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Welcome to Bank of RiZhao!
Annual Report

BANK OF RIZHAO CO., LTD.

Annual Report

April 26, 2017

Contents

Chapter 1    Important Notice

Chapter 2    Overview of Corporate Information

Chapter 3    Accounting Data and Business Data Highlights

Chapter 4    Changes in Share Capital and the Shareholders

Chapter 5    Directors, Supervisors, Senior Executives and Staff

Chapter 6    Corporate Governance

Chapter 7    Overview of the Shareholders’ Meeting

Chapter 8    Report of the Board of Directors

Chapter 9    Report of the Board of Supervisors

Chapter 10 Report of Corporate Social Responsibilities

Chapter 11 Significant Events

Chapter 12 Financial Report

Chapter 13 File Catalog for Future Reference

Chapter 1    Important Notice

1.1   The board of directors and the
directors of the Company warrant that the information in this report contains
no false record, misleading statement or material omission, and jointly and
severally accept full responsibility for
its authenticity, accuracy and completeness.

1.2   The 37th Session of the
5th Board of Directors of the Company held on April 26, 2017
reviewed and
approved this 2016 Annual Report.

1.3   The Company’s annual financial
report had been audited by Shu Lun Pan CPA Co., Ltd(Special General
Partnership) in accordance with Chinese auditing standard, and an unqualified
opinion had been issued.

1.4   Chairman of the Board of Directors Wang Sen,
President Yan Ming and Financial Administrator Yuan
Lingling
warrant the authenticity and completeness of the financial report
in this report.

Chapter 2    Overview of Corporate Information

2.1   Registered Name

Chinese full name: 日照銀行股份有限公司

Chinese abbreviation: 日照銀行hereinafter referred to as “the Company”)

English full name: BANK OF RIZHAO CO., LTD.

English abbreviation: BANK OF RIZHAO

2.2   Legal Representative: Wang Sen

2.3   Secretary to the Board of Directors: Chen
Ying

Office Address: No.197 Yantai Road, Rizhao, Shandong,

276826

Tel: 0633-8081027

Fax: 0633-8781479

E-mail[email protected]

2.4   Registered Address and Office Address: No.197
Yantai Road, Rizhao, Shandong,

276826

Tel: 0633-8781988

Fax: 0633-8781479

Website: www.hjgizc.live

2.5   Selected Newspaper for Information
Disclosure: Financial Times

Website for Publication of the Annual Report: www.hjgizc.live

Place Where Annual Report Can Be Obtained: office of the board of
directors and all operating agencies

2.6   Other Relevant Information

Date of First Registration: January 19, 2001.

Unified Social Credit Code: 91370000727543743A

The accounting firm hired: Shu Lun Pan CPA Co., Ltd. (Special General
Partnership)

Office Address: 4/F, No.61 East Nanjing Road, Huangpu District,
Shanghai,

200002

2.7   This report has a Chinese
version and an English version. The Chinese version shall govern if there is a
conflict between the two versions.

Chapter
3      Accounting Data and Business Data
Highlights

3.1 Main financial data during the reporting period

(RMB Thousand)

Item

The amount that
  had been audited

Operating income

3,195,988

Operating expense

2,435,457

Operating profit

760,531

Net
  non-operating income and expense

85,171

Prior year income adjustment

0

Profit before tax

845,702

Income tax expense

164,270

Net profit

681,432

3.2 Main
accounting data and financial indicators of the previous three years till the
end of the reporting period

(RMB Thousand)

Item

2016

2015

2014

Operating income

3,195,988

3,182,348

3,091,358

Profit before tax

845,702

968,700

1,464,789

Net profit

681,432

802,513

1,171,625

Total assets

105,982,498

91,988,098

73,072,941

Shareholders’ equity

8,015,895

7,574,928

6,956,345

Earnings per share(yuan/share)

0.25

0.29

0.43

Net asset value per
  share(yuan/share)

2.92

2.76

2.53

Return on assets(%)

0.68

0.97

1.70

Return on capital(%)

8.73

11.00

18.26

Notes: 1. Return on assets = net profit/average balance
of total assets × 100%

     2.   Return
on capital = net profit/average balance of shareholders’ equity × 100%

    3.   Earnings
per share(EPS) are calculated in accordance with the requirements of Accounting Standards for Enterprises No. 34
- Earnings Per Share.

3.3 Supplemented
financial data of the previous three years till the end of the reporting period

(RMB Thousand)

Items

2016

2015

2014

Total liabilities

97,966,604

84,413,171

66,116,596

Total deposits

76,670,337

67,387,799

56,782,107

Thereinto: long-term deposit

32,450,567

26,778,226

23,043,884

Total loans

52,573,754

44,866,909

37,053,048

Thereinto: short-term loan

31,684,771

30,705,253

29,352,157

      Import bill advance and export bill
  purchase

332,178

985,279

1,590,530

      Discount

2,558,230

2,272,608

2,330,964

      Medium and long-term loans

14,130,946

7,117,419

2,571,048

      Overdue loan

3,867,629

3,786,350

1,208,349

Notes: 1. Total
deposits include short-term deposit, short-term saving deposit, short-term cash
deposit, fiscal deposit, long-term deposit, long-term saving deposit, long-term
cash deposit, insurance company deposit, outward remittance and drafts and
telegraphic transfers payable.

2. Total
long-term deposits include long-term deposit and long-term saving deposit.

3. Total
loans include short-term loan, import bill advance and export bill purchase, discount,
medium and long-term loan, overdue loan (including idle loan, dead loan and advance).

3.4 Supplemented
financial indicators of the previous three years till the end of the reporting
period

Main indicators(%)

2016

2015

2014

Capital adequacy ratio

10.66

11.46

12.42

Tier 1 capital adequacy ratio

9.16

10.14

10.96

Common
  equity tier 1 capital adequacy ratio

9.16

10.14

10.96

Non-performing loan ratio

2.13

2.47

1.80

Cost-income ratio

29.83

26.87

22.30

Loan-to-deposit ratio

65.96

63.09

65.25

Liquidity ratio

68.32

54.20

54.27

Interest collection ratio

94.52

98.00

98.87

Provision coverage ratio

198.01

155.65

175.27

Loan-to-provision ratio

4.21

3.85

3.16

Biggest
  single customer loan ratio

8.05

6.01

4.99

Ten
  biggest customers loan ratio

56.93

51.26

45.06

Notes: 1. Capital adequacy ratio = net
capital/risk-weighted assets × 100%
calculated according to the Capital Rules for Commercial Banks (Provisional)released by China
Banking Regulatory Commission (CBRC).

     2.   Tier 1 capital adequacy ratio = net tier 1
capital/risk-weighted assets × 100%

     3.   Common
equity tier 1 capital adequacy ratio = net common equity tier 1
capital/risk-weighted assets × 100%

        4.    Non-performing loan to total loans = (substandard
loan + doubtful loan + loss loan)/total loans×100%

        5.    Cost-to-income ratio = (operating
expense-taxes and additions-assets impairment loss)/net operating income × 100%

        6.    Loan-to-deposit ratio = loans
balance/deposits balance × 100%
calculated according to the Notice
of China Banking Regulatory Commission on Adjusting the Calculation of the Loan
to Deposit Ratio of Commercial Banks
released by CBRC on June 30, 2014.

        7.    Liquidity ratio = liquid assets/liquid
liabilities ×100%

        8.    Interest collection ratio = (interest income
on-balance-sheet newly added interest receivable
/interest income+off-balance-sheet newly added interest receivable) × 100%

        9.    Provision coverage ratio = loan loss
reserves/non-performing loan balance×100%

        10.   Loan-to-provision ratio = loan loss
reserves/total loans balance×100%

        11.   Biggest single customer loan ratio = the
biggest customer loan balance/net capital×100%

        12.   Ten biggest customers loan ratio = ten biggest
customers loan balance/net capital×100%

3.5 Five-category
loan classification and creation and management of provisions

               (RMB Thousand)

Five-category classification

Balance
  at the beginning of the year

Increase
  or decrease (+, -) in the period

Balance
  at the year-end

Amount

ratio (%)

Amount

ratio (%)

Pass

42,957,437

95.74

7,303,146

50,260,583

95.60

Special Mention

805,204

1.79

388,908

1,194,112

2.27

Substandard

1,103,088

2.46

-22,759

1,080,329

2.06

Doubtful

7,180

0.02

31,550

38,730

0.07

Loss

-

-

 

-

-

Total

44,866,909

100

7,706,845

52,573,754

100

Creation and management of provisions

3.5.1.    According to the relevant regulations of the
Ministry of Finance, the Company shall allow creating provisions for loans to
customers and advances, available-for-sale financial assets, held-to-maturity
investment, long-term equity investment, deposits placed with inter-banks,
inter-bank lending, assets acquired from customers to offset their debts, and
other receivables, etc. The Company will make no provisions for entrust loans
without risks undertaken by themselves and treasury bonds purchased, etc.

3.5.2.    At the end of the reporting period, the
Company’s total loan loss reserves balance reached RMB 2,215,840,000, including
the general provision of RMB 1,141,750,000 and the specific provision of RMB
1,074,090,000. The provision coverage ratio was 198.01% and the
loan-to-provision ratio was 4.21%.

3.5.3.    The Company classified the non-credit
risk-taking assets with reference to the degree of risk, and made provision for
impairment of assets according to different risk forms. At the end of the
period, balance of provision for impairment of non-credit assets was RMB
24,570; the Company made provision for impairment of assets for
off-balance-sheet assets including acceptance bill and letter of credit, and at
the end of the period, balance of provision for impairment of off-balance-sheet
assets was RMB 45,910

3.6 Loans of ten
biggest customers

(RMB Thousand)

Number

Name of the loanee

Balance of loans

Proportion to total loans

Proportion to net capital

1

Customer××

734,000

1.40%

8.05%

2

Customer××

601,000

1.14%

6.59%

3

Customer××

570,000

1.08%

6.25%

4

Customer××

566,376

1.08%

6.21%

5

Customer××

500,000

0.95%

5.48%

6

Customer××

500,000

0.95%

5.48%

7

Customer××

481,922

0.92%

5.28%

8

Customer××

460,000

0.87%

5.04%

9

Customer××

400,124

0.76%

4.39%

10

Customer××

380,000

0.72%

4.16%

 

Total

5,193,421

9.88%

56.93%

3.7 Deposits
placed in other banks and financial institutions

(RMB Thousand)

Items

Amount

proportion

Deposits
  placed domestically in other banks and financial institutions

502,431

73.51%

Deposits
  placed abroad in other banks and financial institutions

181,028

26.49%

Total

683,459

100.00%

3.8 Assets
acquired from customers to offset their debts

By the end of reporting period, the Company’s pending
assets that were acquired from customers to offset their debts had reached RMB
33,720,000, including land and house property.

