The year 2006 was a significant milestone in the development of ICBC. On October 27, Industrial and Commercial Bank of China Ltd. (hereafter referred to as ICBC), as the pioneer, succeeded in A+H simultaneous listing, which created a number of records, such as the largest scale in the global capital markets, and was hailed as the "century prospectus" by the international media and the financial industry. The public offering marked the completion of ICBC's conversion from a state-owned commercial bank to a joint-stock commercial bank and then to an international public shareholding corporation. The total scale of the A+H IPO was 55.65 billion shares (including 8.14 billion state-owned shares sold on behalf of the Ministry of Finance and the Central Huijin Investment), taking 16.7% of the total shares after expansion; the total capital raised was RMB 173.23 billion (including the net capital of RMB 24.67 billion of the Ministry of Finance and the Central Huijin Investment by selling state-owned shares). It is the world's largest ever initial public offering, with H-shares of HKD 124.95 billion and A-shares of RMB 46.64 billion, which have been the largest H-shares and A-shares so far. After the IPO, the A-shares and H-shares possessed by ICBC reached 250,962,348,064 and 83,056,501,962 respectively, which amounted to a total number of 334,018,850,026.

Through listing, ICBC's capital has been strengthened and its international market image improved significantly. By the end of 2006, the net capital reached RMB 530.805 billion and the net core capital RMB 462.019 billion, with a 14.05% capital adequacy ratio and a 12.23% core capital adequacy ratio respectively; with a total market value of over USD 250 billion, ICBC became the largest listed corporate and of A-shares and Asia's largest listed bank, and among the top three listed banks in the world.

I. About ICBC
In 2006, ICBC provided a broad range of financial products and services to over 2.41 million corporate banking customers and 170 million personal banking customers through its 16,997 domestic institutions, 98 overseas branches and 1,326 agent banks around the world.

The listing promoted effectively the conversion of ICBC's operation strategy and the innovation of all ICBC's businesses. ICBC's profitability, risk control capacity and capability for sustainable development have markedly increased. The group has maintained a rapid increase in after-tax profit for 3 consecutive years, which, with a y-on-y growth of 30.3%, reached RMB 49.336 billion in 2006 (According to IFRS, the after-tax profit reached RMB 49.880 billion and the y-on-y growth was 31.2%). The main reason for the growth is the RMB 16.511 billion increase of net operating revenue and a 10.2% y-on-y growth. The income tax expense decreased by 11.3%, and the bank's effective tax rate was reduced with relevant tax incentives in restructuring and listing. Due to the robust growth in after-tax profits and the large amount of equity raised, the weighted average net assets yield rate reached 15.16%, and the average return rate of total capital reached 0.71%, an increase of 0.05% against the previous year. The cost-income ratio remained 36.0% -- at a favourable level.

By the end of 2006, the total capital balance was RMB 7.509118 trillion, with an increase of 1.051879 trillion yuan, or 16.3%, against the previous year. Calculated from the perspective of structure, the net loans took 47.1% of the total capital, a 2.5% continuous decline, the net securities investment accounted for 38.1%, a 2.4% increase, and other assets accounted for 14.8%. By the end of the year 2006 and the balance of all loans reached RMB 3.631171 trillion, a steady growth of RMB 341.618 billion, an increase of 10.4%; the non-performing loans balance and ratio continued to decrease -- the non-performing loan was RMB 137.745 billion, the non-performing loan ratio 3.79%, a decrease of 0.9%; loan loss allowance was RMB 97.193 billion, and the NPL ratio was 70.56%, an increase of 16.36%. Net securities investment was RMB 2.862060 trillion, a y-on-y increase of RMB 554.726 billion, or an increase of 24.0%, which was mainly due to the growth in net investment in debt instruments. Among them, central bank bills increased by RMB 255.759 billion, or by 50.6%, and the policy-oriented bank bond investments increased by 74.762 billion yuan, or by 24.4%.

By the end of the year, the total liabilities were RMB 7.037685 trillion, which was an increase of RMB 841.430 billion, or a growth of 13.6%. Among them, deposits increased by RMB 614.557 billion, which took 73.0% in liabilities growth and was the main component of capital source. Deposits and inter-bank borrowing from the same trade and other financial institutions increased by RMB 167.408 billion, or an increase of 71.9%, which was mainly due to the impact of year-end issuing of new shares.

