In the first half of 2011, loans extended to local government financing vehicles and overcapacity industries accounted for a smaller share of the Bank of China's overall credit portfolio, while growth in real estate loans dropped significantly compared to the same period of last year. Asset quality remained stable.

In the bank, the management of loans extended to local government financing vehicles was enhanced, which involved strictly controlling the total amount and allocation of loans through limit management and strictly carrying out regulatory requirements. The bank regulated standards and procedures for the clearance and transformation of outstanding local government financing vehicles loans, took steps to identify any risks arising from such loans and adopted various measures to mitigate such risks.

The bank managed and controlled its real estate credit exposure effectively. It implemented the state's real estate regulatory policies and requirements, made an in-depth study of credits granted to the construction of government-subsidized housing for the Comfortable Housing Project, specifying management requirements, and organized stress testing on real estate loans to identify risks in a timely manner.

As at the end of June 2011, identified impaired loans totaled 62.694 billion yuan, while the ratio of identified impaired loans to total loans stood at 1.01 percent, decreases of 1.182 billion yuan and 0.12 percentage point from the prior year-end, respectively. The allowance for loan impairment losses to non-performing loans was 217.29 percent, up 20.62 percentage points over the prior year-end. The Bank's credit cost was 0.43 percent, down 0.01 percentage point compared with the first half of 2010.

Dagong International Credit Rating Co Ltd (Dagong International) has evaluated the Bank's Convertible Bonds and provided an updated credit rating report (Da Gong Bao SD [2011] No 53) which assigned an AAA counterparty credit rating to the Bank and an AAA credit rating to its Convertible Bonds. Dagong International believes that the Bank has a significantly strong ability to repay its issued bonds.