3.9 Changes in shareholders’ equity during the
reporting period

(RMB Thousand)

Items of shareholders’ equity

Number at the beginning of the year

Increase
  during this period

Decrease
  during this period

Number at the year-end

Paid-up
  capital

2,498,073

249,807

2,747,880

Capital
  reserve

729,371

729,371

Other
  comprehensive income

150,169

-178,012

-27,845

Surplus
  reserve

1,880,056

134,515

2,014,571

General
  risk reserve

1,055,174

197,114

1,252,288

Undistributed
  profit

1,226,404

677,092

643,889

1,259,607

Minority
  equity

35,681

4,340

40,021

Total

7,574,928

1,084,856

643,889

8,015,895

NoteAccording to the 2015 Profit Distribution Plan reviewed
and approved in the 16th Shareholders’ Meeting of the Company, the board of
directors distributed 249,807,300 bonus shares and cash dividends of RMB 62,451,800
to all shareholders, based on the proportion of 1 bonus share and RMB 0.25 for
every 10 shares.

3.10      Capital adequacy of the previous three
years till the end of the reporting period

(RMB Thousand)

Items

End of 2016

End of 2015

End of 2014

Net common equity tier 1 capital

7,834,650

7,543,281

6,937,050

Net tier 1 capital

7,838,026

7,545,290

6,937,527

Net capital

9,122,867

8,527,704

7,863,910

Credit risk-weighted assets

79,225,154

68,172,605

58,064,440

Market risk-weighted assets

517,376

802,981

376,327

Operational risk-weighted
  assets

5,818,823

5,428,044

4,853,239

Total risk-weighted assets

85,561,353

74,403,630

63,294,006

Common equity tier 1 capital adequacy ratio(%)

9.16

10.14

10.96

Tier 1 capital adequacy
  ratio(%)

9.16

10.14

10.96

Capital adequacy ratio(%)

10.66

11.46

12.42

Note: Capital adequacy of 2014, 2015 and 2016
were all calculated according to the Capital
Rules for Commercial Banks(Provisional)
released by CBRC.

Chapter 4 Changes in
Share Capital and the Shareholders

4.1 Changes
in share capital structure and shares during the reporting period

(Ten thousand shares)

Share capital structure

Dec 31, 2015

Increase and decrease in this period (+,-)

Dec 31, 2016

Number of shares

Shareholding ratio

Number of shares

Shareholding ratio

State-owned shares

16,050.00

6.42%

1,605.00

17,655.00

6.42%

Legal person shares

223,416.55

89.44%

22,341.66

245,758.21

89.44%

Individual shares

10,340.77

4.14%

1,034.08

11,374.85

4.14%

Thereinto: staff shares

6,796.90

2.72%

679.69

7,476.59

2.72%

Total shares

249,807.32

100.00%

24,980.73

274,788.05

100.00%

Note: By the end
of the reporting period, the Company had owned a total amount of 2,747,880,500
shares, with the total number of shareholders reaching 1661. During the
reporting period, Rizhao Sanmu Group Co., Ltd transferred 32 million shares to
Shandong Lusheng Electric Power Equipment Co., Ltd; Lanshan Quanxiang Real
Estate Development Co., Ltd transferred 10.7 million shares to Rizhao Antai Real
Estate Development Co., Ltd; Rizhao Lihua Real Estate Development Co., Ltd
transferred 66 million shares to Huanyang Energy Development Co., Ltd; Shandong
Yuwei Food Co., Ltd transferred 0.88 million shares to Rizhao Meijie Trade Co.,
Ltd.

4.2 Shareholdings of ten biggest shareholders by the
end of the reporting period

(Ten thousand shares)

Number

Names of shareholders

Year-end
   number of shares

Shareholding ratio

Ownership property

Shares pledged or frozen

1

Rizhao Port Group Co., Ltd.

49,500.00

18.01%

Legal
  person shares

0

2

Bank of Nanjing Co., Ltd.

49,500.00

18.01%

Legal
  person shares

0

3

Rizhao Steel Group Co., LTD.

26,950.00

9.81%

Legal
  person shares

24,500.00

4

Rizhao Shanhaitian Urban Construction Group
  Co., Ltd

19,160.90

6.97%

Legal
  person shares

17,419.00

5

Rizhao Xingye Group Co., Ltd.

18,612.00

6.77%

Legal
  person shares

16,920.00

6

State-owned Assets Supervision and
  Administration Commission of Rizhao Municipal Government

17,655.00

6.42%

State-owned
  shares

0

7

Shandong Lusheng Electric Power Equipment Co.,
  Ltd.

16,670.50

6.07%

Legal
  person shares

13,470.50

8

Landbridge
  Group Co., Ltd.

8,822.00

3.21%

Legal
  person shares

8,020.00

9

Shandong Haina Real Estate Co., Ltd.

8,442.50

3.07%

Legal
  person shares

8,442.50

10

Huyang Energy Development Co., Ltd.

6,600.00

2.40%

Legal
  person shares

6,600.00

4.3Bond issue

4.3.1     Issuance of subordinated bond

According
to the Reply of the CBRC on the Issuance
of Subordinated Bond by Bank of Rizhao
([2012] No. 652) and Decision of the People’s Bank of China on
Granting Administrative License
([2012] No.76), the Company issued
subordinated bond of RMB 0.6 billion in the national inter-bank bond market in
Dec. 2012, for enriching subsidiary capital. It included the newly issued
subordinated bond of RMB 0.2 million and the redempted and re-issued
subordinated bond of RMB 0.4 million. The current bond was a 10-year fixed-rate
type with an issuer’s redemption right with a prerequisite at the end of the
fifth year, and the coupon rate was 6.5%.

4.3.2     Issuance of financial bond specialized for
small and mirco businesses

According
to the Reply of the CBRC on the Issuance
of Exclusive Financial Bond For Small and Micro Businesses by Bank of Rizhao
(
[2008] No. 679) and Decision of the
People’s Bank of China on Granting Administrative License
([2015]No.38), the
Company issued a special financial bond of RMB 1 billion in the national
inter-bank bond market in May and August 2015 respectively, totalling RMB 2
billion for a period of three years, with interest rate being respectively 5.2%
and 4.6%, specialized for the issuance of small and micro businesses loans to
support their development.

4.3.3     Issuance of interbank deposit certificates

During
the reporting period, the Company issued 30 interbank deposit certificates in the
national inter-bank bond market, with a total amount of RMB 12.13 billion and a
balance of RMB 4.86 billion. The term included one month, three months, six
months and one year, and the interest was between 2.83% and 3.25%.

Chapter 5
Directors, Supervisors, Senior Executives and Staff

5.1 Directors,
Supervisors and Senior Executives

5.1.1     Basic
Information

Name

Position

Gender

Age

Term of Office

Personal

shares (1 share)

 

Wang Sen

Chairman

Male

54

From 2013/07 till now

3,300,000

 

Zhu Gang

Director

Male

48

From 2015/03 till now

0

 

Hu Wenming

Director

Male

43

From 2013/07 till now

0

 

Xiang Feng

Director

Male

51

From 2013/07 till now

0

 

Ding Jie

Director

Male

50

From 2013/07 till now

0

 

Zheng Shusheng

Director

Male

61

From 2013/07 till now

0

 

Yang Baoyou

Director

Male

59

From 2013/07 till now

0

 

Sheng Mingxi

Independent Director

Female

58

From 2013/07 till now

0

 

Du Shuguang

Independent Director

Male

46

From 2013/07 till now

0

 

Yan Ming

Director and President

Male

46

From 2013/07 till now

0

 

Jiao Zizhu

Director and Vice President

Male

50

From 2013/07 till now

2,750,000

Yang Baofeng

Chairman of the Board of
  Supervisors(to be approved through the corporate governance procedure)

Male

38

From 2013/07 till now

165,000

 

Zhou Zhongjun

External Supervisor

Male

52

From 2013/07 till now

0

 

Guo Suquan

Supervisor

Male

61

From 2013/07 till now

0

 

Ye Cheng

Supervisor

Male

54

From 2013/07 till now

0

 

Gu Shouyue

Supervisor

Male

35

From 2013/07 till now

0

 

Ma Zuwen

Supervisor

Male

58

From 2013/07 till now

0

 

Ling Qinghai

Supervisor

Male

30

From 2013/07 till now

0

 

Huang Li

Supervisor and Chief Operating
  Officer

General Manager of the Operation
  Management Department

Female

43

From 2013/07 till now

275,000

 

Ma Hui

Supervisor and General Manager of
  the Financial Planning Department

Male

42

From 2013/07 till now

165,000

 

Huang Ling

Vice President

Female

53

From 2013/07 till now

2,750,000

Wang Yongjian

Vice President

Male

50

From 2013/07 till now

1,650,000

Yuan Lingling

Chief Accountant and Financial
  Administrator

Female

45

From 2013/07 till now

343,200

Sun Yixiang

Vice President

Male

52

From 2015/03 till now

0

Chen Ying

Secretary to the Board of Directors

Male

41

From 2013/07 till now

275,000

5.1.2 Positions held in shareholding
companies by directors and supervisors

Name

Name of the shareholding company

Position held in the shareholding
  company

Zhu Gang

Bank of Nanjing Co., Ltd.

Vice President

Hu Wenming

Rizhao Steel Group Co., LTD

General Manager of the Capital Operation Department

Xiang Feng

Rizhao Shanhaitian Urban Construction Group Co., Ltd

Chairman

Ding Jie

Rizhao Xingye Group Co., Ltd

Chairman

Zheng Shusheng

Shandong Lusheng Electric Power Equipment Co., Ltd

Chairman

Yang Baoyou

Rizhao Sanmu Group Co., Ltd

Chairman

Guo Suquan

Shandong Haina Real Estate Co., Ltd

Chairman

Ye Cheng

Landbridge Group
  Co., Ltd

Chairman

Gu Shouyue

Rizhao Lihua Real Estate Development Co., Ltd

Chairman

Ma Zuwen

Shandong Jinma Industrial Group Co., Ltd

President and
  Deputy Chairman

Ling Qinghai

Rizhao Linghai Sugar Co., Ltd

Vice President

5.1.3 Postions held in other
companies by independent directors and external supervisors

Name

Position in the
  Corporate

Position

Sheng Mingxi

Independent
  Director

Retired from ICBC Shandong Branch

Du Shuguang

Independent
  Director

Ph.D.in
  Economics

Zhou Zhongjun

External
  Supervisor

Director General of Rizhao Non-tax Revenue Bureau

5.1.4 Senior executives’ length of service in the financial industty and
their work divide

Name

Position

Length of service in the financial industry

Work division

Yan Ming

President

26 years

Presiding over the overall operation of the Bank, and sharing the
  responsibility of Office,,Financial Planning Department, Human Resources Department,
  Development Planning Department, Logistics Service Center and the work of
  branches.

Jiao Zizhu

Vice President

30 years

Presiding over the operation of Jinan Branch.

Huang Ling

Vice President

36 years

Presiding over the Operation Management department, Private Banking Business
  Department and the work of sub-branches under the administration of the third
  Party general branch.