II. Corporate Banking
To further enhance the competitiveness of corporate banking, ICBC, according to the requirements of customer classification marketing and establishment of processing banks, adjusted the setup of the head office in 2006 for the purpose of strengthening marketing capacity prospects, accelerating the flattening of branch organizations, and building a hierarchical marketing system. To quicken the implementation of integrated marketing strategy in corporate banking, ICBC, while consolidating the leading role in corporate deposit and loan market, strived to develop new high-end corporate banking businesses such as investment banking, cash management, corporate financial management, enterprise annuities, and financial derivatives.

ICBC sticks to a positive and robust strategy in loan growth. While striving to maintain its highest corporate credit status in China, ICBC keeps optimizing the industry structure, regional structure, customer structure and product structure as well. ICBC has, in response to market demand, launched a series of domestic trade financing products. By the end of 2006, domestic corporate loan balance was RMB 2.530732 trillion, taking 69.7%, in loan balance of all categories, and with a y-on-y increase of RMB 253.336 billion, among which the SME loans increased by RMB 59.7 billion, syndicated loans increased by RMB 24.999 billion. The domestic corporate deposits increases by RMB 2.838185 trillion, or by 14.3%, taking 44.7% in deposit balances.

ICBC further enhanced the bank-insurance cooperation in agent insurance, asset custody, cash management, and electronic commerce, having signed overall cooperation agreements with 22 domestic and foreign insurance companies and initiated "online insurance" services. It steadily developed the bank-stock and bank-futures business and product innovation in financing, clearing, and custody, and was in cooperation with 129 securities and 162 futures companies. It promoted inter-bank cooperation, established formal agent banking relationship with 60 domestic banking institutions, and its payment clearing agent and agent liquidation business were expanding continuously. ICBC expanded its bank-government cooperation, and products such as "bank-finance link" "bank-customs link," "on-line bank-finance link" and "bank-tax link" have become prevailing brands in the market.

ICBC maintained its leading edge in RMB clearing and settlement and cash management. By the end of 2006, ICBC had 31,408 cash management customers--an increase of 78%--among which 11 of the 15 mainland Chinese enterprises (banks not included) listed as Global 500 by Fortune in 2006. It was awarded "2006 Best RMB Cash Management Bank of China" by Asiamoney. Its corporate RMB settlement amounted to RMB 260 trillion, an increase of 40% against the previous year.

ICBC provides banking customers with multi-purpose foreign currency services, including letters of credit, foreign exchange remittances, and foreign exchange collection. In 2006, ICBC launched innovations in personalized international clearing and derivative service, integrated international settlement and trade finance products, and designed 10 application portfolios. The international settlement process is under full electronic operation and management, and an International Trade Processing Center was established in the head office to further improve the efficiency of services. In 2006, ICBC conducted international settlements of USD399.6 billion, an increase of 36.5%, among which USD 290.2 billion were settled on China's territory, an increase of 29%.

ICBC strives for interaction between investment banks and traditional banking businesses, and steady development of infrastructural businesses such as corporate financial consultation and credit services. It focuses on exploring brand building represented by reorganization and acquisition, structured financing, syndicated loan arrangement underwriting, indirect syndicate, and corporate listing, and promotes vigorously emerging businesses such as short-term financing bonds, and asset securitization. In 2006, as the leading short-term financing bond underwriter, ICBC issued for 19 enterprises 23 financing bonds with a total amount of RMB 46.340 billion. The long-term financial consultation management system had been put into use, which had consistently increased efficiency in management. “Bao Steel Group's M&A of Bayi Iron & Steel”, with ICBC as its exclusive financial advisor, was listed among the “Top 10 Most Significant M&A Events 2006” by a domestic financial journal Contemporary Managers.

