48% of the Bank s profit before tax. Fee income remained to form a significant part of the department s revenue, constituting 55% and indicating the department s strong ability in leveraging the Bank s relationship and balance sheet to enhance return to shareholders. The Bank s leading position in the Hong Kong corporate loan market remains unchanged, evidenced by the Bank s high ranking in the Hong Kong syndicated loan market as an arranger. For example, Basis Point, a renowned Asian debt market publication, ranked the Bank/ICBC third in its Hong Kong/China Syndicated Loan Top-Tier Arrangers league table. During the year, we cautiously extended our reach beyond Hong Kong, by successfully forming alliances with key players in the international syndication market. Because of our leading position in Hong Kong and our gradual involvement internationally, our present position in the Asian syndication market is commendable. For example, Basis Point ranked the Bank /ICBC fifth in its Asian Syndicated Loan Top-Tier Arranger league table. Credit safety, like usual, remains to be our top priority in expanding business. The Bank s achievements in the corporate banking arena is attributable to the strong support of our parent, our customers and our business partners, the strong marketing and execution capability of the Bank and our unreserved commitment to quality corporations, among others. The Bank acted as a Financial Advisor to NWS Holdings Limited in its acquisition of certain business of the New World Group. Industrial and Commercial Bank of China (Asia) Limited 36 Annual Report 2003

Management s Discussion & Analysis A crucial factor for future growth lies with our ability to enhance our product range. Corporate Advisory, Mergers and Acquisition Finance, Transportation Finance and Project Finance, are among the expanding product range of the Bank, complementing our traditional strength in Property and General Funding Finance. For example, during the year, we acted as a Financial Advisor to Pacific Ports Company Limited (now renamed as NWS Holdings Limited) in its acquisition of certain business of the New World Group, a Financial Advisor to Top Glory International Holdings Limited in its privatisation and a Financial Advisor to Asia Netcom Corporation Limited in relation to its acquisition of certain submarine cable assets of Asia Global Crossing. We also arranged Ship Finance for COSCO Group and COFCO Group involving 27 Bulk Carriers as well as the first international syndicated loan for International Lease Finance Corporation, one of the World s largest aircraft leasing companies. We are also involved as a Facility Agent for APT Satellite Company Limited in relation to its acquisition of three satellites; such specialised assets have traditionally been a domain of selected premium international banks only. Being a learning organisation is a key in assuring the Bank s continuous growth in the Corporate Banking sector. Our achievements in this respect are significant. Treasury and Markets Despite continued suppression of spreads between deposit and lending yields, Treasury and Markets ( T&M ) has achieved impressive results this year. Revenue surged by 22% over 2002 to HK$304 million on the back of our investment strategy, which followed the market conditions closely. In addition, various underlying income streams have registered double-digit growth. Importantly, the strategic emphasis over enhancing asset yields has not compromised asset quality and risk management criterion. About 95% of the debt investment was maintained at investment grade securities. T&M also rigorously monitored the portfolio with standard risk tools. Furthermore, the Bank set up a middle office to ensure the operations of T&M could fulfill regulatory requirement. T&M continued to be actively involved in primary market. The Bank acted as lead manager or arranger in 19 primary market deals in Hong Kong, including the co-led of the very first retail bond issued by a foreign company, Ford Motor Credit. T&M was ranked the 14th in the HKD Capital Markets according to MCM Market Watch. Under the environment of low interest rates and lack of investment opportunities, T&M offered a wide range of yield enhancing and capital guaranteed products to both individual investors and institutions. T&M has expanded services to high-net-worth individuals through active marketing of structured products. The Bank recorded considerable growth in its hire purchase and leasing business. In order to further diversify funding source, T&M doubled the size of ICBC (Asia) s Certificate of Deposit Programme to HK$10 billion, under which HK$6.4 billion of Certificates of Deposit ( CDs ) have been issued, enabling T&M to increase long-term funding and improve the relationship with customers. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 37