Wang Yongjian

Vice President

28 years

Presiding over Financial Marketing Department, Trade Finance
  Department, Investment Banking and
  Asset Management Department, work of county banks and district and county
  sub-branches under Rizhao administration

Yuan Lingling

Chief Accountant

Financial Administrator

26 years

Assisting in charging the work of Financial Planning Department, and
  sharing responsibility for Science and Technology Department, Risk Management
  Department, and the work of sub-branch under the second Party general branch.

Sun Yixiang

Vice President

27 years

Assisting in charging the work of branches

5.1.5     Changes in directors,
supervisors and senior executives during the reporting period

During the reporting period, there were no changes in directors of the
5th Board of Directors of the Company.

During the reporting period, there were no changes in supervisors of the
5th Board of Supervisors of the Company.

During the reporting period, there were no changes in senior executives
of the Company.

5.1.6     Remuneration management
during the reporting period

5.1.6.1 Remuneration management
and decision-making prodedure

The board of directors has set up the Remuneration and Nomination
Committee, which is mainly responsible for preparing the procedures and
standards for choosing and appointing the directors and senior executives of
the Company, conduting a preliminary examination of the qualifications and
conditions of the directors and senior executives, and drawing up a set of
remuneration policy and plan for them. It is in charge of reviewing the Company’s remuneration management
system and policy and formulating a remuneration plan for directors and senior
executives; reviewing the annual remuneration expenditure plan, and submitting
the remuneration plan proposal to the board of directors for deliberation and
approval.

The Remuneration and Nomination Committee comprises three to five
directors, including one independent director.

5.1.6.2 Remuneration policy and
its performance

5.1.6.2.1      Remuneration policy

In accordance with the relevant provisions of the CBRC’s Guidelines on the Supervision of Prudent
Remuneration of Commercial Banks
and the Measures for the Performance Evaluation of the Branches of Bank of
Rizhao in 2016
, and on the basis of the distribution principle of “being fair and reasonable,
focusing on efficiency, distribution according to work, more pay for more
work”, the Company’s board of directors formulates and implements the
assessment program of the executives, while the management layer is responsible
for other personnel. Externally, the Company’s remuneration level has a certain
degree of market competitiveness; internally, it reflects the post value and
internal fairness.

The remuneration system consists of basic remuneration, performance
remuneration, bonus and welfare benefits, etc. The basic remuneration is
determined according to factors such as the employee’s labor input, the
operating responsibility and the risk, while the performance remuneration and
bonus are paid according to the result of comprehensive evaluation. For the
executives, there is a delay in paying part of their performance remuneration
and bonus.

5.1.6.2.2      Remuneration
performance of the staff

The Remuneration and Nomination Committee urges the management layer to
conscientiously implement the distribution principles set by the shareholders’
meeting and the board of directors, and strictly supervises the management
layer conducting payment of remuneration in accordance with the 2016 Remuneration Distribution Scheme for
Staff of Bank of Rizhao
.

5.1.6.2.3      Annual remuneration
for the directors, supervisors and senior executives

The basic remuneration standard of the executives is determined
according to the Company’s Measures for Remuneration
Payment for Senior Management Layer
and 2016
Remuneration Distribution Scheme for Staff of Bank of Rizhao
. The board of
directors will determine the total amount of the remuneration on the basis of
the results of annual assessment of them. During the reporting period, there
were 12 directors, supervisors and senior executives who received remuneration
from the Company, including the chairman, the president, the chairman of the
board of supervisors, 5 vice presidents, the chief accountant, the secretary to
the board of directors, and 2 supervisors on behalf of the staff.

According to the Measures for
Remuneration Payment for Senior Management Layer
, the annual performance
remuneration is calculated on the basis of the outperformance in achieving annual
business objectives and is paid in three years. The payment of annual bonus of
2013-2015 was postponed to 2016. Remuneration of other senior executives is
paid in proportion to the highest annual remuneration that an executive can
get. According to the Proposal to
Allowance of Independent Directors
reviewed and approved by the board of
directors, annual allowance of the independent directors is RMB 80,000 (before
tax)/person. According to the requirements, the Bank’s senior executives’
remuneration management and operating performance assessment should be reported
to State-owned Assets Supervision and Administration Commission of Rizhao
Municipal Government for check and ratification, therefore, by the end of the
reporting period, the 2016 pre-tax remuneration standard for the Company’s
senior executives had not been checked and ratified.

The directors, supervisors and external supervisors who take office in
the shareholders’ units are not remunerated by the Company. They are paid by
their respective units.

5.2 The staff

At the end of the reporting period, the total number of regular
employees in the Company was 1856. Among them, 165 were in middle and high
ranking positions, occupying 9% of the employees; 1401 had a bacholer’s degree
or above, occupying 75%; 344 had an associate degree, occupying 19%; 111 had
technical secondary school education or below, occupying 6%. The number of
staff who had early retirement was 73.

Chapter 6 Corporate Governance

6.1 Overview
of corporate governance

During the reporting period, the
Company further improved corporate governance, and revised its Articles of Association in accordance
with Guidance on Corporate Governance of
Commercial Banks
, Guidance for the
Work of the Board of Supervisors of Commercial Banks
and regulatory
requirements. The Company continued to strengthen system construction, and
earnestly promoted the implementation of strategic plan. The corporate
governance was further standardized, and the strategic decision-making function
of the board of directors and the supervision function of the board of
supervisors were notably improved.

6.1.1     Shareholders and shareholders’
meeting

During the reporting period, the
Company held the shareholders’ meeting in strict accordance with the laws
regulations and its Articles of
Association
, so that the shareholders were able to fully exercise their
rights. The shareholders’ meeting had the legal opinion issued by lawyers. In
order to ensure the shareholders’ rights to know and to participate, the
Company had sent financial statements to the shareholders, directors and
supervisors on a quarterly basis.

6.1.2     Directors and the board of
directors

The directors of the Company are
natural persons, and they do not need to hold shares of the Company. The
Company’s directors’ eligibility conforms to the provisions of the Company Law of the People’s Republic of
China
and Law of the People’s
Republic of China on Commercial Banks
as well as the CBRC requirements that
the directors should be qualified with necessary knowledge and competence to
perform their duties and match the conditions prescribed by CBRC. Directors are
elected and changed at the shareholders’ meeting, with a term of office of
three years, and a director may serve consecutive terms by re-election and
re-appointment.

During the reporting period, the
fifth board of directors convened board meetings in strict accordance with the Rules of Procedure of the Board of Directors.
The directors abided by the relevant laws and regulations and the Articles of
Association, earnestly performed their duties, actively attended board
meetings, participated in the research and decision-making of major issues of
the Company, and were dedicated to maintaining the interests of the company and
all shareholders. Every director would entrust other directors to vote on
behalf of him/her in writing if he/she was unable to attend the board meetings
in person.

During the reporting period, the
Board of Directors had set up four special committees: Strategy Committee, Risk
Management Committee,
Audit
and Connected Transactions Control Committee, and Remuneration and Nomination
Committee, which are all composed of the directors, and their work was carried
out in accordance with the Articles of
Association
.

6.1.3     Supervisors and the board
of supervisors

The Supervisors of the Company are
responsible to all shareholders, and are accountable for overseeing the
legality and compliance of the directors, President and other senior executives
in performing their duties. They work attentively to protect the legitimate
rights and interests of the Company and all shareholders.

During the reporting period, the
fifth board of supervisors convened meetings according to the rules of
procedure. All the supervisors were able to take active part in meetings and
conscientiously perform their duties. Through strengthened supervisions on duty
performance, finance, internal control and risk, the supervision efficiency was
enhanced, the Company’s healthy and sustainable development was secured, and
the overall interests of the company and the shareholders were defended.

During the reporting period, the
board of supervisors had set up two special committees: the Supervision
Committee and the Nomination Committee, both of which were made up of more than
three supervisors, and their work was carried out in accordance with the
Company’s Articles of Association.

6.1.4     Information disclosure

During the reporting period, the
Company disclosed information in adherence to the principles of sufficiency, completeness,
accuracy and timeliness, which was in strict accordance with the requirements
of supervisory departments of all levels. The Company disclosed its 2015 Annual Report in its every
operational agency, and disclosed the abstract of this report in Financial Times and its own website, and
sent the Chinese and English versions widely to overseas agent banks.

6.1.5     Duty performance of
independent directors and external supervisors

During the reporting period, the Company’s
independent directors and external supervisors actively participated in
meetings, reviewed all proposals and gave their own opinions in accordance with
relevant laws and the Articles of
Association
. The independent directors attended
all previous board meetings, while the external supervisors attended all previous
supervision meetings, and attended all previous board meetings as nonvoting
attendees. They fulfilled their duties and played certain roles.

6.2 Organization
Structure

——Shareholders’ Meeting

1.   Board of Directors

2.   Board of Supervisors.

——Board of Directors

1.   Special committeesStrategy Committee, Risk Management Committee, Audit and Connected
Transactions Control Committee, Remuneration and Nomination Committee;

2.   Management Layer

——Board of Supervisors

Special committees: Supervision
Committee, Nomination Committee.

——Management Layer

1.   Committees:
Asset and Liability Management Committee, IT Management Committee, Loan
Ascertainment Board, Debt-offsetting Assets Management Committee, Financial
Review Committee, Investment Management Committee, Comprehensive Evaluation
Committee, Due Diligence Commission, Interbank Credit Committee, Business
Demand Decision Committee, Service Management Committee, Product Innovation
Committee, Internal Control And the Risk Management Committee;

2.   Offices and departments: office, Credit Management
Department, Asset Management Department, Financial Marketing Department,
Investment banking and Asset Management Department, Trade Finance Department,
Operation Management Department, Financial Planning Department, Risk Management
Department, Company Business Department, Private Banking Business Department,
Small Business Finance Department, Science and Technology Department, Audit
Department, Human Resources Department, Trade Union Office, Office of Board of
Supervisors, Development Planning Department, Discipline Inspection and
Supervision Office, Security Department;

3.   Branches: Qingdao Branch, Jinan Branch, Linyi Branch,
Weifang Branch, Jining Branch, Zaozhuang Branch, Weihai Branch, Business
Department of H.O., 56 sub-branches and Small Business Credit Center.