ICBC maintains its leading role in domestic custody market. By the end of 2006, the total capital under custody amounted to RMB 463.4 billion, an increase of 117.3%; custodian securities investment funds accounted to RMB 268.4 billion, among which the custodian funds shares took 32.13%; the capital of RMB 184.7 billion was under custody for insurance companies and as enterprise annuities. ICBC has four qualified foreign institutional investors (QFII) under its custody, including a new one; it has initiated the operation measures for QDII and succeeded in operating the first QDII custodian product of funds companies, banks, and insurance companies, thus it has become the largest custodian banks in China. In 2006, ICBC continued to be listed as "The Top Custodian Bank in China" by Global Custodian, and was awarded "The Top Custodian Bank in China" by The Asset of Hong Kong.

Precious metals business grew steadily. In 2006, ICBC initiated new businesses of gold-secured loaning and agent night-market gold trading. By the end of 2006, a liquidation amount of RMB 63.2 billion was achieved by ICBC for Shanghai Gold Exchange, taking 50.8% of the market share, which ranked No.1 among commercial banks in China.

Enterprise annuity business grew rapidly. By the end of the year, 303 formally-signed annuity customers were added, 1.21 million more personal account customers were under management, and annuity fund under custody increased by 4.3 billion.

III. Personal Banking
ICBC owns the largest personal banking customer base in China, with its main business maintaining a leading role. According to the People's Bank's statistics, by the end of 2006, ICBC's personal loan and deposit balance ranked No. 1 among all the commercial banks in China, respectively taking a market share of 15.0% and 19.7%.

By the end of 2006, the balance of personal savings deposit was RMB 3.314350 trillion, with an increase of RMB 208.052 billion, or by 6.7%. With the development of personal financing service and the activity of the capital market, personal savings deposit tended to grow more slowly. ICBC implemented “The Standardized Personal Credit Marketing Project”, introduced such new products as direct personal house loan, proposed ten measures in upgrading personal credit service and developed steadily personal business loan -- all these facilitated new increase in personal loans. By the end of the year, the domestic personal loans balance reached RMB 576.109 billion, with an increase of RMB 61.067 billion, or by 11.9%.

Motivated by personal financing service, personal intermediary service increased rapidly in 2006 and achieved a net service charge and commission income of RMB 9.489 billion, a y-on-y increase of 58.3%. The personal financing products issued in Chinese and foreign currencies in 2006 totaled RMB 75.49 billion, and increased 2.98 times, which enabled ICBC to become the first Chinese commercial bank officially providing Chinese residents with financial agent services abroad. The personal financing products sold by ICBC in the year amounted to RMB 320.7 billion, an increase of 98.3%，covering the issuing and dealing of government bond and Open-ended Funds, and bank insurance agent service. As the biggest distributing bank, ICBC's sales of Certificate T-Bond took 31.2% of the market volume，its trial sales of Deposit (e-form) T-Bond took 42.18% of the market volume，and its sales of Open-ended Funds reached the total amount of RMB197.3 billion, an increase of 2.8 times. ICBC initiated in the domestic market the “Defined Fund Investment Plan” and the first foreign currency fund, achieved a centralized bank-insurance cooperation system, and completed an annual sales record of premium for bank insurance products of RMB 45.9 billion, an increase of 46%. Elite Club Account service had an overall upgrade, and by the end of the year, there were 2.36 million clients with the account, an increase of 25.5%. Among the customer managers there were 2,078 financial specialists and this is a leading figure in the trade. ICBC has improved the remittance services, and launched new functions such as roaming remittance and foreign currency remittance. It achieved in 2006 a personal settlement volume of RMB 8.52 trillion, an increase of 19.3%.

In 2006, ICBC's bank card consumption amount and cross-trade transaction volume remained first among the banks. It issued 188.63 million cards, an increase of 29.9%, with an annual consumption amount of RMB370 billion, an increase of 53.5%. Among the cards issued 10.47 million were credit cards, with an annual consumption amount of RMB 105 billion, thus ICBC was the largest credit card issuing bank in China, with its total bank card intermediary service income of RMB3.228 billion, an increase of 37.6%. It launched sequentially the 2006 World Cup Theme Card, The Euro Credit Card, the ICBC Corporate American Express Card, the Peony UnionPay Card, and other new products, ranking itself among the banks issuing the most comprehensive credit card brands.