Management s Discussion & Analysis In 2004, T&M will expand its operations and implement a more stringent risk management system so that T&M will be able to provide better services for the customers and to strengthen the foundation of profitability and risk control. Retail Banking The division recorded a remarkable performance in 2003 as a result of its creative and flexible marketing strategies. Through closer cooperation with major property developers including Hutchison Whampoa Property, Cheung Kong Holdings and New World Development the division secured a number of exclusive equitable mortgage financing programmes and recorded remarkable results. According to Centanet statistics, ICBC (Asia) ranked number six in terms of market share, after the top five banks in Hong Kong Hang Seng, Bank of China, HSBC, Standard Chartered and DBS Hong Kong. The Bank recorded an increase of HK$1,600 million, or 26% in residential mortgages, and reached HK$7,800 million in its total portfolio in this area of business. The Bank also recorded considerable growth in its hire purchase and leasing business, registering an increase of 52% over 2003. The Bank s market share in taxi and public light bus financing was approximately 9.4%, placing it among the top six lending institutions in this area. With a low interest rate environment, interest margin widened, resulting in a significant growth in total interest income and profit. Due to improvement in quality loans, delinquency rate was able to maintain at below 0.5% throughout the year. Competition in taxi and public light bus financing is expected to remain keen in the coming year, but we will continue to develop this area of business through quality service and a prudent approach in risk management As part of our ongoing effort to enhance our personal financial services, we have significantly expanded the range of our investment products during the year with encouraging results achieved in security and investment services, and significant growth recorded in income and market share. Arrangements were made with two renowned international fund houses, bringing the number of funds available for investors to over 150. Apart from traditional open-ended funds, we also involved in the marketing of guaranteed funds, retail bonds and the rapidly expanding retail-structured products. In 2003, we participated in 14 offerings and achieved satisfactory results. The Bank will continue to offer cost-efficient and value-added services, strengthen customer relations and broaden our scope of products to increase our non-interest income. We will also increase our cross selling efforts and expand our market share. On the other hand, in view of overwhelming demand in Retail Certificates of Deposit ( RCDs ), the Bank issued three batches of RCDs with a total value of HK$150 million and US$10 million. In addition, we introduced an innovative investment product the Target Redemption Industrial and Commercial Bank of China (Asia) Limited 38 Annual Report 2003 FBAHK business focus on retail customers and small to medium sized enterprises.

Management s Discussion & Analysis Deposit and was well received by our customers. The Bank s Equity-Linked Deposit was approved by Securities and Futures Commission in the fourth quarter. Meanwhile, a new fund, Macquarie ELI, which requires a lower minimum investment amount, was introduced to meet different customers needs. To strengthen our insurance business, we reached a partnership agreement with China Life Insurance (Overseas) Co. Ltd in the third quarter, offering more comprehensive insurance services to our retail customers. We continued to leverage on the strength of our parent company to offer quality services to our customers in Hong Kong and the Mainland. Remittance Express and Mortgage Plus, launched in previous years, attained especially encouraging results in 2003. Towards year-end, in conjunction with ICBC Guangdong Provincial Branch, Shenzhen Branch and Macau Branch, we launched a joint program to promote Remittance Express during the festive seasons of Christmas, New Year and the Lunar New Year to meet increased demand. The Bank continued to rationalise its branch network rationalization through actively streamlining work procedures, strengthening our marketing efforts and customer service. To consolidate our retail network, the Bank continued to accomplish and develop branches in order to enhance service quality and cost efficiency. As at 31st December 2003, the Bank operated 20 branches in Hong Kong. Relocation of small branches and opening of new branches in strategic locations will continue. The Bank will reach a new milestone in 2004 with the acquisition of FBAHK, a bank primarily targeted at serving Hong Kong retail customers and small to medium sized enterprises with 22 retail branches and 5 dedicated business centers for small to medium sized enterprises. The Acquisition will create a stronger position providing more comprehensive services and products to a larger number and cross-section of customers, which is expected to result in increased operating income, larger asset base, and improved cross-selling opportunities. The retail banking business is expected to become increasingly competitive in the coming year. We will continue to promote residential mortgage loans and hire purchase and leasing businesses in order to increase our market share and rate of return. We shall continue to leverage on, and enhance our mutual co-operation and connections with ICBC Mainland branches in order to increase our business opportunities within the region. Through continuous efforts in strengthening our wealth management centres, streamlining our branch network, speeding up product development and planning for our integration with FBAHK, we aim to strengthen our economy of scale, reinforce our marketing oriented culture, improve operational efficiency and ultimately enhance our profitability. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 39