6.3 Branches and
Sub-branches

Name

Address

General Manager

Tel

Qingdao Branch of Bank of Rizhao

No.40 South Fuzhou Road, Qingdao

Yang
  Baofeng

0532-66773970

Qingdao Middle Hong Kong Road Sub-branch
  of Bank of Rizhao

No.87(A) Middle Hong Kong Road, Shinan District, Qingdao

Yu
  Shenjian

0532-68873217

Qingdao Development Zone Sub-branch of
  Bank of Rizhao

Frontage business outlet, 1st and 2nd floor of Jinling Shangzuo
  Building, No.427 East Changjinag Road, Economic and Technological Development
  Zone, Qingdao

Shang
  Jiangfeng

0532-86873975

Qingdao Jimo Sub-branch of Bank of
  Rizhao

No.88 Zhenhua Street, Jimo, Qingdao

Xie
  Zhiquan

0532-67723192

Qingdao Jiaozhou Sub-branchof Bank of
  Rizhao

No.223, 225 East Beijing Road, Jiaozhou, Qingdao

Xue
  Mingju

0532-82232616

Qingdao Huangdao Sub-branchof Bank of
  Rizhao

No. 226-1 East Zhuhai Road, Huangdao District, Qingdao

Liu
  Guibiao

0532-81731773

Qingdao Pingdu Sub-branch of Bank of
  Rizhao

No. 1-5 East Renmin Road, Pingdu, Qingdao

Zhou Zhanqin

0532-87355332

Jinan Branch of Bank of Rizhao

No. 176
  Second Dawei Road, Shizhong District, Jinan

Jiao Zizhu

0531-66669514

Jinan Jiefang Road Sub-branch of
  Bank of Rizhao

No. 159
  Jiefang Road, Lixia District, Jinan

Gao Tian

0531-81285711

Jinan Jiyang Sub-branch of Bank of
  Rizhao

No. 133
  Kaiyuan Street, Jiyang County, Jinan

Suo Huiting

0531-84257888

Jinan Huaiyin Sub-branch of Bank of
  Rizhao

No.263
  Zhangzhuang Road, Huaiyin District, Jinan

Yang Bin

0531-81253795

Jinan High-tech Sub-branch of Bank
  of Rizhao

Block
  B, Yinhe Building, No.2008 Xinluo Street, Innovation Zone, Jinan

Song Tao

0531-66695075

Jinan Pingyin Sub-branch of Bank of
  Rizhao

Ground
  floor, Maochang Yinzuo, Yanshan Road, Pingyin

Bi Hengyuan

0531-87669853

Jinan Changqing Sub-branch of Bank
  of Rizhao

Ground
  floor, Changtai Building, No. 8076 Daxue Road, Changqing District

Hao Lili

0531-66583906

Linyi Branch of Bank of Rizhao

No. 77 Xiaohe Road, Beicheng New
  District, Linyi

Zhang
  Qiusheng

0539-8729733

Linyi Fei County Sub-branch of Bank of
  Rizhao

No. 201 Heping Road, Fei County, Linyi

Liu Changjun

0539-5066518

East Linyi Sub-branch of Bank of Rizhao

No. 3246 Dongxing Road, Hedong District, Linyi

Sun Limin

0539-8721701

Central Linyi Sub-branch of Bank of
  Rizhao

No. 158 Jiefang Road, Lanshan
  District, Linyi

Lu Chao

0539-8721306

Linyi Junan Sub-branch of Bank of Rizhao

North section, Shiquan Road, Junan
  County, Linyi

Wang Jialiang

0539-7770606

Weifang Branch of Bank of Rizhao

No. 2716 East Shengli Street, Hi-tech Industrial Development Zone,
  Weifang

Guo
  Quanhai

0536-8069889

Weifang Zhucheng Sub-branch of Bank of
  Rizhao

Northwest corner of Heping Road and Fanrong Road, Zhucheng, Weifang

Sun
  Zengming

0536-6156976

Jining Branch of Bank of Rizhao

Wutaizha Road and Keyuan Road, Jining

Yang Jing

0537-5665567

Zaozhuang Branch of Bank of Rizhao

No. 26 West Wenhua Road, Shizhong District, Zaozhuang

Pan Qing

0632-3229789

Weihai Branch of Bank of Rizhao

No. 26 Shichang Avenue, Huancui District, Weihai

Huang
  Wei

0631-3569966

Business Department of H.O.of Bank of
  Rizhao

No. 197 Yantai Road, Rizhao

Zhuang
  Changqing

0633-8781469

Community Sub-branch for First Residential Area of Rizhao Municipal
  Government Office Workers

No. 219 Yantai Road, Rizhao

Pan Feng

0633-8015178

Donggang Sub-branch of Bank of Rizhao

No. 11 Middle Haiqu Road, Rizhao

Ge
  Changtao

0633-8222697

Taoluo Sub-branchof Bank of Rizhao

North Guoan Road(Ground Floor of Taoluo Traffic Management Station),
  Taoluo County, Rizhao

Yu
  Haitao

0633-2957699

Nanhu Sub-branch of Bank of Rizhao

East of Central Secondary School along the North-South Direction
  Street, Seat of Nanhu Government, Dongang District, Rizhao

Zhao Bingwei

0633-8585966

Gangkou Sub-branch of Bank of Rizhao

No. 94 Second Haibin Road, Rizhao

Li
  Zhimei

0633-8333685

Shijiu Sub-branch of Bank of Rizhao

East side of Fifth Haibin Road, Rizhao

Mou
  Shandong

0633-8334749

Lanshan Sub-branch of Bank of Rizhao

No. 41 Middle Lanshan Road, Lanshan District, Rizhao

Fei
  Rixu

0633-2619178

Anlan Sub-branch of Bank of Rizhao

West Side of Anlan Avenue and North side of East Lanshan Road, Lanshan
  District, Rizhao

Li
  Yingkui

0633-2611269

Beiguo Sub-branch of Bank of Rizhao

Zhangjiazhuang village Section, South Side of S342, seat of Beiguo
  Town Government, Lanshan District, Rizhao

Shen
  Tao

0633-2696988

Jufeng Sub-branch of Bank of Rizhao

North Side of S341, seat of Jufeng Town government, Lanshan District,
  Rizhao

Zhu Bin

0633-8633939

Zhonglou Sub-branch of Bank of Rizhao

Zhonglou Village, Zhonglou Town (50 meters west of Zhonglou Town
  Government), Lanshan District, Rizhao

Liu Zhujun

0633-6809966

New Urban District Sub-branch of Bank of
  Rizhao

Ground floor of Real Estate Trading Center, North Section of Yantai
  Road, Rizhao

Zhang
  Wei

0633-8781940

Yinhai Sub-branch of Bank of Rizhao

Second Huanghai Road and Fifth Haibin Road, Rizhao

Yuan
  Dunbing

0633-8332002

Second Haibin Road Sub-branch of Bank of
  Rizhao

Subsidiary frontage to the offcie building of Rizhao Port Group,Second
  Haibin Road, Rizhao

Tian
  Guanghui

0633-8336852

Gangcheng Sub-branch of Bank of Rizhao

No. 155 Middle Haiqu Road, Rizhao

Zhong
  Jie

0633-8222379

Zhaoyang Sub-branch of Bank of Rizhao

No. 29 Zhaoyang Road, Rizhao

Zhao
  Xulong

0633-8223507

Xinghai Sub-branch of Bank of Rizhao

No. 67 Xinghai Road, Rizhao

Fei
  Lichun

0633-8225364

Zhengyang Sub-branch of Bank of Rizhao

No. 30 Xinghai Road, Rizhao

Zang
  Yunwu

0633-8222928

Economic-Technological Development Area
  Sub-branch of Bank of Rizhao

West of Economic-Technological Development Area Management Council,
  West Tianjin Road, Rizhao

Yue
  Tao

0633-8334752

First Huanghai Road Sub-branch of Bank
  of Rizhao

Middle section, First Huanghai Road, Rizhao

Song
  Zuofeng

0633-8390929

Huiyang Road Sub-branch of Bank of
  Rizhao

East side of South Section of Huiyang Road, Rizhao

Li
  Wenhua

0633-3223333

Haiqu Sub-branch of Bank of Rizhao

35 Haiqu East Road, Rizhao

Teng
  Li

0633-8223192

Taiyangcheng Sub-branch of Bank of
  Rizhao

Taiyangcheng Market, Rizhao

Cui
  Tao

0633-8239113

Beijing Road Sub-branch of Bank of
  Rizhao

East side of Middle Section of Beijing Road, Rizhao

Zhang
  Jinquan

0633-8816259

High-Tech Sub-branch of Bank of Rizhao

West of Linyi Road and North of Juzhou Road, Rizhao

Zhang
  Yang

0633-8279009

Shanhaitian Sub-branch of Bank of Rizhao

No. 333 Bihai Road, Rizhao

Xu
  Xia

0633-8310969

Taian Road Sub-branch of Bank of Rizhao

No. 59 Yantai Road, Rizhao

Zhang
  Zongtuan

0633-8781846

Wulian Sub-branch of Bank of Rizhao

No. 101 Fuqiang Road, Wulian County, Rizhao

Lou
  Xinyuan

0633-5331038

Wulian Jietou Sub-branch of Bank of
  Rizhao

Ground floor of Jietou Community Service Center (West of S222, North
  of Fanhua Street), Wulian County, Rizhao

Wang
  Fang

0633-5238727

Shibei Sub-branch of Bank of Rizhao

C3-2 Huakai Jiayuan, north side of Yinhe Road, Chaohe Town, Wulian
  County, Rizhao

Shi
  Peiting

0633-5525789

Wulian Hongning Sub-branch of Bank of
  Rizhao

No. 58 Renmin Road, Wulian County, Rizhao

Li Caihong

0633-5238717

Ju County Sub-branch of Bank of Rizhao

No. 59 East Zhenxing Road, Ju County, Rizhao

Zhang
  Nianfeng

0633-7885666

Ju County Fulai Road Sub-branch of Bank
  of Rizhao

No. 36 Middle Fulai Road, Ju County, Rizhao

Zhang
  Liangsan

0633-7885667

Ju County Liuguanzhuang Sub-branch of
  Bank of Rizhao

No. 98 Liulan Road, Liuguanzhuang Town, Ju County, Rizhao

Wang
  Yuanyuan

0633-6780118

Ju County Qishan Sub-branch of Bank of
  Rizhao

North of Middle Section of Shangye Street, Qishan Town, Ju County,
  Rizhao

Li
  Jinbao

0633-7885660

Small Business Credit Center of Bank of
  Rizhao

No. 59 Yantai Road, Rizhao

Wang
  Huibin

0633-8182877

Heshan Sub-branch of Bank of Rizhao

Shanhehai Community, North of Hehai Road, West of G204Seat of Heshan Government, Donggang District, Rizhao

Feng Haiyan

0633-8530059

Yinhe Sub-branch of Bank of Rizhao

Zibo Road and Heze Road(1st Floor Frontage, West of North Gate of
  Yinhe Shopping Mall), Rizhao

Wang
  Xiangmei

0633-3689212

Hushan Sub-branch of Bank of Rizhao

North side of Shugang Road, 300 meters east of seat of Hushan Town
  Government

Shan
  Shining

0633-2669168

Fenshui Sub-branch of Bank of Rizhao

East side of Jinxiu Garden Community, West Shenglan Road and First
  Xiuzhenhe Road, Lanshan District, Rizhao

Xu
  Zhen

0633-2618620

Chapter 7    Overview of the Shareholders’ Meeting

7.1 Convening of the shareholders’ meeting

On May 10, 2016, the 16th Annual Shareholders’ Meeting was held. A total
number of 38 shareholders and shareholders’ representatives, who held
2,498,073,200 shares which account for the Company’s total sum of shares,
attended the meeting, which was in conformity with relevant laws, regulations
and the Articles of Association.