IV．Capital Management
In 2006, the domestic institutions of ICBC accumulated a volume of outward financing of RMB 4.3256 trillion and inward financing of RMB 454.2 billion. Influenced by such factors as macro control and new share subscription, the market interest rate fluctuated at a relatively high level. For foreign currencies, the business volume reached USD 605 billion.

In 2006, ICBC RMB bond trading account completed a business volume of RMB 1.44 trillion, a rapid increase of 6.7 times. The bond investment balance of RMB account was RMB 2.617183 trillion, with an increase of RMB 441.452 billion，and there were no defective assets. Short and medium term bonds remained prevailing and the structure of bond variety was stable. The bond investment balance of foreign currencies was USD 27.793 billion, with an increase of USD 14.619 billion.

RMB interest rate swap was launched in 2006, and the annual agent foreign exchange business volume was USD 195.4 billion, an increase of 36.5%, among which the exchange settlement business volume was USD 146.2 billion, took 12% of the market share and ranked No.2. The RMB registered bond business volume over the counter was RMB 2 billion, took 47% of the market share and was No. 1.

V. Distribution Channels
ICBC has been consistently upgrading the layout of its business offices. By the end of 2006, there have been 16,997 ICBC institutions in China, including the Head Office, 30 first level branches, 5 direct branches, 383 second level branches, 29 first level branch business departments, 3,068 first level sub-branches, 13,412 basic-level business offices and 69 other institutions. There are over 3000 financing centers in the basic-level business offices. Abroad, there are 98 branches, subsidiary banks, agencies and business offices.

ICBC provides corporate and personal clients with multiple electronic banking services via the internet, telephone, mobile phone, ATM and self-service banking center. By the end of 2006, the number of E-banking clients reached 49.84 million, an increase of 42%. The number of business transactions occupied 30.1% of the total, with an increase of 4.2%, the business volume was 45.2 trillion, with an increase of 50.6%, and business income was RMB 693 million, an increase of 64.6%. By the end of 2006, the number of personal and corporate internet banking clients respectively increased by 56.5% and 86.2%, amounting to 23.25 million and 600 thousand, and the annual business volume of e-commerce online payment was RMB 19.5 billion, an increase of 67.5%. ICBC's Internet Banking has been given the “Most Acclaimed Network Globally” Award by The Banker, commended as “Best Investment Management Corporate/Institutional Internet Bank in Asia” by Global Finance and “The Best Consumer Internet Bank in China” for the fourth time by Global Finance. The Telephone Banking introduced BTOC, agent trading and other new products. The holistic Telephone Banking system has been installed in 33 domestic branches, and the total number of self-service banking centers and ATMs reached respectively 2,704 and 19,922, an increase of 84% and 9%.

IV. International Banking
ICBC has its business in every financial center worldwide, with its branch in Hong Kong, Macao, Singapore, Tokyo, Seoul, Pusan, Frankfurt and Luxemburg, and its institution of holdings in Hong Kong, London, Luxemburg and Almaty, and its agency in New York, Mexico and Sidney. By the end of 2006, ICBC's institutions abroad had amounted to 98, and it had established agent bank relationship with 1,266 foreign banks in 117 countries and regions. The total assets in branches and institutions of holdings abroad amounted to USD 26.72 billion, a y-on-y increase of 15.26%.

On December 30, 2006, ICBC signed an agreement of acquisition with the directors of Bank Halim Indonesia to acquire 90% of shares in the bank. This was the first cross-nation bank acquisition completed by ICBC and was also its first entrance into the foreign market by means of acquisition.

ICBC (Asia) Co. Ltd. (ICBC Asia) is currently the largest ICBC business unit outside China. It provides comprehensive retail and personal financing service, as well as commercial and corporate banking service. A leading role in the Hong Kong market in terms of syndicate loans and structural loans, it has established a network of branches in the major commercial and potential areas in Hong Kong. By the end of 2006, ICBC Asia's total assets amounted to HKD146.392 billion, which was ranked No. 6 among the registered banks listed in SEHK. Its net assets amounted to HKD 11.085 billion, with HKD 1.246 billion as profit attributed to shareholders in 2006.

