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Bank of China (Hong Kong)

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   Bank of China (Hong Kong) Limited
   Image:Bankofchinahongkonglogo.gif
       Type     Public
                HKSE: 2388
                (listing is as BOC (Hong Kong) Holdings Limited)
     Founded    2001
   Headquarters Hong Kong
    Key people  Xiao Gang, Chairman
                He Guangbei, CEO
     Products   Commercial banking
     Revenue    HK$8  Billion (2003)
    Employees   13,009 (June 2004)
      Slogan    Your Premier Bank
     Website    www.bochk.com

   The Bank of China (Hong Kong) Limited (BOCHK, 中國銀行(香港)有限公司) ( SEHK:
   2388) is the second-largest commercial banking group in Hong Kong in
   terms of assets and customer deposits, with more than 300 branches in
   Hong Kong. It was established on October 1, 2001 from a merger of 12
   subsidiaries and associates of the Bank of China in Hong Kong, and
   listed on the Hong Kong Stock Exchange in October 2002. As of the end
   of 2003, the bank had HK$763 billion in assets and earned net profit of
   HK$8 billion in 2003.

   BOCHK is one of the three banks which issue banknotes for Hong Kong,
   the biggest member and a founder of the JETCO ATM and payment system,
   and the designated clearing bank in Hong Kong for transactions
   involving the renminbi, Mainland China's currency. It is legally
   separate from its parent, Bank of China (BOC), although they maintain
   close relations in management and administration and cooperate in
   several areas including reselling BOC's insurance and securities
   services. It also shares its Hong Kong headquarters, the Bank of China
   Tower, with its parent; completed in 1988, this was the first building
   outside of North America to exceed 1,000 feet.

History

Bank of China Group

   The opening of a branch of the Bank of China in Hong Kong in 1917
   marked the entry of state-owned Chinese banks into the then-colony's
   banking sector. Other banks soon followed suit, starting with Yien Yieh
   Commercial Bank in 1918. By the time the People's Republic of China was
   established in 1949, there were 15 branches of state owned Chinese
   banks in Hong Kong, plus branches of nine Mainland-incorporated banks
   that were public-private joint ventures. In addition, the Chinese
   government established Po Sang Bank in 1949 and Nanyang Commercial Bank
   in 1950. Both of these were incorporated in Hong Kong.

   In 1952, the nine public-private banks (namely, Sin Hua Bank Limited,
   China & South Sea Bank Limited, Kincheng Banking Corporation, China
   State Bank Limited, The National Commercial Bank Limited, Yien Yieh
   Commercial Bank, Young Brothers Banking Corporation, Wo Sang Bank and
   National Industrial Bank of China) were grouped into the Joint Office
   of Joint Public-Private Banks. The Hong Kong branches of the last three
   of these nine were closed in 1954 when their parents were shut down by
   the central government, and management of the remaining six
   public-private banks were transferred to the Hong Kong and Macau
   Regional Office of the Bank of China in 1958. The Bank of China later
   took over management of the Hong Kong branches of Kwangtung Provincial
   Bank, Hua Chiao Commercial Bank Limited and the Bank of Communications
   (HKSE: 3328).

   In June 1975, the Bank of China moved to increase the capital of the
   public-private banks. As all of the new capital were from the Chinese
   government, private ownership in the public-private banks were
   substantially reduced, in some cases to less than 1%.

   The 14 banks were rebranded as part of the Bank of China Group in the
   1980s, after a common IT platform was established. Treasury and foreign
   currency exchange operations were also centralised. However, the
   individual banks retained their own management.

Restructuring and listing

   The Hong Kong branch of the Bank of Communications broke off from the
   Bank of China Group in 1998. The Bank of China Group started to
   restructure its operations in 1999 in preparation for an initial public
   offering. All minority shareholders (except for those of Chiyu) were
   bought out by the Bank of China. Formal plans for a restructuring
   received the approval of the People's Bank of China and were launched
   in January 2001.

   The restructuring saw all operations of the Mainland-incorporated group
   members merged into Po Sang Bank, which was then immediately renamed
   Bank of China (Hong Kong) Limited. Hong Kong incorporated Nanyang
   Commercial Bank and Chiyu Banking Corporation became subsidiaries of
   Bank of China (Hong Kong) Limited. Legislation was required for the
   merger, as Hong Kong does not allow mergers via the pooling of
   interests, a common procedure in the United States. The Bank of China
   (Hong Kong) Limited (Merger) Ordinance was approved by the Legislative
   Council of Hong Kong on July 12, 2001, and the merger was completed on
   October 1, 2001.