Management s Discussion & Analysis Commercial Banking Commercial Banking recorded a remarkable loan growth over 40% in 2003. The growth has been contributed by new business development as well as increasing business from existing customers. With strong back-up of PRC services from our parent and comprehensive services provided locally, the Bank has gained favourable reputation among the SME sectors. As for 2004, the year started positively in many aspects. We are confident to continue our growth and achieve successful results for the Bank. Financial Institutions With the nationwide branch network of ICBC, our Financial Institutions Department strengthened its traditional correspondent banking businesses such as remittance and documentary letter of credit, and pressed ahead in exploring new business opportunities such as risk participation and forfeiting, i.e. buy/sell the risk of transactions of issuing banks in the Mainland, Taiwan and South Korea without recourse basis. This service has been well received by the market since its full launch in March 2003 and recorded an accumulated loan commitment of US$200 million in the year. Through wider and deeper relationship with local and international financial institutions, we have established a broad business network and outstanding reputation in the market. To capitalize on opportunities arising from the acquisition of FBAHK and growing economic integration between the Mainland and Taiwan, we will further strengthen our position of acting as a bridge linking the financial activities between the Mainland China and Taiwan, undertake to provide a comprehensive correspondent banking products and services to different financial institutions. Meanwhile, the Bank continues to provide the PRC intermediate remittance service for other financial institutions. We anticipate that trade finance risk participation and forfeiting and PRC remittance will be continuously improved through our comprehensive marketing promotion and professional teams. Credit Card Business ICBC Xplore Visa targets at the juvenile market segment. In spite of the difficulties in 2003, ICBC Hong Kong Credit Card Centre achieved encouraging results during the year, with the issuance of more than 30,000 new cards and sales volume of about HK$100 million, in both Hong Kong Dollar and Renminbi transactions. To further expand credit card business, a Hong Kong Dollar credit card the ICBC Xplore Visa, which targets at the juvenile market segment, was issued by ICBC Hong Kong Credit Card Centre during the year in addition to its leading product the global use dual-currency credit card that carries both Renminbi and Hong Kong Dollar accounts. Industrial and Commercial Bank of China (Asia) Limited 40 Annual Report 2003

Management s Discussion & Analysis 2004 is a year of opportunity for the banking sector in Hong Kong. With the announcement of the People s Bank of China on 18 November 2003 which allows local banks to conduct individual Renminbi businesses, including card business in Hong Kong, ample business opportunities will be created for local credit card market players. With our definite edge of leveraging on the enormous card base of our parent company, we are ready to seize this excellent business opportunity to commence our card merchant acquiring business in Hong Kong. In addition to promoting the exciting card products, we will help ICBC Hong Kong Credit Card Centre to market other new products including corporate cards, in order to diversify our portfolio. Other value-added services in relation to card products will also be offered to enhance our service quality to cardholders. Human Resources The Bank holds Staff Annual Dinner which enhances a sense of belonging At the end of 2003, ICBC (Asia) had a total of 591 employees. We believe that superior staff are our greatest asset. During the year, the Bank continued to invest in human resources and recruited quality staff to further strengthen its team. Through a variety of training programmes, the Bank actively enhanced the professional knowledge of its staff, strengthened customer service skills, promoted marketing initiatives and ensured that all its employees observe regulatory requirements. The Bank places great emphasis on the value contribution and performance of its employees. As a result, the Bank has implemented a bonus system that is commensurable with the performance of its staff and in line with the Bank s profitability, objectives and values, and the performance of the respective divisions. ICBC (Asia) also pays special attention to the creation of a unique corporate culture. During the year, the Recreation Committee (the Committee ) organised a greater number of activities than in the year before. The Bank took part in the drum-playing activity of Drum Festival organised by the Hong Kong Chinese Orchestra. With over 3,000 participants, the performance broke the Guinness World Record for having the largest number of participants in a single performance. The Committee also organised an annual dinner, which let the Board of Directors and all staff enjoy a good time. Other activities included staff picnics and basketball and badminton matches, fostering a greater sense of belonging and team spirit among staff members. The Bank took part in the drum-playing activity of Drum Festival. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 41

42

Broadening our corporate client base The Bank s achievements in the corporate banking arena is attributable to the great support of our holding company, customers and business partners as well as marketing strategies, our effective decisive and responsive management and our quality services. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 43