VII. Information Technology
ICBC's IT system has been further improved with the expansion of application products and construction of management computerization. Its information system has been in secure and steady operation. In 2006, ICBC was given the “Most Acclaimed Network Globally” Award by The Banker, and was selected by China Information Industry Development and Research Institute and China Computerization Promotion Union as an “Excellent Corporation in Computerization of 2006”.

ICBC reconstructed its core application system according to its business lines to reduce risk operation of the centralization of data, and meanwhile quickened its pace in R&D. In 2006 it developed 173 new application programs and upgraded 365 programs. It filed 22 patent applications to SIPO in 2006, among which two were granted “utility models” and “The encrypting and confirmation of Internet Banking data” obtained its patent. By the end of the year, ICBC were in possession of 58 patents.

Personal credit management, accountant risk control and other systems have been promoted with remarkable progress. 

The different location disaster prevention project in the overseas data centralization system was completed and had its first overseas rehearsal of post-disaster restoration.

VIII. Corporate Governance
1. The corporate governance structure.
In accordance to the stipulations of The PRC Corporate Law and The PRC Securities Law, ICBC established the governance framework made up of the general meeting of shareholders, the board of directors, the board of supervisors and the top management, and a working mechanism in which the institutions of authorities, decision making, supervision and management perform their own duty while cooperating with one another. Under the board of directors there are five specialized committees respectively in charge of strategy, auditing, appointment and payroll, risk management, and related business control. Under the board of supervisors there is the supervision committee. To further enhance the corporate governance structure, ICBC has compiled the authorization plan by the general meeting to the board of directors, and the authorization plan by the board of directors to the president. It has modified the duties and member structures in the specialized committee, implemented the chief risk officer system, added supervisors from the bank staff, made the share value addition plan to build up the corporate incentive mechanism, and explored means to consolidate communication and strategic cooperation with investors outside China to improve corporate governance.

2. Human resources management.
ICBC has further reformed its HR management and incentive mechanism, and constituted a modern post-based HR management system. With the introduction of EVA and GSR, ICBC has established a performance-oriented payroll mechanism, continued to improve the differentiating payroll system and fully implemented the corporate annual fund system. In 2006, ICBC held 40,000 various training programs participated by 1.94 million persons/times, an average training of 9.43 days per person. The programs included leadership and FRM training, experimental pre-service training, and the external online education system. ICBC has accelerated the structural reform in the Head Office braches, launched a top-down reformation of some business procedures and organizational adjustment, and has reorganized the departments of corporate banking, capital management, risk management and financial management in the Head Office.

IX. Risk Management
In 2006, ICBC reformed its organization and remade its risk management procedures, separated a clearcut front, middle, and back business responsibility setup, appointed the CRO, to constitute a relatively centralized and independent risk management system.

1. Credit risk management.
ICBC further promoted the centralized management of the credit business, raised the credit approval decision making level, and established an independent and centralized credit risk control system. It further improved its credit policy for the legal person clients, and implemented a differentiating credit policy in terms of region, trade, clients and products. It promoted creativity in small enterprise credit products and management and implemented a differentiating credit policy for small enterprises. It improved its personal credit management system, launched the “personal credit approval program”, and consolidated the five-category system for personal credit assets. ICBC practiced a twelve-level classification for the quality management of corporate credit assets, with primary classification performed automatically by the computer system.

2. Liquidity risk management.
ICBC transferred assets from braches of the second level and below and to the first level branches for centralized assets allocation, and guided the branches to adjust the assets liability period through internal fund transfer and pricing. With a series of index, it monitored daily the liquidity positions, the overall cash in the bank, the deposit in the Head Office and other branches, and other interest-generating amount and structure, in order to control the liquidity ratio to meet legal and internal requirements.    

3. Market risk management.
ICBC separated the middle business monitoring the market risk from the front business dealing with assets. With a series of core quota in interest rate risk management, analysis criteria of interest rate sensitivity gap, and guidance in interest rate risk management, ICBC established an interest rate risk management system adapted to the progress of marketization.

4. Operation risk and internal control.
ICBC constantly upgraded its operational risk management framework, system platform and technical means and promoted the implementation of The Operational Risk Management Manual in the whole bank. As a result, case occurrence rate and amount involved were the lowest in the history in 2006.