Corporate structure and BOC (Hong Kong) Holdings

   Logo of BOC (Hong Kong) Holdings Limited.

   BOCHK is listed under the name of BOC (Hong Kong) Holdings Limited
   (BOCHK Holdings), a holding company whose principal, 100% owned
   subsidiary is BOCHK. The holding company is listed on the Stock
   Exchange of Hong Kong SEHK: 2388 and as ADRs in the US under the symbol
   BHKLY. BOC (Hong Kong) Holdings is a constituent of the Hang Seng
   Index. The listing of BOCHK Holdings in July 2002 listing was the first
   international stock listing by a Mainland China bank; until that time,
   other Mainland Chinese bank listings were done in the domestic
   "A-share" market.

   For the 12 months ended December 31, 2003, BOCHK Holdings earned
   HK$11.6 billion in operating income and HK$8.0 billion in net profit.
   As of June 7, 2006, 65.805% of BOCHK Holdings is held by Bank of China,
   in turn 69.265% owned by Central Huijin Investment, an investment
   holding company 100% owned by the Government of the People's Republic
   of China.

Operations

   Bank of China (Hong Kong) branch, Wing On House, Hong Kong
   Enlarge
   Bank of China (Hong Kong) branch, Wing On House, Hong Kong

   BOCHK offers a comprehensive range of financial products and services
   to retail and corporate customers, similar to those offered by most
   commercial banks. It is primarily known for its interest-income
   business (taking deposits from retail customers for loans to
   corporates) although it has been moving into other non-interest-income
   areas such as personal loans, wealth management and other financial
   services in recent years. It has Hong Kong's biggest branch network
   (over 200 branches) and 450 automatic teller machines.

   BOCHK is the biggest mortgage lender in Hong Kong in the secondary
   market; Hang Seng Bank is the biggest in the primary market. BOCHK
   resells the casualty insurance, life insurance, mandatory provident
   fund (MPF) and asset management services of various subsidiaries of its
   parent, Bank of China.

   Within Mainland China, BOCHK operates 14 branches ( as of January 2005)
   separately from its parent. BOCHK is treated as a foreign bank, more
   properly, 境外銀行 (banks outside of the territory), for regulatory
   purposes as it is incorporated in Hong Kong.

Renminbi clearing bank

   BOCHK passbooks and ATM cards. At the front is a BOCHK Renminbi card.
   Enlarge
   BOCHK passbooks and ATM cards. At the front is a BOCHK Renminbi card.

   BOCHK has been the designated clearing bank for personal transactions
   involving the Renminbi (RMB, the currency of Mainland China) in Hong
   Kong since February 2004. This means that BOCHK acts as a settlement
   agent for RMB banknotes and funds in Hong Kong and an intermediary
   between banks in Hong Kong and the People's Bank of China, the central
   bank of the People's Republic of China. In return, BOCHK takes a 0.125%
   cut of all RMB deposits in Hong Kong that are repatriated back to
   Mainland China.

   The Chief Executive of Hong Kong announced on November 18, 2003 that
   the People's Bank of China had agreed to provide clearing arrangements,
   marking for the first time that the Renminbi, which is fully on the
   current account but not on the capital account, has been allowed to
   clear outside of Mainland China. The scope of such RMB business
   includes deposit-taking, exchange, remittances and RMB cards. Hong Kong
   banks were invited to apply to become the designated clearing bank for
   RMB business; the People's Bank of China subsequently chose BOCHK as
   the clearing bank, for a term of three years.

   According to the Hong Kong Monetary Authority, the major
   responsibilities of the clearing bank are to:
     * open RMB settlement accounts for participating banks for the
       acceptance and withdrawal of RMB funds
     * open a settlement account with the PBOC's Shenzhen sub-branch to
       centralise the acceptance and withdrawal of RMB funds of the
       Clearing Bank and the participating banks
     * collect and distribute RMB banknotes
     * provide clearing services for RMB remittances and RMB cards issued
       by Hong Kong banks
     * provide services for the participating banks to square their RMB
       open positions that result from the exchange of RMB into Hong Kong
       dollars and vice versa.

Nanyang Commercial Bank

   Nanyang Commercial Bank branch in Kennedy Town, Hong Kong
   Enlarge
   Nanyang Commercial Bank branch in Kennedy Town, Hong Kong

   Founded in 1950 in Hong Kong, Nanyang Commercial Bank is a wholly owned
   subsidiary of BOCHK, with 41 branches. Nanyang primarily focuses on
   corporate customers, in particular small and medium sized trading and
   manufacturing companies. It also has a loyal following amongst the
   overseas Chinese community, especially in South East Asia. It relies on
   BOCHK for back-end office and IT support.