7.2 Resolutions approved by the shareholders’
meeting

The Company’s 16th Shareholders’ Meeting reviewed and
approved 2015 Annual Work Report of the
Board of Directors
, 2015 Annual Work
Report of the Board of Supervisors
, Report
on the Financial Budget Performance in 2015 and the Financial Drafted Budget in
2016
, Proposal to 2015 Profit
Distribution Plan
, Proposal to Change
Registered Capital
, Proposal to Amend
Articles of Association of BANK OF RIZHAO CO.,LTD
, Proposal to Review and Approve Capital Management Plan of BANK OF
RIZHAO CO.,LTD (2016-2020)
, Proposal
to Issue Tier-2 Capital Bond
.

7.3 The election and change of the
Company’s directors and supervisors

Please refer to the chapter of “Directors, Supervisors, Senior
Executives and Staff”.

Chapter 8    Report
of the Board of Directors

8.1 Business operations

8.1.1     Business scope

The Company’s business scope covers: taking public
deposits; issuing short, medium and long-term loans; handling settlement of
both domestic and overseas accounts; handling bills acceptance and discount;
issuing financial bond; acting for issuing, cashing and consigning
government bond; buying and selling government bond
and financial bond; offering interbank loan; card business; providing service
and guarantee of letter of credit; act for payment and receipt of money and for
the insurance business; providing safe keeping service; sale and purchase of
foreign exchange; other business approved by the banking supervision and
administration institutions of state council.

8.1.2     An analysis of the business operations
during the reporting period

In 2016, centering on the development theme of “strengthening
management, promoting transformation and enhancing efficiency”, the Company had
put across all aims and tasks, seeing a good start of the new 5-year plan and
“a new undertaking”.

8.1.2.1. Always put development as
the fundamental solution to problems, enhance the scale to a higher level and
maintain a leading position. In this year, with the newly increased loans of
RMB 6.7 billion and new investment of RMB 6.1 billion, the Company’s total
assets exceeded RMB 100 billion, reaching RMB 104.3 billion. The sources of
debt were more diversified, and an efficient active liability management
mechanism was gradually formed. Meanwhile, the Company managed to maintain a
leading position in the industry, with the deposits market share of 26%,
continuing to rank first; taxes of various kinds paid to the Treasury amounted
RMB 0.713 billion, ranking top 3 in Rizhao, which had been a prominent
contribution to stabilizing local economy and finance. Among 13 city commercial
banks under the administration of Shandong Office of China Banking Regulatory
Commission, Bank of Rizhao ranked third in terms of scales of assets, deposits
and loans, and net profit; besides, its profitability and income sustainability
continued to rank top; its public market credit rating rose to AA level. There
was also a steady progress in the development of the branches: Weihai Branch
officially opened, while the preparation for constructing Yantai Branch was on
the way. The strategic layout of “one base and two wings” was generally taking
shape.

8.1.2.2. Always put innovative
business as a new growth pole, which has given great support to market
expansion and operational efficiency. The Company continued to deepen the
strategic cooperation with Bank of Nanjing; through the implementation of
various measures, such as top-level design of the cooperation committee, on-site
connection toinvestment banking business, line communication of counterpart
business, the branches’ pairing support, interbank channel sharing, etc., the
assets operating and trading capacity was significantly improved and the
comprehensive financial service level was enhanced, which gave great support to
local entity economy and key projects. There were new breakthroughs in direct
financing business: the Company successfully registered debt financing plan of
RMB 1 billion in Beijing Financial Asset Exchange; the Company initiated the
first sub-fund of Rizhao equity investment guidance fund——industrial
development fund for the Industrial Park, and by the end of the year, it had
successfully put in RMB 0.358 billion. The innovative development of trade and
financial business: promoted and perfected solutions to financing business by
pledge of movables, won national “Top Ten Financial Products for Corporate Bussiness
Innovation Award”, innovatively launched products of “Pool Financing” series,
newly opened Tier 1 Forfaiting market buy business; for the first time entered
interbank foreign exchange market, and ranked 56.

8.1.2.3 Always put risk
elimination as a top priority and go all out to maintain the local economic and
financial stability. The Company held the “4.23” Bank-wide credit risk
prevention and control work conference; implemented senior level leaders’
package responsibility system to ensure clearance
established long-term mechanism for
problem credit consultation; carried out the work of cleaning and collecting
non-performing loans; resolutely fought against evasion of repayment of bank
loans; and became the pilot of debt-to-equity swap. The Company was all the
more strict and careful in credit management by hiring a professional
consulting firm to implement credit control and optimization project; carried
out customer classification management; largely improved examination and
approval efficiency by way of mobile approval and comprehensive credit line,
checking trade financing, “zombie enterprises”, pledge of movables and business
risks within the scope of the authorization of branches and sub-branches, so as
to achieve a multi-dimensional release of the credit risks. Besides, the
Corporate focused on maintaining the local economic and financial stability,
tided over difficulties with enterprises through offering mutual support. An
accumulated amount of RMB 140.7 billion of on-and-off-balance-sheet credit was
granted within Rizhao administration, which was a full performance of the
responsibility as the “People’s Own Bank”.

8.1.2.4 Always
put promoting transformation as a breakthrough in creating post-development
advantages, so that the financial service is constantly leveling up. The
Company strived to develop inclusive finance; exerted itself in supporting the
agricultural supply-side structural reform; continued to increase credit and
loan for “issues related to agriculture, farmer and rural area”. By the end of
the year, agriculture-related loan balance had reached RMB 12.2 billion, an
increase of RMB 1.2 billion compared with that of the beginning of the year.
The Company concentrated its efforts on promoting financial precision poverty
alleviation by offering loans of RMB 0.161 billion to the piled and registered
poor residents and poverty-reduction business entities; on exploring the new
model of innovative entrepreneurial financial service by setting up specialized
sub-branches for entrepreneurship and cooperating with the Communist Youth
League Rizhao Municipal Party Committee to promote “Loans for Youth’s
Innovative Small and Micro Businesses”, with the year’s accumulated amount of
916 entrepreneurial guaranteed loans of RMB 0.131 billion; on upgrading level
of service for small and micro businesses by innovatively issuing new products
such as “instant loan”, “business-easy loan”, “tax-easy loan”, “startup relay
loan”, “mortgage amplifying loan”, “annual verification loan”,
“insurance-assisted loan model” etc. , the loan balance of small and micro
businesses reaching RMB 28.5 billion by the end of the year, which met the
supervision requirements of “the growth rate of small and micro businesses
loans being higher than the average growth rate of all loans, the number of
loan-obtaining small and micro businesses being larger than that of the same
period last year, and the loan-obtaining rate of small and micro businesses
being higher than that of the same period last year” , and thus was awarded “National
Top Ten Banks for Innovatively Serving Small and Micro Businesses”; on
developing retail business by transforming to comprehensive development of
personal financial assets, officially operating wealth management center,
achieving new development in mobile finance, strengthening the marketing and
promotion of products of Financial Management, Precious Metal, Senior
Citizen-Exclusive, Sunshine Loan, House-easy Loan, Comprehensive Integral and
Housing Mortgage.12 sub-branches were newly opened or being prepared, while
4230 community financial service activities were carried out all year round,
covering nearly 300,000 residents.

8.1.2.5 Always
take the strong management as the guarantee of a long-term stabilized cause,
and promote normalization of strictly governing the Company in accordance with
the laws. The Company worked out a new 5-year strategic plan for 2016-2020, and
made clear the overall development idea of “One Vision, Two Orientations, Three
Breakthroughs, Four Doublings, Five Transformations and Ten Measures”. The
Overall Risk Management Plan started to be carried out, and the projects of
Credit Control Optimization, Market Risk Standards, Liquidity and Bank Account
Interest Rate Risk Consultation were completed. The asset-liability management
ranked top among the city commercial banks in Shandong. The Company promoted
the implementation of MPA (Macro Prudential Assessment) and its
standardization. Talent cultivation mechanism gradually improved, with the
Company continuing to hire professional agents to recruit 87 college graduates,
and 76 competent people of the same industry; The Company continued to promote
the “258” Talent Cultivate Programme, organized 194 trainings of various types
covering 12,900 participants, and steadily carried out the remuneration and
welfare distribution system optimization project. Moreover, the Company
constantly kept vigilant watch on Safety Operation, and strived to achieve 100%
safety by organizing monthly exams of case-prevention, conscientiously
implementing special action deployment of combating and controlling new types
of net-work crimes, and carrying out internal control compliance inspection.
The Company continued to stick firm to strictly governance in accordance with
the law, and seriously investigated and dealt with violations of disciplines
and laws, implemented executives’ personal related affairs reporting system,
worked out Regulations for the
Administration of Credit Control of Staff and Their Close Relatives
,
strengthened the supervision of party members and cadres; thanks to these
efforts, the Company was taking on a “well-behaved and well-disciplined” new
appearance.

8.1.2.6. Always take promoting
efficiency as a catalyst for the construction of working style, and the
internal and external development environment is optimized. By holding a
meeting of honest administration constructing and effectiveness building, the
Company worked out and released Ten Requirements for serving the base, and the
means of accountability of effectiveness building. The result of income
increase and expenditure reduction was outstanding, the connotation of economic
value-added evaluation was perfected, the asset quality evaluation efforts were
reinforced, and the project of “replacing business tax with value-added tax” was
successfully completed. The Company carried out leaner financial budget and
quota management, standardized centralized purchasing, strictly examined major
financial expenses and checked on expenditure, preventing waste and loss. It
further strengthened the work of Party building, and carried out the education
of “studies on the theoretical and practical issues of Party building” in a
down-to-earth way. It carried out series activities to mark the 95th
anniversary of the founding of the Party, awarded advanced grass-roots Party
organizations and outstanding Party members, held seminars to learn and
practice the principles of the Sixth Plenary Session of the 18th CPC Central
Committee, and faithfully implemented democratic centralism and the Party
committee central group studying system. The Company thoroughly assumed the
responsibility for and the oversight of the construction of the Party conduct
and integrity, ensured “two duties for one post” of the leading Party cadres,
organized tests to examine their knowledge of incorrupt governing virtue and
Party style and Party discipline, uninterruptedly took serious measures to
examine the style of work and notify without ease. Adhering to the organic
unification of strengthening Party building and corporate governance, Bank of
Rizhao was evaluated as “National Top City Commercial Bank for Corporate
Governance” by The Chinese Banker.