8 4 6 5 7 9 3 1 2 Board of Directors 1. Jiang Jianqing (Chairman) 2. Wang Lili (Vice Chairman) 3. Zhu Qi (Managing Director & Chief Executive Officer) 4. Chen Aiping (Non-executive Director) 5. Kwok Kin Hung (Director & Deputy General Manager) 6. Wang Yan (Director & Deputy General Manager) 7. Wong Yue Chim, Richard, S.B.S., J.P. (Independent Non-executive Director) 8. Tsui Yiu Wa, Alec (Independent Non-executive Director) 9. Yuen Kam Ho, George (Independent Non-executive Director) Industrial and Commercial Bank of China (Asia) Limited 44 Annual Report 2003

Biographical Details of Directors and Senior Management Dr. Jiang Jianqing (Chairman) Dr. Jiang, aged 51. Appointed as the Chairman and Director of the Bank since June 2000. Graduated from Shanghai Jiaotong University with a Doctor's Degree in Business Administration and awarded a Certificate of Competence for Professor in the banking field. Dr. Jiang has over 25 years of banking experience and he is the Chairman and President of The Industrial and Commercial Bank of China. Ms. Wang Lili (Vice Chairman) Ms. Wang, aged 52. Appointed as the Vice Chairman and Director of the Bank since December 2002. Ms. Wang is a member of the Board and Executive Vice President of The Industrial and Commercial Bank of China and looks over international business, overseas business, corporate banking, institutional business, treasury and legal affairs. Graduated from Nankai University with a Bachelor's Degree and obtained her MBA in international banking and finance from University of Birmingham, U.K. Ms. Wang has over 28 years of banking experience and awarded a Certificate of Competence for Professor in the banking field. She is also a Director of The Tai Ping Life Insurance Company, Limited. Mr. Zhu Qi (Managing Director and Chief Executive Officer) Mr. Zhu, aged 43. Appointed as Director of the Bank since June 2000. In October 2001, appointed as Managing Director and Chief Executive Officer of the Bank, also the Chairman of all subsidiaries of the Bank (except UB China Business Management Co. Ltd.) and a Director of China Ping An Insurance (Hong Kong) Company Limited and The Tai Ping Insurance Company, Limited, being the associated companies of the Bank and he is also a Director of ICEA Finance Holdings Limited and the Chairman of Industrial and Commercial International Capital Limited. Graduated from Middle China Economy and Financial University with a Bachelor's Degree and a Master's Degree in Economics. Mr. Zhu has over 17 years of banking experience. Mr. Chen Aiping (Non-executive Director) Mr. Chen, aged 45. Appointed as Director of the Bank since December 2002. Graduated from Wuhan University with a Bachelor of Arts Degree. Mr. Chen has over 18 years of banking experience and he is the General Manager of the International Business Department of The Industrial and Commercial Bank of China and a Director of Xiamen International Bank and ICEA Finance Holdings Limited. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 45

Biographical Details of Directors and Senior Management Mr. Kwok Kin Hung (Director, Deputy General Manager and Alternate Chief Executive) Mr. Kwok, aged 45. Joined the Bank as Deputy General Manager since July 2001 and was further appointed as Alternate Chief Executive and Director of the Bank in October 2001 and September 2002 respectively. Mr. Kwok was also appointed as Director of ICBC (Asia) Nominee Limited, ICBC (Asia) Bullion Company Limited and ICBC (Asia) Futures Limited, all of which are wholly-owned subsidiaries of the Bank, in September 2002 and October 2002 respectively and a Director of China Ping An Insurance (Hong Kong) Company Limited, an associated company of the Bank. Mr. Kwok joined The Industrial and Commercial Bank of China, Hong Kong Branch as Deputy General Manager in June 1998. Graduated from The University of Hong Kong and holds a Bachelor's Degree in Social Sciences. Mr. Kwok has over 20 years' management experience in banking business. Mr. Wang Yan (Director, Deputy General Manager and Alternate Chief Executive) Mr. Wang, aged 38. Joined the Bank as Deputy General Manager since July 2001 and was further appointed as Alternate Chief Executive and Director of the Bank in June 2003 and July 2003 respectively. Mr. Wang was also appointed as Chairman of UB China Business Management Co. Ltd. and as Director of ICBC (Asia) Bullion Company Limited in July 2001, and was appointed as Director of ICBC (Asia) Futures Limited in June 2003, all of which are wholly-owned subsidiaries of the Bank. Mr. Wang joined The Industrial and Commercial Bank of China, Hong Kong Branch as Deputy General Manager in August 2000. Graduated from the Beijing University and holds a Bachelor's Degree and a Master's Degree in International Law. He is currently a candidate for a Doctorate in national economic management of the Beijing University. Mr. Wang has over 14 years' management experience in banking business. Professor Wong Yue Chim, Richard, S.B.S., J.P. (Independent Non-executive Director) Professor Wong, aged 51. Appointed as Independent Non-executive Director of the Bank since July 2000. Graduated from University of Chicago with a Bachelor's and a Master's Degrees in Economics and also a Doctorate in Economics. Professor Wong is Dean of the Faculty of Business and Economics and Chair of Economics at The University of Hong Kong. He has been active in advancing economic research on policy issues in Hong Kong and China. Professor Wong was awarded the Silver Bauhinia Star in 1999 by the Government of the HKSAR for his contributions in education, housing, industry and technology development. Industrial and Commercial Bank of China (Asia) Limited 46 Annual Report 2003