Chiyu Banking Corporation

   Founded by Chen Jiageng, an overseas Chinese in 1947, Chiyu Banking
   Corporation Limited has 23 branches in Hong Kong and focuses on serving
   the community of residents of Fujian descent in Hong Kong.

   Chiyu was explicitly created by Chen to create a sustainable business
   with profits to be devoted to education in Xiamen and the rest of
   Fujian province in China. Since its founding, it has spent more than
   HK$1 billion in education in the province, primarily through funding
   Jimei University and its related schools.

JETCO

   JETCO (traditional Chinese: 銀通) (Joint Electronic Teller Services
   Limited) is the biggest network of automatic teller machines in Hong
   Kong and Macau, with nearly 1,700 cash machines. JETCO was founded by
   BOCHK in 1982 along with the Bank of East Asia, Chekiang First Bank,
   Shanghai Commercial Bank and Wing Lung Bank, and at present covers all
   licensed commercial banks in Hong Kong and Macau, except for HSBC and
   Hang Seng Bank, which has their own system. JETCO connects with the
   UnionPay network in Mainland China: JETCO cardholders can withdraw RMB
   cash at UnionPay machines in a number of major cities in Mainland
   China, while UnionPay cardholders can withdraw cash (up to around
   HK$4,500 per day) at JETCO machines in Hong Kong.

Other operations

   BOCHK also owns a travel agency known as BOC Travel Services. This is a
   legacy from its acquisition of Nanyang Commercial Bank, which ran a
   travel agency for the convenience of its Southeast Asian customers.

Bank of China Tower

   Bank of China Tower at night
   Enlarge
   Bank of China Tower at night

   The Bank of China Tower in Central houses the headquarters of BOCHK.
   Designed by I. M. Pei, the 70-storey building's height is 315 meters
   with two masts reaching 369 meters. Construction began in 1985 and the
   building was completed in 1989, with its official opening on May 17,
   1990.

   Bank of China Tower was the first building outside North America to
   break the 1,000 feet mark, the first composite space frame high-rise
   building and was the tallest building in Hong Kong and Asia from 1989
   to 1992. A small observation deck on the 43rd floor of the building is
   open to the public; visits to the main observation deck on the 70th
   floor is by appointment only.

   The structural expressionism adopted in the design of this building
   resembles growing bamboo shoots, symbolising livelihood and prosperity.
   The whole structure is supported by the four reinforced concrete
   columns at the corners of the building, with the triangular frameworks
   transferring the weight of the structure into these four columns. It is
   covered with glass curtain walls. While its distinctive look makes it
   one of Hong Kong's most identifiable landmarks today, it was the source
   of some controversy at one time, as the bank is the only major building
   in Hong Kong to have bypassed the convention of consulting with feng
   shui masters on matters of design prior to construction.

   Bank of China Tower was initially built by the Hong Kong Branch of the
   Bank of China; its Garden Road entrance continues to display the name
   "Bank of China", rather than BOCHK. Ownership has since been
   transferred to BOCHK, although the Bank of China has leased back
   several floors for use by its own operations in Hong Kong.

Corporate governance

   One of the stated goals of the restructuring of BOCHK was to
   aggressively improve corporate governance and risk management. Issues
   regarding BOCHK's corporate governance were widely reported in 2003 and
   2004 following allegations of misconduct. Investigations are continuing
   as of 2005. BOCHK subsequently reorganised and tightened internal
   controls, and made several executive appointments via a global
   replacement effort.

Liu Jinbao

   A former CEO of BOCHK, Liu Jinbao, was abruptly transferred back to
   Beijing to become vice-chairman of Bank of China in May 2003.
   Investigations subsequently found Liu to have "committed economic
   crimes" in connection with his previous appointment as the head of the
   Shanghai branch of the Bank of China. Liu was subsequently dismissed
   from his post. Liu, along with three other senior managers, were also
   alleged to have made "unauthorised distribution for personal purposes"
   of funds belonging to the Bank of China before BOCHK was established.
   The Standard speculated that the amount involved was HK$30 million.

New Nongkai loan

   A special committee appointed by BOC (Hong Kong) Holdings in
   consultation with the Hong Kong Monetary Authority found that the
   granting of a HK$1.77 billion bridge loan to Chau Ching-ngai (sometimes
   referred to as Zhou Zhengyi depending on transliteration), involved
   risks identified at the start (that) were not addressed adequately and
   was granted despite serious reservations expressed by the Risk
   Management Department (BOCHK). Liu Jinbao was criticised by the
   committee and a deputy CEO, Or Man-ah, took early retirement as a
   result.
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