8.1.3     Risk management of group customer credit-committing business

The
Company consistently attaches importance to strengthening the risk management
of Group customer credit-committing business, taking it as a core content in
the Company’s overall risk management of credit-committing business. During the
reporting period, the Company continued to strengthen the control of the
concentration of credit-committing for single group customer in strict
accordance with the Guidelines on Risk
Management of Commercial Bank Group Customer Credit-committing Business
and
the prudential supervision requirements. At the end of the reporting period,
the concentration of credit-committing for single group customer was 12.33%,
which conformed to the requirements. First, the Company investigated and sorted
out the equity and guarantee relationship between the Group and the associated
customers, and figured out the information of the customer and its related
parties. Second, the Company enhanced the Group’s associated customers care and
monitoring in the credit risk management system, and strengthened unified
credit-committing management. In this system, it incorporated all the
associated customers into Group management, and distributed credit line for the
member enterprises of the Group in a unified way according to their business
and financial status, to put rigid constraints on them. Third, the Company implemented
the system of the lead manager responsible for group customer, under which
group customer could enjoy unified management and information sharing,
preventing the long credit risk. Fourth, the Company implemented review by
specially-assigned persons for group customer, so that these persons could get
an overall grasp of the Group’s business and financial status, to prevent
over-credit risk caused by information asymmetry. Fifth, the Company attached
great importance to the risk of connected transactions. It strictly controlled
the Group customer’s related transactions and paid close attention to unfair
transactions, so as to prevent enterprises from extracting funds for other
purposes. Sixth, the Company reinforced management after Group customer credit-committing.
It closely monitored the credit funds flow of the Group customer, which enabled
it to find problems in time and gave out alert and early warnings; besides, it
intensified monitoring over the Group customer operation and liquidity and give
out early warnings to the customer’s business through a variety of indicators
to improve their risk disposal capacity.

8.1.4     Various risks the Company face and the corresponding
countermeasures

The main risks confronting the Company included credit risk, market
risk, liquidity risk, operating risk, law and compliance risk, IT risk,
reputation risk, etc. Faced with the complicated economic environment in 2016,
the Bank took the initiative to monitor, identify and control all kinds of
risks, focused on preventing, controlling and relieving credit risks, went all
out to promote the construction of a comprehensive risk management system, and
constantly strengthened the use of risk management tools; therefore, the risk
control capacity was steadily enhanced and all kinds of key risks were
effectively controlled.

8.1.4.1. When dealing with credit risks, the Company
paid close attention to the clearance of non-performing loans, implemented
senior level leaders’ package responsibility system to ensure the clearance,
set up the long-term mechanism for problem credit consultation, resolutely
fought against evasion of repayment of bank loans, and implemented “lifelong
responsibility system” for non-performing loans. The Company held credit risk
prevention and control work conference, carried out tackling activities in the
“clearance season”, and promoted the efficient functioning of the risk
relieving work. The Company continuously searched for solutions to improve
financing business by pledge of movables, and actively enhanced its
development. The Company neither hesitated to offer loans nor feared offering
loans, earnestly acted in the spirit of a series of municipal government
meetings, shared a common fate with the local economy and faithfully shouldered
the responsibility of a local bank. The Company fully implemented general
credit-committing, which further intensified its unified credit-committing
management of customers and helped achieve a full identification and unified
control over the customers’ overall credit risks.

8.1.4.2. When dealing with the market risk, the Company
implemented the market risk standard building project, improved and refined the
market risk management framework, policy, mechanism and procedure that were in
line with the requirements of the new capital management regulation, and
clarified the market risk management functions of senior executives, competent
departments and related business departments. The Company incorporated foreign
exchange risk into the category of market risk monitoring, to perfect the
category of market risk management. The Company deepened the interbank
communication and cooperation within the industry, and accelerated capital
turnover as well as expands trading volume of the monetary market at the same
time when the financial channels were vigorously expanded. By adopting the
investment strategy of “shortening long terms and obtaining interest margin”,
the Company achieved high bond yields; meanwhile, it strengthened the
pre-judgement on the market return, and took the initiative to carry out bond
asset restructuring and optimization, which brought it high asset surplus.

8.1.4.3. When dealing with the operation risk, the
Company started the operation risk standard building project, comprehensively
and systematically sorting out 105 business and management procedures of all 20
departments, making clear position responsibilities and core positions in the
procedures, identifying key risk points and key control measures within the
procedures, and gradually establishing its operation risk control matrix. The
Company clarified the responsibilities of different departments in “three lines
of defense” of the operation risk prevention and control, and preliminarily set
up its operation risk and internal control system. The Company required the
staff to sign case- control liability statements layer by layer, fortified the
base of case-control work, strictly carried out all requirements on operation
risk and case-control by the supervision authorities, continued to stick to the
management principles of “operating with prudence and compliance, defending the
bottom line of risk”. The Company urged to sort out prohibitive regulations
within every position, and the staff were required to learn and take tests in
order to improve the case-control work and raise the staff’s consciousness of
law compliance.

8.1.4.4. When dealing with the liquidity risk, the
Company took full advantage of the strategic cooperation platform of Bank of
Nanjing to learn advanced management experiences, and utilized the active
liability measures such as financial bonds, large deposit certificates,
interbank deposit certificates and re-loans to rationally manipulate the
asset-liability structure. The Company used liquidity risk management tools to
carry out liquidity risk stress tests on a quarterly basis and to monitor the
implementation of liquidity risk limits indicator on a daily, monthly and
quarterly basis, so a liquidity risk management report is made every quarter;
besides, the Company carried out liquidity emergency drills and constantly
strengthened daily monitoring of liquidity risk. The Company set up 15 systems
including high-quality liquidity assets management method and financing
management method, optimized and perfected the limit index system, stress test and
financing management, and built the asset and liability management system to
realize the online operation of the static part of the system.

8.1.4.5. When dealing with the law and compliance risk,
the Company strengthened communication with the regulatory authorities,
clarified the overall requirements of the compliance risk monitoring report,
focused on the compliance risk points and gave out timely warning and forecast.
The Company established and improved internal rules and regulations and the
policy system, strengthened the system implementation mechanism, and strictly
enforced the system review mechanism of inter-department cross-examination and
joint checkup of major issues, which altogether ensured the standardization and
operability of newly released rules and regulations. In 2016, the Company had
an organized and coordinated review of 237 risk management systems and related
procedures and standards, and constantly improved its systems. The Company
actively participated in innovation business law and compliance demonstration,
took risk management pass forward, and ensured the legality and compliance of
the innovation business. In accordance with the authorization requirements of
“limited authorization, differentiated authorization, dynamic authorization,
reciprocity of power and responsibility”, the Company made the basic
authorization scheme of 2016 on the basis of full solicitation of opinions and
research on the authorization limit within the industry.

8.1.4.6. When dealing with the IT risk, the Company
adopted the IPGuard system to regulate the use and management of computers and
mobile storages, adopted the SOM system to regulate the system operation and
maintenance operations, and regularly upgraded the Symantec virus database to
enhance PC anti-virus capabilities. The Company had a strict control over
external network access devices and shielded wireless hotspots to ensure
information security. The Company optimized disaster recovery lines, made data
backup, improved the management and use of city-wide and remote disaster
recovery centers. It conducted emergency communication effectiveness testing to
enhance business continuity management, established outsourced database and
management accounts, and improved work procedures and enhanced outsourcing risk
prevention and control capacities according to regulatory guidelines.

8.1.4.7. When dealing with the
reputation risk, the Company urged every staff to raise the awareness of
precaution, paid higher attention to public opinion monitoring and reputation
risk management, made use of the network public opinion monitoring system to
make real-time monitoring of all kinds of public opinions in real time and to
submit the reputation risk management report on a regular basis; besides, there
were specially-assigned persons to keep the focus on guidance of key public
opinions, and they made timely reports to the superiors, so that these
situations would be properly handled. Thanks to the above-mentioned efforts, no
reputation risk events occurred. In virtue of the honorary titles such as “National
Civilized Unit”, “National Youth Civilization Sample”
“National Pioneer Worker” and “Top Thousand Model Units for Civilized
and Standard Service in China’s Bank Industry”, the Company continued to
enhance propaganda, and further established a good social image.

8.1.5     The completeness, rationality and validity of internal control system

In accordance with the Guidelines
on Internal Control of Commercial Banks
, the Company continued to
consolidate the internal control and prevention basis, adhered to the principle
of “internal control preceding, system first” for prudent operation,
strengthened system construction , and revised and improved 243 systems of the branches
and sub-branches, thus forming a unified
bank-wide system of rules and regulations that contained management system, operational
processes and product descriptions, which made the framework more complete. The
Company carried out activities of documents and systems study, laws and regulations on case prevention and
control, and prohibitive regulation test on a regular basis, to promote the
system study and implementation; strengthened the system control and put
on-line electronic seal, credit online
approval, off-site audit warning and other systems and functions into use, and
enhanced the risk prevention and control capabilities and conduct; carried out
internal control of the branches and central sub-branches and intensified
unannounced inspections on internal control of case prevention and control, which
enhanced the overall competence of internal control management. The Company
promoted governance in strict accordance with the laws and requirements,
implemented integral management of violations and individual reporting system
to strengthen staff and close relatives credit management, continued to
investigate transactions between staff to further improve their awareness of
compliance, risk, responsibility, and duty performance and optimize internal
control environment. With all these efforts, the corporate governance structure
and the duties and norms were made clear, internal control system was improved,
control measures became appropriate, and the supervision and redress mechanism
became effective to identify and control various risks. In general, the
internal control was in good condition.

8.1.6 Capital Management                                      RMB Thousand

Calculated according to the Capital Rules for Commercial
  Banks(Provisional)
released by China Banking Regulatory Commission:

Item

Dec 31, 2016

Net common equity tier 1 capital

7,834,650   

Additional tier 1
  capital

3,376

Net tier 1 capital

7,838,026   

Tier 2 capital

1,284,841   

Net capital

9,122,867

Total risk-weighted
  assets

85,561,353   

 Credit risk-weighted assets

79,225,154    

      On-balance-sheet
  risk-weighted assets

64,978,585

      Off-balance-sheet
  risk-weighted assets

14,246,569

      Counterparty credit risk
  exposure risk-weighted assets

 Market risk-weighted assets

517,376  

 Operational risk-weighted assets

5,818,823

Item

Dec 31, 2016

Common equity tier 1 capital adequacy ratio

9.16%

Tier 1 capital adequacy
  ratio

9.16%

Capital Adequacy ratio

10.66%

Note:

In
calculating capital requirements, the weighting method was adopted for credit
risk, the standard method was adopted for market risk, and the basic indicator
method was adopted for operational risk. During the reporting period, there
were no material changes in the calculating methods for credit risk, market
risk and operational risk and relevant capital requirements.

8.2 Business
Plan of 2017

8.2.1     Business target of 2017

8.2.1.1 An increase of RMB 6 billion of deposit, with its total amount
reaching over RMB 82 billion;

8.2.1.2. Broad-sense credit increases in accordance with the regulatory
requirements within the assets and liabilities proportional range, and
non-performing loan ratio is controlled within 3%.

8.2.1.3 Realize a profit of RMB 0.8 billion;

8.2.1.4 Risk regulation core index continues to reach the standard, while
the index change falls into a reasonable range.