Biographical Details of Directors and Senior Management Mr. Tsui Yiu Wa, Alec (Independent Non-executive Director) Mr. Tsui, aged 54. Appointed as Independent Non-executive Director of the Bank since August 2000. Graduated from University of Tennessee, USA with a Bachelor of Science Degree and a Master of Engineering Degree in Industrial Engineering. He has completed the Program for Senior Managers in Government at the John F. Kennedy School of Government at Harvard University. Mr. Tsui is currently the Chief Executive of WAG Financial Services Group Limited. Prior to his current appointment, he was the Adviser and Council Member of the Shenzhen Stock Exchange from July 2001 to June 2002 and was the Chief Executive of Regent Pacific Group Limited, a Hong Kong listed investment company, from August 2000 to February 2001. He is also Chairman of the Hong Kong Securities Institute and a Member of the Investment Sub-Committee of the Government Committee of the Beat Drugs Fund Association. He joined The Stock Exchange of Hong Kong Limited in 1994 as Executive Director of the Finance and Operations Services Division and became the Chief Executive from 1997 to 2000. He was also the Chief Operating Officer of the Hong Kong Exchanges and Clearing Limited from March 2000 to July 2000 and the Assistant Director of the Securities and Futures Commission of Hong Kong from 1989 to 1993. Mr. Tsui also involved in numerous government and community activities, including being a former Chairman of the Supervisory Committee of Tracker Fund of Hong Kong and the Organizing Committee of ICAC Professional Ethics Programme for the Securities, Futures and Investments Sectors, a former Member of the Standing Committee on Company Law Reform, the Hong Kong Trade Development Council Financial Services Advisory Committee, The Community Chest of Hong Kong Corporate and Employee Contribution Programme Organising Committee Banking and Finance Group, and the Banking and Finance Industry Training Board of the Vocational Training Council. Mr. Yuen Kam Ho, George (Independent Non-executive Director) Mr. Yuen, aged 59. Appointed as Independent Non-executive Director of the Bank since April 2003. Mr. Yuen is currently the Chief Executive of The Better Hong Kong Foundation. Graduated from The University of Hong Kong with a Bachelor's degree (Honors) in Economics and Political Science. Mr. Yuen has attended post-graduate studies in marketing management at the International Marketing Institute, Cambridge Massachusetts, U.S.A. and has completed the Hong Kong Administrators Course (commissioned by the Hong Kong Government) in public administration and the International Executive Program in international relations at Oxford University and INSEAD, France respectively. In June 2003, Mr. Yuen was admitted to the Leadership in Development Program organized by Kennedy School of Government, Harvard University. Prior to his joining the Foundation, Mr. Yuen was the Assistant Director/Acting Deputy Director of the Information Services Department of the Hong Kong Government. Mr. Yuen is a member of the British Institute of Management and the Institute of Marketing, U.K. Mr. Yuen plays an active role in organizing significant business conferences in Hong Kong and also involves in numerous government and community activities, including being the Chairman of the International Relations Committee of the Asia Pacific Academy for Productivity and Innovation, a board member of the East-West Strategic Development Commission and a member of the Central Policy Unit ("CPU") of the HKSAR Government and sits on the CPU Panel on Pearl River Delta Panel. Mr. Yuen was commended by the U.S. President, George W. Bush for his efforts in support of coalition's campaign against global terrorism. Industrial and Commercial Bank of China (Asia) Limited Annual Report 2003 47