Annual Report 2012

5 MANAGEMENT DISCUSSION AND ANALYSIS5.2.3 Treasury BusinessThe following table sets forth the major operating information and changes related to treasury business:(In millions of RMB, except percentages)Year ended31 December 2012Year ended31 December 2011 Change (%)Net interest income 61,280 59,298 3.34Net fee and commission income 18,037 16,841 7.10Net trading gain 1,895 2,047 (7.43)Net income arising from investment securities 671 824 (18.57)Other net operating gain/(loss) 871 (524) (266.22)Operating income 82,754 78,486 5.44Operating expenses (5,651) (4,309) 31.14Impairment losses (831) (3,118) (73.35)Profit before tax 76,272 71,059 7.34As at31 December 2012As at31 December 2011Segment assets 6,065,163 5,411,041 12.09Treasury businesses generated a profit before tax of RMB76,272 million, an increase of 7.34% over the previous year, and accounted for 30.33%of the Group’s profit before tax. As a result of fast development of products including new financial advisory service, underwriting of debtsecurities, and wealth management, net fee and commission income grew by 7.10%. The Group enhanced its investment in treasury business,and the associated operating expenses increased by 31.14%. Impairment losses dropped by 73.35% over the previous year, mainly because theasset structure of the non-principal-guaranteed wealth management business was optimised and impairment losses were reversed.Financial markets businessThe year of 2012 is the “Management Year of the Financial Market Business”. The Bank set a solid foundation for the sustainable and healthydevelopment of financial market business through comprehensive review of its management mechanism, operating mode, business process andinternal control system.The Bank adhered to sound investment and prudent trading strategies in its financial market business. It sought a balance between risk andreturn while ensuring sound safety and liquidity, and the operating income maintained steady growth. With regard to the use of RMB fund, theBank strengthened liquidity forecasts and active management, and actively expanded the financing channels to provide strong support for theBank’s liquidity safety. By accurately tracking the interest rate movements and reasonably arranging investment pace, it expanded investmentsin debt securities when the interest rates were relatively high. It also optimised the structure of asset types, and strengthened the adjustment toexisting debt securities. As a result, the yield of RMB-denominated fixed income portfolio rose substantially over the previous year, and the yieldof trading book was much higher than the market index. Moreover, the Bank ranked second in the over-the-counter trading volume of book-entrytreasury bonds. With regard to the use of foreign currency funds, the Bank gave more funding support to its overseas entities. It prudentlyconducted inter-bank lending, staying alert to counterparty credit risks. It also actively optimised the structure of foreign currency debt securitiesinvestment portfolio, and positively reduced its holding of high-risk debenture bonds, thereby reducing its credit risk exposure.The Bank actively expanded customer-driven foreign exchange trading business, leading to a steady increase in the transaction volume andassociated income under the condition of weak growth in foreign trade. In 2012, the customer-driven foreign exchange trading volume reachedUS$409,041 million, and the income was RMB4,573 million. The Bank promoted product innovation on RMB versus foreign currency optionsportfolio, and newly added the foreign currency trading service for six currencies to satisfy customer’s demand for hedging.Precious metal business grew rapidly, and the trading volume reached 32,100 tonnes, an increase of 229.33% over the previous year. Thenumber of customers with the Bank’s Account Precious Metals increased by 5.30 million because of the enhanced customer exploration. TheBank actively expanded its product lines to better serve its customers, delivering more innovative products such as Account Precious Metaltrading in US dollars, repurchases of gold, leasing of silver and wealth management products linked with gold.China Construction Bank Corporation annual report 201235