8.2.1.5 Continuously enhance management, and enforce safe and steady
operation.

8.2.2     Main measures to be taken
in 2017

General work concept: Comprehensively
implement the guiding principles of the Eighteenth National Party Congress, the
third, fourth, fifth and sixth plenary sessions of the Eighteenth Central
Committee and a series of important speeches made by Secretary-General Xi
Jinping, thoroughly carry out the guiding principles of the economic working
and regulatory conferences of all levels, take the new strategic plan as the
guide, take “Strengthening the Head Office, Setting the Orientation, Overcoming
the Weaknesses” as the theme, take “Seven Promotions” as the support, make
concerted efforts to paint a new picture of innovative and specialized
development, and usher in the successful openings of the nineteenth National
Party Congress and Shandong Provincial Party Congress with outstanding
achievements.

Main work measures: first, stick to
seeking improvement in stability and unswervingly carry development forward;
second, strengthen the core business and promote financial service innovation;
third, integrate deeper into the local environment, and promote connection to
five strategies; fourth, be dedicated to strategic transformation, and promote
the upgrade of line features; fifth, go all out to relieve risks, and improve
assets quality; sixth, strengthen support and protection, and enhance
management quality and efficiency; seventh, comprehensively strengthen Party
building, and promote strict Bank governance in accordance with law.

8.3 Daily work of the board of directors during the
reporting period

8.3.1     Board meetings

and resolutions

On February 2, 2016, the Company held
the 25th session of the 5th board of directors, in which Proposal to Apply for Credit from Rizhao Branch of Industrial and
Commercial Bank of China
was reviewed and approved.

On February 29, 2016, the Company
held the 26th session of the 5th board of directors, in which 17 proposals were
reviewed and approved, including 2015
Annual Work Report of the Board of Directors, 2015 Business Report, Report on
the Financial Budget Performance in 2015 and the Financial Drafted Budget in
2016, Proposal to 2015 Profit Distribution Plan, Proposal to Change Registered
Capital, 2015 Annual Work Report of the Strategic Committee, 2015 Annual Work
Report of the Risk Management Committee, 2015 Annual Work Report of the Audit
and Connected Transactions Control Committee, 2015 Annual Work Report of the
Remuneration and Nominations Committee, 2015 Annual Report of BANK OF RIZHAO
CO., LTD, Proposal to Appoint Senior Executives of BANK OF RIZHAO CO., LTD,
Proposal to Review and Approve Estimated Limit of Related Parties’ Connected
Transactions in 2016, Proposal to Review and Approve Capital Management Plan of
BANK OF RIZHAO CO., LTD (2016-2020), Proposal to Issue Tier 2 Capital Bonds,
Proposal to House Property Disposal, Proposal to Review and Approve Stress
Testing Management Policy of Bank of Rizhao, and Proposal to Hold the 16th Shareholder’s
Meeting,
etc.

On March 11, 2016, the Company held
the 27th session of the 5th board of directors, in which Proposal to Shareholders’ Pledge of the Shares of the Bank They Hold
was reviewed and approved.

On April 18, 2016, the Company held the 28th
session of the 5th board of directors, in which Proposal to 2016 Institutional Development Planning of BANK OF RIZHAO
CO., LTD
was reviewed and approved.

On May 5, 2016, the Company held the 29th session
of the 5th board of directors, in which Proposal
to Shareholders’ Pledge of the Shares of the Bank They Hold
was reviewed
and approved.

On June 18, 2016, the Company held
the 30th session of the 5th board of directors, in which Proposal to Change of Equity of the Rural Bank was reviewed and
approved.

On June 29, 2016, the Company held
the 31th session of the 5th board of directors, in which Proposal to the Transfer of the Bank’s Shares Held by Rizhao Lanshan
Quanxiang Real Estate Development Co., Ltd
was reviewed and approved.

On August 15, 2016, the Company held
the 32th session of the 5th board of directors, in which Proposal to the Transfer of the Bank’s Shares Held by Rizhao Lihua Real Estate Development Co., Ltd
was reviewed and approved.

On September 23, 2016, the Company
held the 33th session of the 5th board of directors, in which Proposal to Shareholders’ Pledge of the
Shares of the Bank They Hold
was reviewed and approved.

On November 7, 2016, the Company held
the 34th session of the 5th board of directors, in which Proposal to Shareholders’ Pledge of the Shares of the Bank They Hold
was reviewed and approved.

On December 26, 2016, the Company
held the 35th session of the 5th board of directors, in which Business Report of the First Three Quarters
of 2016, Proposal to Hire an Accounting Firm to Audit 2016 Annual Financial
Report, Proposal to the Transfer of the Bank’s Shares Held by Shandong Yibu
Group Co., Ltd, Proposal to the Transfer of the Bank’s Shares Held by Rizhao
Chengjian Group
were reviewed and approved.

8.3.2     Implementation of the resolutions
passed at the shareholders’ meeting by the board of directors

According to the 2015 Profit Distribution Plan reviewed and approved in the 16th
Shareholders’ Meeting, the board of directors carried out divident
distribution. It distributed 249,807,300 bonus shares and cash dividends of RMB
62,451,800 to all shareholders, based on the proportion of 1 bonus share and
RMB 0.25 for every 10 shares (natural person shareholders are responsible for
their individual income tax).

8.3.3     Convening of the special
committees of the board of directors

During the reporting period, the
board of directors’ Strategic Committee, Audit and Connected Transactions
Control Committee, Risk Management Committee and Remuneration and Nominations
Committee held 2 meetings respectively.

8.4 2016 Profit Distribution Pre-plan

According to the standard
unqualified opinion audit report issued by Shu Lun Pan CPA Co., Ltd (Special
General Partnership), in 2016, the holding corporation realized a profit before
tax of RMB 833,850,000 and a net profit of RMB 672,580,000. The 2016 Profit
Distribution Pre-plan is as flows:

8.4.1.    To withdraw the statutory surplus reserve of
RMB 67,260,000 according to the proportion of 10% of this year’s net profit;

8.4.2.    To withdraw the discretionary surplus
reserve of RMB 67,260,000 according to the proportion of 10% of this year’s net
profit;

8.4.3.    To withdraw the general risk reserve of
197,110,000;

8.4.4 After the aforesaid distribution
plus the undistributed profit at the beginning of the year, the distributable
profit for the shareholders was RMB 1243,450,000. The above-mentioned profit
distribution pre-plan should be reviewed and approved by the Bank’s 17th
Shareholders’ Meeting.

9.    Report
of the Board of Supervisors

9.1 Meetings
of the board of supervisors and resolutions during the reporting period

On February 29, 2016, the Company held the 9th session of the 5th board of supervisors, in
which 12 proposals were
reviewed and approved, including 2015 Annual Work Report of the Board of
Supervisors, 2015 Annual Work Report of the Supervision Committee, 2015 Annual
Work Report of the Nominations Committee, Proposal to Review 2015 Audit Report,
2015 Annual Financial Work Report and Profit Distribution Plan, Evaluation
Opinions on the Duty of Performance of Directors and Senior Executives for 2015
by the Board of Supervisors, Evaluation Opinions on the Duty of Performance of
Supervisors for 2015 by the Board of Supervisors, Proposal to the Estimated
Limit of Related Parties’ Connected Transactions in 2017, Audit Opinions of
Bank of Rizhao on Capital and Liquidity Risk Management, Proposal to Capital
Management Plan of BANK OF RIZHAO CO., LTD (2016-2020), Proposal to Issue Tier
2 Capital Bonds, Proposal to House Property Disposal
.

On October 17, the
Company held the 10th session of the 5th board of supervisors, in which
Financial Report of the First Three Quarters
of 2016 of Bank of Rizhao
and Internal
Audit Work Report of the First Three Quarters of 2016
were reviewed and approved.

On November 17, the
Company held the 11th session of the 5th board of supervisors, in which
Connected Transactions Report of the First
Three Quarters of 2016 of Bank of Rizhao
and Risk Management Report of the First Three Quarters of 2016 of Bank of
Rizhao
were reviewed and approved.

On December 26, 2016, the Company held the 12th session of the 5th board of supervisors, in
which Proposal to Hire an Accounting Firm
to Audit 2016 Annual Financial Report
and Report on Rectification by Implementing Banking Regulatory Bureau’s
Spot Inspection Opinions
were reviewed and approved.

During the
reporting period, the board of supervisors’ supervision committee held one
meeting, and the nominations committee held one meeting.

9.2 The
Board of Supervisors’s independent opinions on following issues

During the reporting period,
the supervisors attended all shareholders’ meetings, and attends all board
meetings as a nonvoting delegate. They had supervised the duty performance of
directors and senior executives.

9.2.1     The Company’s lawful and independent
operation

In 2016, the Company operated by law, and its
decision-making procedures were in accordance with the Corporate Law of the People’s Republic of China, the Commercial Bank Law of the Peoples’ Republic
of China
, and the Articles of
Association
. The directors and senior executives all conscientiously
performed their duties, and no illegal acts or behaviors that damaged the Bank’s
interests were found.

9.2.2     Authenticity of the financial
report
of the Company

Shu Lun Pan CPA Co., Ltd (Special General
Partnership)audited the Company’s financial status and business performance in
2016. The board of supervisors had carefully reviewed the 2016 Annual Audit
Report issued by Shu Lun Pan CPA Co., Ltd and examined the Bank’s financial
status in 2016, based on which the board of supervisors believed that the
issued standard unqualified opinion audit
report had faithfully and objectively shown the Company’s financial status and
business performance.

9.2.3     The Company’s connected transactions

During the reporting period, the Company had
neither damaged the interests of shareholders nor caused the loss of assets;
the connected transactions are fair and didn’t damage the Bank’s interests.

Chapter 10 Report of Corporate Social Responsibilities

During the reporting period, the
Company vigorously implemented its declaration on Corporate Social
Responsibility——“be an excellent corporate citizen and take responsibility as a
leading principle in the future”, strengthened corporate social responsibility
management, improved corporate governance mechanism, fortified comprehensive
risk management, fulfilled the organic combination between corporate social
responsibility and daily business, and achieved outstanding economic,
environmental and social benefits.

10.1      Supporting
the real economy and going all out to create synergy between the Company’s own
development and local major strategies. The Company always adhered to the
market positioning of “keeping a foothold in local economy, supporting small
and medium enterprises, and serving the general public”, took serving the local
real economy as its responsibility, and stayed in the front rank in forming
synergy between finance and local economic strategies. The Company implemented
the Rizhao municipal government’s action deployment of “overcoming all
difficulties in the fourth quarter and working diligently for one hundred
days”, thoroughly carried out activities of “financial service business
hundred-day action” and “corporate visit”, continued to promote 46 action plans
of “breaking out of the development zones and gathering strength to attract
investments, talents and advanced technologies”, developed and implemented 35
promotion plans of “enriching the city by means of tourism”, innovatively
offered tourism financial services with various financing capital of RMB 0.65
billion, and established a specialized sub-branch for serving the tourism of
Shanhaitian, and walked in the front rank in serving local economy.

