Annual Report 2012

5 MANAGEMENT DISCUSSION AND ANALYSISNet interest incomeIn 2012, the Group’s net interest income was RMB353,202 million, an increase of RMB48,630 million, or 15.97%, over the previous year. Thenet interest income accounted for 76.36% of the operating income.The following table shows the Group’s average balances of assets and liabilities, related interest income or expense, and average yields or costsduring the respective periods.(In millions of RMB, except percentages)Year ended 31 December 2012 Year ended 31 December 2011AveragebalanceInterestincome/expenseAverageyield/cost (%)AveragebalanceInterestincome/expenseAverageyield/cost (%)AssetsGross loans and advances to customers 7,027,047 441,691 6.29 6,108,983 347,520 5.69Investments in debt securities 2,808,238 100,444 3.58 2,745,520 89,716 3.27Deposits with central banks 2,302,863 34,694 1.51 2,030,564 31,282 1.54Deposits and placements with banks and non-bankfinancial institutions 576,641 20,860 3.62 212,038 5,841 2.75Financial assets held under resale agreements 130,335 5,552 4.26 195,695 7,888 4.03Total interest-earning assets 12,845,124 603,241 4.70 11,292,800 482,247 4.27Total allowances for impairment losses (193,168) (164,389)Non-interest-earning assets 513,587 383,077Total assets 13,165,543 603,241 11,511,488 482,247LiabilitiesDeposits from customers 10,527,661 208,591 1.98 9,442,374 151,972 1.61Deposits and placements from banks and non-bankfinancial institutions 1,016,334 31,808 3.13 870,192 20,464 2.35Financial assets sold under repurchase agreements 58,429 2,254 3.86 21,724 1,233 5.68Debt securities issued 211,505 7,364 3.48 116,807 3,987 3.41Other interest-bearing liabilities 1,686 22 1.25 1,704 19 1.12Total interest-bearing liabilities 11,815,615 250,039 2.12 10,452,801 177,675 1.70Non-interest-bearing liabilities 440,434 282,713Total liabilities 12,256,049 250,039 10,735,514 177,675Net interest income 353,202 304,572Net interest spread 2.58 2.57Net interest margin 2.75 2.70In 2012, the Group’s net interest margin was 2.75%, up 5 basis points year-on-year. This was mainly due to the following factors: First, theweighted average interest rates for newly granted loans rose with enhanced pricing management, and interest rate hikes in 2011 had a laggingeffect on the loan yield. Second, the yield of investments in debt securities grew steadily with the adjustments in duration and structure ofinvestments in debt securities. In addition, the cost of interest-bearing liabilities rose over 2011, as a result of the lagging effect of interest ratehikes in 2011 on interest cost of deposits and higher proportion of time deposits in total deposits, partially offsetting the positive effects of theabove factors on net interest margin.In 2012, the PBC cut down the benchmark deposit and lending interest rates twice, and expanded the floating range of deposit and lendinginterest rates. In response, the Group will actively conduct research on the interest rate liberalisation, strengthen interest spread management,and cultivate and improve its pricing capability under the circumstances of interest rate liberalisation.China Construction Bank Corporation annual report 201215