Capital management

In 2011, the Company continued to promote the strategy of intensive capital management, and constantly improved capital utilization efficiency and capital management level. As a result, the Company’s capital adequacy ratio entirely met relevant regulatory requirements throughout the year. As at 31 December 2011, the capital adequacy ratio and core capital adequacy ratio of the Group were 11.53% and 8.22% respectively, representing an increase of 0.06 percentage point and 0.18 percentage point respectively as compared with those at the beginning of the year, while the capital adequacy ratio and core capital adequacy ratio of the Company were 11.28% and 8.74% respectively, representing an increase of 0.07 percentage point and 0.04 percentage point respectively as compared with those at the beginning of the year.

In 2012, CBRC will promulgate and implement the “Measures for the Management of Capital of Commercial Banks” (《商業銀行資本管理辦法》), which is expected to have stricter standards on capital, measurement of risk assets and minimum capital adequacy ratio. The Company compiled in 2011 the “Mid-term Capital Management Plan of China Merchants Bank for 2011-2015” (《招商銀 行2011-2015年資本管理中期規劃》), in which the Company had thoroughly considered the impacts of new capital governing policy. In addition, the Company proposed the rights issue of A Shares and H Shares of RMB35.0 billion in the second half of 2011, with a view to cover possible capital gaps for the next few years. According to the capital management plan, the Company will adhere to its capital intensive operational strategy and maintain a moderate growth rate of risk assets and a relatively stable proportion of cash dividend. After completion of the RMB35.0 billion rights issue of A Shares and H Shares and through organic capital accumulation, the Company will achieve its capital planning targets and lift its core Tier 1 capital adequacy ratio, Tier 1 capital adequacy ratio and total capital adequacy ratio to 8.5%, 9.5% and 11.5% respectively.

7. Net non-interest income

Thanks to the effective implementation of the Second Transformation, the Company’s intermediate business has maintained rapid growth. At present, the Company has enriched its product offerings and optimized revenue structure. In 2011, the Company fully explored the potential of existing channels and products while actively created new products and new channels aiming at overcoming the adverse effect of external environment with quality service and marketing efforts. Consequently, a relatively fast growth in net non-interest income was maintained, with the wealth management and investment banking services being the driving force. In 2011, the Bank recorded net non-interest income of RMB18.430 billion, representing an increase of 40.13% over the previous year. The ratio of the net non-interest income to the total net operating income was 19.95%, representing an increase of 0.75 percentage point as compared with the same period of the previous year. Fee and commission income from wealth management business amounted to RMB4.710 billion, representing an increase of 48.67% over the previous year. Specifically, income from entrusted wealth management amounted to RMB1.421 billion, representing an increase of 61.66% as compared with the same period of the previous year; income from fund agency services amounted to RMB1.180 billion, representing a decrease of 0.84% as compared with the same period of the previous year; income from agency sale of insurance amounted to RMB1.032 billion, representing an increase of 18.12% as compared with the same period of the previous year; and income from trust plan agency services amounted to RMB846 million, representing an increase of 333.85% as compared with the same period of the previous year.

Generally speaking, in recent years, China’s rapid economic growth, internationalization of the Renminbi and continuous increase in national income provided excellent external environment and opportunities for the development of intermediate business. But on the other hand, uncertainties in the capital market, possible changes in regulatory policies and homogeneous competition among banks brought challenges to the development of intermediate business.

In 2012, the Company will further optimize revenue structure, aggressively promote the development of emerging and cross-border intermediate business by capturing market opportunities, continuously sharpen the competitive edges of various products such as credit cards, wealth management and asset management. Furthermore, performance assessment will be enhanced through strict budgeting control, so that value orientation will be highlighted and intermediate business will be developed in a sustainable and healthy manner.

Our strategies for revenue growth mainly include: (i) to strengthen our existing competitive edges (for example, the Company’s bank card, online banking, wealth management and asset management businesses, which are the main sources of the Company’s fee income and enjoy certain competitive advantages in the industry); (ii) to attach great importance to the investment in emerging businesses so as to strengthen product innovation, to cater to or even create market demands and to continuously tap into new sources of income streams; (iii) to solidify customer base, develop quality customers, optimize customer structure and continuously strengthen cross-selling and business coordination, so as to diversify the structure of customer assets and increase customers’ loyalty, thereby securing business expansion and sources of revenue growth; and (iv) to improve service quality and user experience and adhere to the philosophy of “good service and good reputation”, so as to ensure improvement in both economic benefits and brand value.