10.2      Supporting
the construction of people’s livelihood and vigorously developing inclusive
finance. Throughout the year, the accumulated number of petty loans was 1715
with the total amount reaching RMB 0.764 billion, and the balance was RMB 0.75
billion. The secured business discount petty loans issued to 916 accounts of
the laid-off unemployment, youth entrepreneurship, women’s entrepreneurship,
farmer entrepreneurs accumulated to RMB 0.131 billion and the balance was RMB
0.133 billion. Besides, the “Sunshine·House Easy Loan”, “Sunshine·Security Easy
Loan” and the personal housing provident fund discount loan were provided to
satisfy the customers’ need for collateral and secured personal consumption
loans, so as to meet different customer demands. The Bank worked hard to
establish the personal consumption loan brand of the Sunshine series, and the
accumulated number of loans of this series reached 4839 with the total amount
reaching RMB 0.89 billion, and the balance was RMB 1.305 billion, an increase
of RMB 0.183 billion compared with the beginning of the year. The Bank gave
strong support to county economy and the development related to agriculture,
rural areas and farmers by releasing specialized businesses such as “loan for
promoting agricultural development”, and by the end of the year, the loan
balance of SMEs was RMB 28.478 billion, an increase of RMB 5.241 billion
compared with the beginning of the year, while the agriculture-related loan
balance was RMB 12.204 billion, an increase of RMB 1.194 billion compared with
the beginning of the year.

10.3      Fulfilling
eco-responsibility and promoting the transformation to “Green Bank”. The Company vigorously developed green finance, continued
to increase funds in green fields, and organically incorporated low-carbon,
energy-saving and environmental protection into credit policy and business
philosophy. By the end of the year, the Bank had offered green energy-saving
emission reduction loans of RMB 0.3 billion.
The Company actively
carried out green operations, and strived to reduce the influence of its own
operations on the environment. In 2016, the Bank increased science and
technology investment, speeded up the pace of system development, completed 66
sci-tech projects which included contract management, mobile application
platform and the new version of E-bank, improved the customer service business
category, and effectively enhanced the management efficiency. The Company
accelerated the construction of e-bank products and channels by successively
putting business functions or products optimization including Tenpay Wechat
payment, e-bank centralized contract, contract and update of SMS account notice
to be sent to Wechat, personal e-bank version 3.0, electronic signature, People’s
Bank MTPS mobile payment, mobile phone HCE cloud payment into online operation.
The number of issued Huanghai Card reached 1,108,000, while the number of
e-bank and mobile banking customers reached 314,800, and e-bank account
replacement rate was 90.49%. Promote promoted income increase and expenditure
reduction, and advocated thriftiness against extravagance and waste.

10.4      Constantly
improving the regulatory framework and conscientiously protecting the rights
and interests of consumers. The Company had released Measures to Protect
Consumers’ Rights of Bank of Rizhao, established and improved the consumer
protection regulatory mechanism and security mechanism; strengthened the public
and private inspection on service, standardized the service complaint
procedure, strictly implemented the first inquiry responsibility system and
properly handled customer complaints; the Company achieved a full coverage of
integration of service and marketing over all 59 outlets, and carried out
service etiquette training in Head Office. The Company promoted publicity and
education, and the branches and sub-branches held over 100 activities themed on
“International Day for Consumers’ Financial Rights and Interests” during the
“3.15” period. The Company also undertook the establishment of “League of
Little Messengers for Publicizing Financial Knowledge” and Introduction and
Popularization of Financial Knowledge to Teenagers, which was hosted by the
Financial Consumer Protection Association of People’s Bank of China. The
Company strictly controlled the sales of personal investment financial
products, completed the construction of “Video and Audio Recording” and the
specialized sales area, so as to protect the legitimate rights and interests of
consumers.

10.5      Enhancing
corporate culture construction, and vigorously participating in public welfare
programs. The Company took construction of spiritual civilization as the total
starting pointcontinued to carry out work of “Party branches striving to be
pioneering units, Party members striving to bepioneering workers and the masses
striving to build Star families”, and wasgranted with two state-level awards:
“National Workers Pioneer” and “Top Thousand Model Units for Civilized and
Standard Service in China’s Bank Industry”, as well as other 110 awards of
different levels throughout the year. The Company conscientiously performed its
social responsibilities by holding the second Ethics Forum of the city-wide
bank industry, and carrying out a series of activities including “Shouldering
Package Responsibilities and Contacting Those in Need”, “Kind 1-Day Donation”,
sending support to those in difficulties, social caring, learning from Leifeng,
blood donation, donating money to build a youth palace, building a 24-hour
self-service library and setting “staff fitness day”,etc.

Chapter 11 Significant
Events

11.1      During
the reporting period, the Company’s staff earnestly and strictly carried out
all rules and regulations, and there were no criminal cases, serious mistakes
or other losses.

11.2      During
the reporting period, there were no major acquisitions, mergers, or assets sale
in the Company.

11.3      Contingencies
and Commitments

11.3.1   The
Company’s commitment of capital expenditure during the reporting period

                                              (RMB
Thousand)

Item

Contract Amount

Dec
   31, 2016

Amount Paid

Amount Unpaid

Office System and Business Occupancy

285,554

134,923

150,631

Total

285,554

134,923

150,631

11.3.2   The Company’s Commitment of Lease during the
reporting period

                                             (RMB
Thousand)

Item

Dec 31, 2016

Within
  one year
including one year)

31,863

One
  to two years(including two years)

30,521

Two
  to three years(including three years)

28,473

Over three years

145,839

Total

236,696

11.3.3   The Company’s Pledged Assets during the
Reporting Period

(RMB
Thousand)

Item

Dec 31, 2016

Bond Investment

8,830,210

Total

8,830,210

11.3.4   During the reporting period, there were
several unsettled lawsuits that occurred in the Company’s normal business,
which had little impact on the Bank.

11.4.     Major Connected Transactions

The Company’s connected
transactions mainly included deposits and loans of related parties, and
interbank business. All connected transactions were carried out based on fair
market price.

11.4.1   The Company’s related parties that were in a
control relationship at the end of the reporting period

Name of the
   Company

Place of
   registration

Main business

Type

Shareholding
   ratio

Relationship
   with the Bank

Legal
   representative

Jining High-Tech County Bank

Limited company

Shandong

Banking
  business

Joint stock
  company

51%

Subsidiary

Chen Xiangmi

11.4.2   The Company’s loans to the parent companies
which held over 5% of the shares at the end of the reporting period

                                                   
(RMB Thousand)

Name
   of the Shareholder

Stock
   option (Ten thousand)

Balance of Loans at the end of 2016

Rizhao Port Group Co., Ltd

49,500

20,000

Rizhao Steel Holding Group Co., Ltd

26,950

209,110

Rizhao
  Xingye Group Co., Ltd

18,612

30,000

11.4.3   The Company’s loans to the holding
subsidiaries which held over 5% of the shares at the end of the reporting
period

(RMB Thousand)

Name of the
  Shareholder

Stock
  option(Ten thousand)

Name of the holding subsidiary

At the end
  of 2016

Balance of
  loans

Rizhao Port Group Co., Ltd

49,500

Shandong Harbour Construction Group Co., Ltd

130,000

Rizhao
  Port Group Logistics Co., Ltd

30,000

Rizhao
  Gangda Shipbuilding Industry Co., Ltd

30,000

Rizhao Shanhaitian Urban Construction Group Co., Ltd

19,160.90

Rizhao
  Anyfun Home Construction Co., Ltd

90,000

Rizhao Xingye Group Co., Ltd

18,612

Rizhao
  Xingye Import and Export Co., Ltd

11,900

Rizhao
  Friendship Store Co., Ltd

31,000

Rizhao
  Xingye Real Estate Development Co., Ltd

460,000

11.4.4   By the end of the reporting period, there
were no non-performing loans in the Company’s connected transactions.

11.4.5   The Company’s funds in connected transactions

(RMB Thousand)

Trading funds

2016 year-end balance

ratio

Loans of the related parties

2,972,357

Occupied 5.65% of the total loans

Deposits of the related parties

1,227,048

Occupied 1.60% of the total loans

Bonds payable

510,000

Occupying 19.62% of the total bonds payable

Interbank negotiable certificates of deposit payable

100,000

Occupying 2.06% of the total interbank
  negotiable certificates of deposit payable

11.5      During the reporting period, none of the
Company’s directors, supervisors or senior executives were subject to
punishment by related regulatory and judicial departments.

Chapter 12 Financial
Report

12.1      Audit Opinion

The Company’s 2016
Financial and Accounting Report had been audited by Shu Lun Pan CPA Co., Ltd (Special
General Partnership) in accordance with domestic auditing standard. CPAs Sun
Xiaoshuang and Yang Junyu issued the Audit Report “
信會師報字〔2017〕第ZH30021” with an unqualified opinion.

12.2      Financial Statements

See
attached file

Chapter 13 File Catalog for Future Reference

13.1       Original Text of the Annual Report with
the Company’s Chairman’s signature.

13.2       Accounting statement with the signatures
of legal representative, President and Financial Administrator.

13.3       Original copy of the audit report with
the seal of the accounting firm as well as the signatures and seals of the
CPAs.

13.4       Articles
of Association of BANK of RIZHAO CO., LTD.

     

BANK OF RIZHAO CO., LTD.

Audit
Report

Audit Report

To all shareholders of
BANK OF RIZHAO CO., LTD:

We have audited the
attached Audit Report of BANK OF RIZHAO CO., LTD (hereinafter referred to as
“the Company”), including the Consolidated and the Company Balance Sheet of
December 31, 2016, Consolidated and the Company Income Statement of 2016,
Consolidated and the Company Cash Flow Statement of 2016, Consolidated and the
Company Change Statement of Owner’s Equity of 2016, and notes of the Financial
Statements.

Directors’ Responsibility
for the Financial Statements

The Directors of the
Company are responsible for the preparation of financial statements (1) that
give a true and fair view in accordance with the Accounting Standards for Business Enterprises, and (2) for designing,
implementing and maintaining internal control that is necessary to enable the
preparation of financial statements that are free from material misstatements,
whether due to fraud or error.

CPAs’ Responsibility

Our responsibility is to
express an opinion on those consolidated financial statements based on our own
audit. We conducted out audit in accordance with the Auditing Criterion for
Chinese Registered Accountant, which requires that we comply with ethical
requirements and plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.

An audit involves
performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected
depend on the CPAs’ judgement, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the CPAs consider internal
control relevant to the entity’s preparation of consolidated financial
statements that give a true and fair view in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used
and the rationality of accounting estimates made by the directors, as well as
evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit opinion.

Audit Opinion

In our opinion, the financial statements give a true
and fair view of the financial positions of the Company as at December 31 2016,
and of the Company’s financial performance and cash flows for the year then
ended in accordance with Accounting
Standards for Business Enterprises
.

Shu Lun Pan CPA Co., Ltd                                                Chinese Certified
Public Accountant:

(Special General Partnership)

                      Chinese Certified Public
Accountant:

Shanghai, China                          April, 2017

 

attachment:Bank of Rizhao 2016 Annual Report.pdf

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