Annual Report 2012

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Notes to the financial statements(Expressed in millions of RMB, unless otherwise stated)63 Risk Management (continued)(1) Credit risk (continued)(h) Distribution of debt securities investments analysed by rating (continued)Bank (continued)2011Unrated AAA AA A Lower than A TotalIndividually assessed and impairedgross amount– Policy banks – – – 45 – 45– Banks and non-bank financialinstitutions 753 11 199 5,615 9,142 15,720– Public sector entities 125 – – – – 125– Other enterprises 312 2,818 – – 311 3,4411,190 2,829 199 5,660 9,453 19,331Allowances for impairment losses (8,674)Subtotal 10,657Neither overdue nor impaired– Government 889,890 2,574 6,729 473 83 899,749– Central banks 429,101 1,738 2,187 – – 433,026– Policy banks 285,340 – – 130 – 285,470– Banks and non-bank financialinstitutions 645,200 32,953 13,638 4,948 2,519 699,258– Cinda 131,761 – – – – 131,761– Public sector entities – 63 87 – 65 215– Other enterprises 674 233,532 5,010 2,930 1,445 243,5912,381,966 270,860 27,651 8,481 4,112 2,693,070Allowances for impairment losses (1,320)Subtotal 2,691,750Total 2,702,407(i)Credit risk arising from the Group’s derivatives exposuresThe majority of the Group’s derivatives transactions with domestic customers are hedged back-to-back with overseas banksand non-bank financial institutions. The Group is exposed to credit risk both in respect of the domestic customers and theoverseas banks and non-bank financial institutions. The Group manages this risk by monitoring this exposure on a regularbasis.(j)Settlement riskThe Group’s activities may give rise to settlement risk at the time of the settlement of transactions and trades. Settlement risk isthe risk of loss due to the failure of an entity to honour its obligations to deliver cash, securities or other assets as contractuallyagreed.For certain types of transactions, the Group mitigates this risk by conducting settlements through a settlement or clearingagent to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations.China Construction Bank Corporation annual report 2012183
Notes to the financial statements(Expressed in millions of RMB, unless otherwise stated)63 Risk Management (continued)(2) Market riskMarket risk is the risk of loss, in respect of the Group’s on and off balance sheet activities, arising from adverse movements in marketrates including interest rates, foreign exchange rates, commodity prices and stock prices. Market risk arises from both the Group’strading and non-trading business. A trading book consists of positions in financial instruments and commodities held either withtrading intent or in order to hedge other elements of the trading book. Non-trading book records those financial instruments andcommodities which are not included in the trading book.The Risk Management Department is responsible for formulating standardised market risk management policies and rules andsupervising the implementation of market risk management policies and rules of the Bank. The Asset and Liability ManagementDepartment (the “ALM”) and the International Business Department are responsible for managing the size and structure of theassets and liabilities in response to non-trading market risk. The Financial Market Department manages the Head Office’s RMB andforeign currency investment portfolios, conducts proprietary and customer-driven transactions, as well as implementing market riskmanagement policies and rules. The Audit Department is responsible for regularly performing independent audits of the reliability andeffectiveness of the processes constituting the risk management system.The Group is primarily exposed to structural interest rate risk arising from interest generating commercial banking assets and interestbearing commercial banking liabilities. Interest rate risk is inherent in many of its businesses and largely arises from mismatchesbetween the re-pricing dates of assets and liabilities. The Group manages this risk through regular interest rate gap analysis.The Group’s foreign exchange exposure mainly comprises exposures from foreign currency portfolios within treasury proprietaryinvestments in debt securities and money market placements, and currency exposures from its overseas business. The Groupmanages its foreign exchange exposure by spot foreign exchange transactions and by matching its foreign currency denominatedassets with corresponding liabilities in the same currency, and also uses derivatives in the management of its own foreign currencyasset and liability portfolios and structural positions.The Group is also exposed to market risk in respect of its customer driven derivatives portfolio and manages this risk by entering intoback-to-back hedging transactions on a trade-by-trade basis with overseas banks and non-bank financial institutions.The Group considers that the market risk arising from stock prices in respect of its investment portfolios is minimal.The Group monitors market risk separately in respect of trading portfolios and non-trading portfolios. Trading portfolios includeexchange rate and interest rate derivatives as well as trading securities. The historical simulation model for the Value-at-risk (“VaR”)analysis is a major tool used by the Bank to measure and monitor the market risk of its trading portfolio and available-for-sale debtsecurities. Net interest income sensitivity analysis, interest rate repricing gap analysis and foreign exchange risk concentrationanalysis are the major tools used by the Group to monitor the market risk of its overall businesses.(a)VaR analysisVaR is a technique which estimates the potential losses that could occur on risk positions taken, due to movements in marketinterest rates, foreign exchange rates and other market prices over a specified time horizon and at a given level of confidence.The Risk Management Department calculates interest rates, foreign exchange rates and commodity prices VaR for the Bank’strading portfolio. By reference to historical movements in interest rates, foreign exchange rates and commodity prices, the RiskManagement Department calculates VaR on a daily basis for the trading portfolio and monitors regularly. VaR is calculated at aconfidence level of 99% and with a holding period of one day.A summary of the VaR of the Bank’s trading portfolio as at the end of the reporting period and during the respective years is asfollows:2012As at31 December Average Maximum MinimumRisk valuation of trading portfolio 53 63 116 26– Interest rate risk 44 42 77 16– Foreign exchange risk (1) 32 41 96 14– Commodity risk – 4 80 –184 China Construction Bank Corporation annual report 2012
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Annual Report 2012China Constructio
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DEFINITIONSIn this annual report, u
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INTRODUCTIONHeadquartered in Beijin
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2 CORPORATE INFORMATIONLegal name a
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2 CORPORATE INFORMATIONForbes Ranke
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3 CHAIRMAN’S STATEMENTDear shareh
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4 PRESIDENT’S REPORTDear sharehol
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5 MANAGEMENT DISCUSSION AND ANALYSI
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6 CHANGES IN SHARE CAPITAL AND PART
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6 CHANGES IN SHARE CAPITAL AND PART
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7 CORPORATE GOVERNANCE REPORT7.2 BO
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7 CORPORATE GOVERNANCE REPORTBoard
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7 CORPORATE GOVERNANCE REPORTImpact
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7 CORPORATE GOVERNANCE REPORTAudit
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7 CORPORATE GOVERNANCE REPORTNomina
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7 CORPORATE GOVERNANCE REPORTCompos
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7 CORPORATE GOVERNANCE REPORTIn 201
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7 CORPORATE GOVERNANCE REPORTEffect
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8 PROFILES OF DIRECTORS, SUPERVISOR
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9 REPORT OF THE BOARD OF DIRECTORSP
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10 REPORT OF THE BOARD OF SUPERVISO
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11 MAJOR ISSUESMaterial litigations
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11 MAJOR ISSUESInterests in non-lis
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Consolidated statement of comprehen
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Statement of financial positionAs a
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Statement of changes in equityFor t
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Consolidated statement of cash flow
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Notes to the financial statements(E
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Annual Report 2012

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